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Page 2 - SNS Asset Management: the growing pains and gains of microfinance
70% interest on its loans. “In Mexico, we looked to invest in smaller microfinance companies to bring in more competition in the right way. A better example for the sector is Bolivia where there are some 400 microfinance companies and the maximum interest rate is capped at 15%,” Brouwers says. He adds that the loan portfolio on SNS’ first microfinance fund has grown on average by more than 80% per annum with excellent profitability, and that as a result more than one million small entrepreneurs and their families have been helped to achieve a higher standard of living.
In practical terms, SNS works closely with US investment manager Developing World Markets (DWM) to select and monitor microfinance institutions (MFIs), which are the project co-ordinators on the ground. Earlier this year, SNS bought a 10% stake in DWM, and the US house will run the second microfinance fund. Brouwers says the second fund is a straight copy of the first with a target of €100m in assets: “We were still getting demands from pension funds after closing the first fund at €160m. We actually had to reject some proposals because the problem we had was whether we could successfully invest the money in 12 months.”
The fund, Brouwers points out, is fiscally transparent for Dutch investors and SNS has not so far sought capital outside of the Netherlands. In a bid to promote microfinance amongst institution al investors, SNS has commissioned a couple of related studies from the University of Groningen. One demonstrated that microfinance could contribute to the diversification of an investment portfolio. Another demonstrated that larger
microfinance projects could have bigger social impacts. Brouwers believes that the findings of the latter predict the next stage of development in the microfinance market: more consolidation. “Microfinance institutions on the ground will merge and commercial banks are looking to take much more of a stake. “ We also believe there could be a shift from group lending to individual lending, because of some of the problems we have seen with over and under financing of individuals within groups where some people carry unequal parts of the burden.”
“When you look at microfinance competition in different countries, you can see potential problems.”
Brouwers says the development of microfinance at SNS has also led it to examine related initiatives across the company, including what he says will be an innovative suite of fund products in the sectors of food, agriculture, land and water themes in Africa, developed specifically to meet the fiduciary needs of pension funds. He says the manager has been working with one of the largest Dutch pension funds on its work in Africa, but declined to name them: “We have found the right projects and size and we are doing the due diligence that is required for these projects. We can get economies across what we do because we are in the microfinance field, which means we are constantly looking at different countries and currencies and at creating partnerships on the ground.”
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