Joerg-Peter Hayn (Banque de Luxembourg): Why does a private bank offer microfinance investments to its clients? Countries like Greece, Portugal or Spain have become high risk investments; countries like Bolivia or Argentina have become safe investments.
Besides emerging market sovereigns, microfinance has become an important addition to a diversified portfolio for the bank’s clients. Don’t invest in the poorest countries or politically unstable areas (Nicaragua). Also, currently no microfinance investments in microfinance crisis-affected countries (e.g. India).
No entry/exit after initial subscriptions for 3 years (e.g. no early redemptions). Currency risks are hedged. Select institutions are audited by 3rd parties (such as Symbiotics).
Typical microfinance investor:
- doesn’t need money for some period
- doesn’t require guarantee for either principal or return
- looks for better return than top quality sovereign bond (fund generates typical yield of 4% after fees)
- want to feel comfortable with target investment (e.g. social value)
- wants transparency
Provide close link to investment: Banque de Luxembourg hosts events at its head office with representatives from MFIs (Pro Mujer, Sathapana, Azercredit).
Future outlook: good opportunities in Latin America will become more rare (due to local financing); net return to investor will probably decline.
Some customers asks about social investments, but it’s a minority. Usually the bank is the one to introduce the opportunity to the investor. In all, about 50% of investors become more interested in social performance, while the other 50% more interested in financial performance.
Question: What do you see as your responsibility in client protection?