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How microfinance can help investors keep calm and carry on


Philipp Müller

Philipp Müller

Chief Executive Officer BlueOrchard

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The continued spread of coronavirus (Covid-19) has led to rising fears over disrupted supply chains, tourism and global demand. The worries have prompted substantial falls in equity markets while government bond yields have dropped to historic lows.

However, while traditional asset classes have responded quickly, the impact on private markets - and particularly those like microfinance – will take time to assess. The effect will be more nuanced and vary by region, industry and business model.

If you can keep your head… 

Importantly, microfinance is historically less correlated with public markets – one of the notable benefits of investing in the asset class is the diversification that it can bring to an investor’s portfolio.

Microfinance investments, especially in emerging and frontier markets, have historically been quite resilient to shocks of this nature, particularly if you look at SARS in 2002, the global financial crisis in 2008 and MERS in 2012.

Stable returns and low correlation – key features of microfinance funds

Cumulative returns of microfinance and other asset classes*

Micro_finance_performance_comparison.jpg

Source: BlueOrchard. *Indexed at 100 for 31 December 2003, based on monthly USD returns 421788

Rural and less connected = less affected

A slowdown in Chinese growth could have knock-on effects for markets that are heavily reliant on China for trade, investment and tourism.

To date, most countries that we invest in have only reported a few cases of Covid-19. When combined with a sharp reduction in international travel caused by the virus, it is possible that the spread in the developing world could remain relatively low, with exposure for investees focused in rural areas with low population density even lower.

That said, as impact investors, BlueOrchard believes that during times of crisis micro entrepreneurs have the greatest need for access to capital, as well as other services to support income generation.

Access to these services unleashes the potential of individuals who may be socially and economically vulnerable, and can help to break the cycle of poverty and oppression, empowering individuals, families and wider communities.

A pragmatic approach

While it is too soon to quantify fully the impact of the virus on our investments, there are some areas that we anticipate will be more significantly affected. So far, we have not identified any significant impacts to the businesses that we invest in, but we are continuing to pay close attention as the situation evolves and allocate investments in our portfolios accordingly.

We have taken steps to reduce the investment level in our microfinance portfolios and further focus on quality names and defensive positioning in our impact bond portfolios.

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

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The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.