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Creating Opportunity
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Microfinance & Social Venture Funds
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Microfinance instruments - a core competency of Deutsche Bank - have proven highly effective to combat poverty. In many countries, seed capital of just US$50 is often enough to launch a business.
For many, these are the beginnings of self-sufficiency and a step towards breaking out of the cycle of poverty. More than a decade ago, Deutsche Bank became the first bank in the world to create a special microfinance fund aimed at giving people with little collateral access to capital. Today, we collaborate with nearly 100 microfinance institutions. Our goal is to support microfinance institutions that are cost-effective and commercially sustainable, and that truly serve the interests of the poor.
With the help of our partners, loans valued at US$1 billion and distributed to 2.2 million borrowers cumulatively, have been possible. Numerous jobs have been created in projects and small businesses financed with the help of these loans. In this way, we help strengthen economic and social structures in many regions and contribute to the positive development of entire economies.
Social entrepreneurs are redefining ways to bring about social and economic change for people and places most in need. However, many potential entrepreneurs in developing countries lack the necessary financing to realize their plans. Without collateral, they are often unable to obtain regular loans. Providing access to capital is the focus of microfinance institutions. By issuing microloans, these institutions help the very poor move toward financial independence. They make a significant contribution to self-empowerment by enabling these people to escape the vicious circle of poverty. Often US$ 50 – 100 is enough for them to purchase land or open a small store. In most developing countries, the failure rate for these loans – about one percent – is extremely low, thus allowing a swift reuse of the money.
Deutsche Bank views microloans as an exceptionally effective tool for development aid. We have been committed to this area since 1997 through the Deutsche Bank Microcredit Development Fund. Today, we collaborate with nearly 100 microfinance institutions in 41 countries. Together, we manage a portfolio worth approximately US$ 165 million. It is especially important to us that we not only provide capital, but also make use of our financing expertise and relationships to further the social finance sector; as well as direct this young industry to best practices in terms of transparency and in maintaining its focus on the social objectives it was meant to achieve.
In 2005, Deutsche Bank established the Global Commercial Microfinance Consortium, the world’s first microfinance fund that was focused on institutional investors and provided local currency financing where available. This US$ 80 million fund had investments from 12 institutional investors incl. Munich Re, AXA, Hewlett Packard, and the French, British, and U.S. development agencies. Through the Consortium, we made 47 loans in 24 countries.
In 2007, we developed the “db Microfinance-Invest Nr. 1” fund, a finance product tailored to the needs of private clients who specifically wish to invest in sustainable products. This product represents the world’s first securitization of microloans with an external rating. Bonds worth US$ 87 million had been previously signed, with US$ 52.2 million secured by private clients. Deutsche Bank has contributed US$ 5.8 million. In cooperation with 21 microfinance institutions, we estimate that this instrument enabled more than 100,000 loans in 15 emerging and developing countries.
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Financing short-term aid for people in need is often based on traditional donations. Long-term, sustainable solutions in areas such as education, health, and energy must be developed on the basis of economically viable concepts. The answer lies in social venture funds. Deutsche Bank supports these funds with loans and investments and, above all, with its financial know-how. With the help of Deutsche Bank-issued funds, initiatives that promote social progress can receive capital at far more favorable conditions than they could through conventional financing. It is eminently more important to us that the primary benefit of social venture funds be social, not financial.
One example is the Eye Fund, developed in partnership with Ashoka and the International Association to Prevent Blindness, to help finance the expansion of eye hospitals in poor regions around the world. Through this fund, expected to close in 2009, eye hospitals will receive financial aid for business models that provide free or inexpensive operations for visually impaired people. The operations help these people regain their independence and earn their own livelihood. While in the past these hospitals have only grown when donor money has been received, the Eye Fund changes the fundamentals of this strategy by delivering capital in a more regular way to plan for growth and commercially sustainable enterprises. Through the Eye Fund, Deutsche Bank aims to significantly improve the offer for eye operations in emerging markets in a move to help millions of blind people currently without access to these services. Simply put: more than half of the eye operations and 42 percent of the outpatient treatments performed in these facilities will be – thanks to the “Eye Fund”– either free of charge or very inexpensive for those in need.
E+Co is a nonprofit organization that empowers local small and medium size enterprises that supply clean and affordable energy to households, businesses and communities in developing countries. In addition to financing, E+Co offers its portfolio companies ongoing technical assistance and management support. A $400,000 low interest loan from Deutsche Bank is helping E+Co to help finance a solar photovoltaic manufacturing company in Nepal and a manufacturer of ceramic liners for energy efficient stoves in Ghana. The hope is that these companies will meet local energy demand through the delivery of efficient, low-tech solutions while contributing to local economic development.
NewGlobe Schools has defined an innovative approach to delivering high quality education to poor children in Africa through a franchise model of private school ownership. With the help of a $150,000 Deutsche Bank loan NewGlobe Schools is starting in Kenya by building a management model, it’s first three schools and a teacher training component. This for-profit enterprise is premised on reaching children whose families earn less than $3 per day, a huge untapped market in Kenya and throughout Africa.
Seedco Fisheries Assistance Center is working to rebuild the fishing industry in the Gulf Coast of the United States following the destructive impact of Hurricane Katrina. In all natural disasters, the poor are the most vulnerable in suffering longer term damage often resulting in the inability to regain their economic footing. The Seedco intervention is a “one stop shop” offering local fishing entrepreneurs’ comprehensive business services in the form of loans for boat and dock repairs, as well as advisory services on how to rebuild their ventures with more modern equipment and marketing strategies. Seedco also promotes the adoption of best practices in newer, more environmentally friendly fishing techniques. A $250,000 loan from Deutsche Bank is helping to finance a revolving loan fund administered by Seedco to benefit the local Gulf Coast fisheries.
Additional Links
"The Parameters of Microfinance": Interview with Shafiq Choudhury
[more]
E+Co
[more]
NewGlobe Schools
[more]
Seedco
[more]
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Key Facts
- In cooperation with numerous microfinance institutions, loans valued at more than US$ 1 billion and distributed to 2.2 million borrowers cumulatively have been possible
- More than 30,000 AIDS orphans in Africa are receiving support from Deutsche Bank in collaboration with various partner organizations
- Deutsche Bank has helped create 2,000 living units for the homeless in New York
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