The objective of Mikro Kapital, in line with the Strategic Development Plan, is to consolidate and expand the Group’s presence in Switzerland, Germany, Benelux, Nordics, and United Kingdom, as well as Southern Europe.
The European market plays a role of particular strategic importance for the Mikro Kapital Group, which now boasts a 12-year track record, consolidating its status as a leading ‘independent boutique’ in a sector that is robust, mature and focused on its social impacts, an aspect particularly appreciated by European institutional and professional investors.
We asked Luca Pellegrini, Vice President International Institutional Investors, and Stefano Magagnato, Vice President Italian-speaking Institutional Investors, how Mikro Kapital is characterised at European level.
What is impact investing?
Impact investing is the new frontier of sustainable finance. At a time when we are all increasingly concerned by the environment and the future of our planet, the investment world is also focusing more on sustainability and social equity, by ushering in Impact Investing, a distinctive feature of Mikro Kapital, which, ever since its foundation, has sought to generate a socially measurable impact while ensuring a financial return for its investors.
What do impact investors look for?
More and more institutional investors are expressing an interest in the topic, while the Central European market, chiefly Switzerland, has always been a pioneer when it comes to sustainable investment. According to the Swiss Sustainable Investment Market Study, conducted by the University of Zurich in conjunction with Swiss Sustainable Finance (of which Mikro Kapital Group is a member) in 2019 (by analysing the 2018 figures), the total ‘sustainable’ assets under management rose by 83% compared with the previous year, reaching CHF 716.6 billion.
Our group focuses on micro-finance techniques in Eastern Europe, Russia and countries along the Silk Road. Its primary objective is to bridge the banking gap, by offering services to small, medium-sized and micro-enterprises, which are a vital factor in driving economic growth, boosting employment, fostering innovation and supporting economic development in the areas in which they are located. These companies generate revenues, which are reinvested into the local economy and help to promote social integration through economic dynamics.
Through its securitisation funds created under Luxembourg law, Mikro Kapital invests in over 15 countries and more than 129 investment targets, facilitating access to banking services for small companies that are not yet fully integrated into the ordinary financial system and thus ‘non-bankable’. Promoted through the disbursement of micro-credit, micro-leasing and other financial services, this activity permits the financial inclusion of SMEs and forms an essential component of Mikro Kapital’s strong sense of social responsibility.
The group has also signed up to the PRI (Principles for Responsible Investment) and has promoted the UNSDG programme since 2017, pursuing the sustainable development goals proposed by the UN 2030 agenda.
Mikro Kapital’s investments are concentrated in countries along the Silk Road, a grid composed of land, sea and river routes and extending over some 8,000 km, which, in ancient times, was a vital artery in trade between the Roman Empire and the Orient. These geographical areas are still home to small entrepreneurs and artisans, who constitute the backbone of the economy in these countries. Indeed, according to the Asian Development Bank, SMEs represent over 96% of all companies in Asia, generating over two thirds of jobs in the continent’s private sector.
The targets of the Mikro Kapital investments are loans to SMEs in over 15 countries along the Silk Road, as well as Russia and Belarus, enabling an extreme diversification which aims to minimise every possible financial upheaval or geopolitical crisis.
During this period, where the search for possible new solutions in terms of ‘asset allocation’ has become a necessary requirement in terms of performance, micro-finance in these countries has achieved considerable development by also demonstrating its value as an effective and sustainable ‘asset class’ for the diversification of the alternative component of the investment portfolio, since it represents a stable sector of the economy, less exposed to the volatility of global markets.
Without a doubt, micro-finance is a sector that may currently be considered in an advanced state in the world of impact investments, a concrete business model properly regulated by local legislators, using well-established and internationally recognised methods.
How would you describe the Swiss asset management market, and in particular microfinance?
As in other important financial centres, the asset management market in Switzerland involves a variety of players like banks – private or otherwise – and groups of professionals – true specialists – working together in structures that are dedicated exclusively to wealth management for a very sophisticated clientele, not only in terms of personal wealth, but also in terms of the specificity of the different types of investments they prefer. And it is precisely these clients who are increasingly developing an interest in socially responsible investments, like microfinance. And of course keeping an eye on the various possible risks.
What are the benefits of investing in microfinance? Does this form of investment help to diversify a portfolio and limit the level of risk?
A first benefit is microfinance’s historical decorrelation – especially for small businesses – from more traditional financial markets and its consequent resilience to financial shocks, regardless of their nature. Just take a look at the markets that Mikro Kapital operates in, the Russian-Ukrainian crises or the war in Chechnya, or, more generally, the various financial crises that have occurred in the course of history or simply in the last 10 to 15 years, primarily in 2008, or pandemics such as SARS in 2002, or MERS in 2012 or the current one due to COVID-19.
A further benefit that can be enjoyed by investors is seeing both financial returns and a social and environmental impact produced by the investment, thus contributing positively to the improvement of the world around them. This is where Impact investing comes into play, which can be evaluated over time. Through its microfinance investments in small businesses along the Silk Road, Mikro Kapital makes it possible to combine a certain, solid return with a positive, important and tangible impact as it can be measured in the development of the businesses it finances and the territories it operates in.
Which indexes are most representative? What’s a good percentage for defining a portfolio as diversified?
There are many companies all over the world that are fully specialised in microfinance, some focused on certain regions others not, like support groups – aid, solidarity loans, credit unions, CVECAs, not to mention NGOs like Grameen Bank, Proden, Finca International, rural banks, state banks etc., each of them more or less focused on a specific debtor clientele. So there’s not really an index representative of microfinance as a whole.
Mikro Kapital stands out from all other players in microfinance because it’s unique:
Mikro Kapital investors enjoy the benefit of being able to take advantage of these peculiar characteristics that are foreign to other financial instruments, and at the same time see the social impact that their investments have. This always with a view to a diversified portfolio, where MK can be included to the extent of 5 or 10% of the total portfolio based on the investor’s interest in the issue of impact investing.
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