Marilou van Golstein Brouwers’ expertise
Marilou van Golstein Brouwers is Managing Director of Triodos Investment Management BV, and one of the world’s leading authorities on microfinance. She started working for Triodos Bank in 1990. She was a member of the Group of Advisors for the United Nations Year of Microcredit in 2004/2005 and of the Executive Committee of CCAP from 2003-2008. She is currently on the Board of Trustees of Women’s World Banking, the International Association of Microfinance Investors in Microfinance (IAMFI), BRAC Afghanistan Bank and Kashf Microfinance Bank in Pakistan.
Much has changed since Triodos started its role as investor in the microfinance sector in 1994 but the pace of change has increased significantly in recent times. Whether it’s the environment, food or finance, profound crises have converged with far reaching consequences for individuals and industry across the world. Microfinance and its customers are no exception. But in 2009, the impact of these developments has been felt in very different ways across continents and regions, between countries and even between microfinance institutions (MFIs) themselves.
In this interview Marilou van Golstein Brouwers considers what all this turmoil really means for the future of microfinance, the challenges it throws up for the industry, and Triodos Bank’s role in it all.
What did the financial crisis mean for microfinance in 2009?
The impact of the financial crisis has been felt mainly in Europe and the United States. Its direct influence on the emerging markets is less significant. It is important however, because it comes in addition to a number of other crises, including volatile food prices during 2009 and 2008. For clients of MFIs, these combined issues can hit hard. Because foreign labour is often the first to suffer in a recession, relatives living in the United States and Europe who lose their job can no longer send money home. Decreased remittances lead to declining income. For some of these MFI clients it becomes more difficult to repay their loans and, as a result, the portfolios of the MFIs themselves are at a greater risk.
Have all regions been affected to the same extent?
There are considerable regional differences: MFIs in Eastern Europe, Central Asia and in Central America have been affected more severely than those in South America, South and South-East Asia, or Africa. Many MFIs in our portfolio in 2009 reported slower growth rates or even a contraction of their portfolios and saw a deterioration of their loan portfolio quality resulting in high loan loss provisioning levels. Nevertheless, well-managed MFIs continued to perform well, keeping the deterioration of their portfolio quality in hand and focused on the improvement of internal risk management procedures and methods of assessing clients’ repayment capacity.
How have MFIs responded to the challenges presented by the crisis?
We see an increased awareness of the importance of transparency and education of clients. The problem of over-indebtedness of microfinance clients has become more visible, especially in the more competitive and saturated markets in Central America or countries like Bosnia Herzegovina, and also certain states in India. The importance of establishing credit bureaus has become more clear as many countries lack infrastructure to check whether clients have multiple loans from different sources.
What have investors done to address the changing landscape of microfinance?
Transparency is at the heart of Triodos Bank’s work. We therefore actively support industry-wide initiatives that advocate fair and transparent pricing and that make clients aware of their financial obligations. Client Protection Principles have emerged from a group of MFIs and investors, led by Accion and the Consultative Group to Assist the Poor (CGAP). We have signed and committed ourselves to these principles that go back to the root of what microfinance is really about - helping clients to build their assets and improve their lives. Another global initiative that we actively support is the Microfinance Transparency initiative. Its goal is to provide in each country a clear and transparent overview of the effective interest rates that are charged by MFIs to their clients.
While Triodos was an early investor in microfinance, many others have followed suit. Is the influx of new capital a good thing?
Investors, and the capital they bring, can make a positive difference. They can provide large volumes of money and commit investments for a longer period of time. They also value professionalism, forcing efficiencies that are in everyone’s interests. Nevertheless, more and more capital has entered the microfinance market in recent years, and it’s been a mixed blessing. 2009 was no exception. A lot of people see a logical progression from donors supporting microfinance in its infancy, to social investors helping it to become financially viable, before hard-nosed commercial investors appear to launch the industry on to much great things – at a profit. We disagree. The long-term health of the industry depends on investors that understand the importance of financial strength but who are concerned with more than just financial returns.
How can the industry find a balance between financial strength and social mission?
More than ever, the role of shareholders in MFIs is important. To anchor the vision and mission of MFIs it is important that all shareholders subscribe to this mission and have a long-term vision related to this mission. With the arrival of new shareholders that are more focused on short term profit, the ownership structure of MFIs also changes, and this vision and mission is no longer always shared. An increasing number of MFIs strive for a stock-market quotation or sell their shares to the highest bidder. The reality is that there may be a tension between short term profits and developments that are in the long-term interests of an MFI’s clients. For example an MFI with profit as its main guiding principle may choose not to invest in rural outreach as this may decrease profits in the short term while building a sustainable client base, but in the longer term this would benefit clients.
Should mission always outweigh profit?
Profit is important, let that be clear. It is important as it enables an organisation to invest in the improvement of services and further growth and efficiency. Furthermore, it is difficult to attract capital in a sustainable way if there is no risk adjusted return against it. The question is more: what is a balanced return? For example, how does the return on equity relate to the interest rates that clients have to pay for their loans? We strive for a balance between a healthy financial return and a positive impact on society and the environment. We hope to see more investors striking a similar balance. We hope that so called Impact Investors offer a chance to help to make this paradigm shift happen. We’re part of a new initiative, the Global Impact Investing Network, precisely so we can encourage this kind of change.
What else does the future of microfinance hold?
Many microfinance clients need access to energy as well as money and MFIs could do more to help them, financing renewable energy but also sustainable housing, for example. I believe that, as microfinance has matured, it has become an excellent platform for supporting sustainable energy initiatives. MFIs can promote and finance the use of biogas installations and solar energy, especially for people in remote areas who are not connected to the electricity network. Many MFIs see this as an opportunity as also became clear during the 2009 International Workshop we organised for our investee partners.
Poverty alleviation, food security and climate change: the global challenges we are facing this century are numerous and also highly interdependent. I see a number of positive trends emerging. There’s growing awareness that we all have one earth to live on, and need to work together. It is important that we view the planet as our shared responsibility. Without that we won’t solve our sustainability problems. We see the microfinance banks and institutions in which we invest worldwide as a vital catalyst for this sustainable change.
Marilou van Golstein Brouwers, Managing Director of Triodos Investment Management