Microfinance Investing: Perspective from a Private Banker

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?