What is Microfinance?

Microfinance generally refers to the provision of basic financial services such as loans, saving accounts and insurances for low-income but economical active people. In most instances the term microfinance refers to the provision of small loans (=micro credits) for micro-entrepreneurs.

The UN believes microfinance to play a central role in the battle against poverty and proclaimed the year 2005 as the “International Year of Microcredit”.

The idea of microfinance, however, is not new but can be traced back to the principle of self-help and solidarity which was devised by savings banks and cooperative banking groups (e.g. Raiffeisen) 150 years ago.

In the 70s Muhammad Yunus, professor of economics, began to hand out small loans in his home country Bangladesh. He founded the Grameen Bank in 1983 which today is active in over 70,000 villages in Bangladesh. The Grameen Bank employs 25,000 people and has 7.4 m borrowers, 97 % of which are women. Muhammad Yunus was awarded the 2006 Nobel Peace Prize. His concept is employed in 60 developing countries today.

„All that is necessary to save the poor from poverty is to create a functioning environment. Once the poor can unleash their energy and creativity poverty will vanish quickly”. (Muhammad Yunus, professor of economics, Grameen Bank, Lecture at the Nobel Peace Prize award, Oslo, 10 December 2006).

Microfinance Institutions

Your investment in Vision Microfinance enables the provision of small loans to low-income people via carefully selected microfinance institutions (MFIs). Please note that investing in securities also involves risks besides the opportunities described.

A Microfinance Institution (MFI) is an organisation that provides financial services for MSME - Micro- Small and Medium Enterprises. They are mainly present in developing countries and vary in size and scope. They often start up as non-government organizations (NGOs) which concentrate merely on loans and later turn into regular banks which offer all common financial services.

The lack of „traditional“ collateral of micro-entrepreneurs is compensated by a thorough check of the personal living circumstances and a close contact between the microfinance institution and the micro entrepreneur. Microfinance institutions know their clients intimately, they meet regularly and help and advise them.

Often microfinance institutions give loans to small groups of people who are jointly liable for the timely payment of the debt. The social network is often very strong in developing countries; it ensures that everybody wants to pay back the loan to save face. The payback ratio of micro-entrepreneurs to microfinance institutions is an impressive 95-98%.

Micro Credits

Micro credits are small loans with a big effect. They are based on the principle of trust and personal responsibility. To believe in people in turn strengthens their self-esteem.

However, micro credits are no charity. They have to be paid back in time and interest is charged. They are characterised by:

  • Small credit sizes.
  • Short maturities.
  • Amortization of principal and interest rate in many small installments.
  • Personal relationship between the microfinance institution and the client with frequent personal visits.
  • Detailed knowledge of the living circumstances of clients as a replacement for collateral.
  • Micro credits are an incitement for economy.
  • Money does not dissipate but work.
  • Money is paid back and handed out again.
  • This dynamic cycle enables more and more people to escape.

Social Benefit

Microfinance improves the quality of life of families in the poorest countries in a sustainable way. Microfinance gives poor people the opportunity to establish an existence and to create a future with prospects.

Microfinance permits an increasing number of families access to food, to medical care and to education for their children – now also for their daughters. Consequently, microfinance has an impact on the future generations.

In some countries microfinance is used by women in particular. The position of women and their influence on society is strengthened and improved in this way.

Microfinance improves the local development in a meaningful way and impacts national economies. Investments in microfinance change the world. 

Legal Disclaimer

This marketing document is provided for non-binding information purposes only and does not represent any offering or invitation to purchase or sell units in an investment fund, and nor should it be deemed an invitation to submit an offer for conclusion of any contract on investment services or collateral performance. This document cannot replace the advice of your personal investment advisor. Any unauthorized use hereof, in particular its reproduction, processing, transmission or publication is forbidden. The author hereof as well as any enterprises affiliated with them exclude herewith all and any liability in full for the correctness, completeness or actuality of the information contained and opinions stated herein. All performance figures indicated are gross performance figures.

Please note: Fund-based investments are subject to general economic risks as well as fluctuations in value which may result in losses – and even the total loss of the capital invested. Express reference is made to the detailed risk notices provided in the prospectus. Unit classes denominated in foreign currencies entail an additional currency risk.

Their performance may rise or fall due to currency fluctuations.