SNS Asset Management, part of SNS REAAL, has initiated the launch of a large institutional investment fund aimed at providing resources for microfinance institutions (MFIs). Large institutional investors have been invited to participate in the SNS Institutional Microfinance Fund, which has a target size of € 100 million. SNS Asset Management, which acts as an investor and consultant in microfinance, will work closely here with the American organisation Developing World Markets (DWM). This investment manager is one of the world's most experienced private players in the selection of good microfinance institutions. Triple Jump, which manages the ASN/Novib fund and other funds, will be responsible for part of the selection.

“The microfinance market is growing extremely fast. In developing countries, demand is escalating rapidly, and increasing numbers of institutional investors are prepared to invest here. However, in contrast to private investors, institutional investors have hitherto had hardly any opportunities to invest in microfinance, owing to the scale on which they want to invest. The SNS Institutional Microfinance Fund now offers them the chance to invest purposefully in microfinance institutions with good financial prospects,” says Theo Brouwers, who - as a director of SNS Asset Management - is responsible for developing and launching the fund. “What is more, the fund serves an express social purpose, by making fairly long-term investments in small businesses at the lower end of emerging economies in Asia, South and Central America and Eastern Europe. The fund therefore fits perfectly with the SNS REAAL philosophy, which has always aimed to find the right balance between ethical business and financial return.”

Short-term loans ranging from $ 100 to $ 1500
The fund does not grant loans to individual businesses but lends money to microfinance institutions,  or invests in their share capital. Those MFIs in turn grant loans to businesses, mostly ranging between $ 100 and $ 1500 for a term of between six months and one year. These loans enable small self-employed operators to start or expand a business. Remarkably, 90% of these business operators are women who, with a loan, improve not only their own circumstances but also those of their households and families. The lives of around 4 million people in developing regions benefit from a total of € 100 million.

The money will be made available in various ways: in the form of loans, but also as equity shareholdings. Hybrid forms, such as convertible loans or subordinated loans with warrants, are also used. The businesses receive finance in local currency, so that they do not incur any foreign exchange risk.

The SNS Institutional Microfinance Fund takes the legal form of an unlisted unit trust, and closes on 1 April 2007. It has a seven year term with an optional extension of two years. SNS Asset Management has already received firm commitments totalling several tens of millions of euros. Large institutional investors such as pension funds are displaying keen interest in the new fund.

Substantial capital requirement
The total market for microcredit is currently estimated at $ 300 billion, while the supply comes to around $ 15 billion at present. “There is a great need for capital. However, it is difficult for institutional investors to place the money where it is needed and where the opportunities present themselves. At the same time, they want to be certain that they are making a responsible investment. The aim of the fund is to offer investors a good return commensurate with the risk that they incur.
DWM has global experience in granting loans and other financial instruments to microfinance institutions. With their broad network of contacts and their investment banking background, they are better placed than anyone else to select the right investment projects,” says Brouwers.

SNS Asset Management is an asset manager for institutional players, managing a total of  €  16 billion. It specialises in sustainable investment.