Financial institutions are in a unique position to affect positive change at every level of society. How has two decades of investment by Deutsche Bank changed the landscape?
Microfinance and Social Impact Investment: affecting positive change
Microfinance is a proven and effective tool to empower marginalized populations through the provision of small loans and other financial services. More than 60 percent of people in the developing world do not have access to formal job opportunities; microfinance enables the poor to generate income through self-employment.
In 1997, Deutsche Bank became the first commercial bank to establish a fund to support the microfinance sector. The Bank provides loans to microfinance institutions (MFIs) worldwide and has served over 130 MFIs in 50 developing countries, with 261 million US dollars in capital benefitting as many as 2.8 million poor entrepreneurs. Over the last decade, Deutsche Bank has been a constant advocate in emphasizing microfinance’s essential social objectives. The Bank has used its leadership position to establish ethical principles for the industry and recently launched a fund dedicated to MFIs that pursue customer service excellence.
Due to Deutsche Bank’s investments, MFI clients in underserved areas have been able to finance and build small businesses that range from raising livestock to creating and selling traditional handicrafts. Through its work in the microfinance sector, Deutsche Bank continues to pioneer socially responsible and sustainable methods towards poverty alleviation.
Deutsche Bank was one of the architects of the Smart Campaign, which aims to embed client protection practices within the microfinance industry. These are the principles institutions must follow:
- Appropriate product design and delivery
- Prevention of over-indebtedness
- Responsible pricing
- Fair and respectful treatment of clients
- Privacy of client data
- Mechanism for complaint resolution
Social Impact Investment
It is increasingly acknowledged that governments and charities alone cannot solve global challenges. The nascent social enterprise and impact investment sectors hold great promise in enabling private capital to be used towards addressing broad societal needs. Projects emerging from both the nonprofit and for-profit sectors have the potential to generate significant social and environmental benefits while also realizing financial returns. A key challenge to the sectors’ growth, however, is an inefficient flow of capital to opportunities.
Since 1997, the Bank has been leveraging its unique platform and capabilities to develop and scale mission-driven social enterprises. Through its leadership and collaborative efforts, the Bank has explored new pathways for other investors to direct their investment capital towards societal benefit. Deutsche Bank has consistently been a pioneer in the sector in responding to new and evolving needs; the 50 million US dollars Essential Capital Fund was most recently launched in 2012 to supply high-risk capital towards the growth of early-stage social enterprises throughout the world.
Deutsche Bank’s funds have supported a wide variety of high-impact social enterprises, including financing eye care hospitals in developing countries through the Eye Fund and supporting high-quality, low-cost education in Africa with Bridge International Academies. With its innovative social finance funds, Deutsche Bank is making markets work for all segments of society.
$ 1.49 bn
financing provided to micro-borrowers by Deutsche Bank since 1997.
“Deutsche Bank has used its social financing expertise, investment banking skills, business resources and worldwide relationships to create financial instruments and funds that benefit social enterprises.”
G8 conference addresses social impact investment
For the first time, social impact investment has been discussed at the Group of 8 conference in London on June 6, 2013. In London, several keynote speakers addressed the topic, among them Colin Grassie, CEO of Deutsche Bank UK. He outlined the scale of social problems in the UK and highlighted the critical role the private sector can play in helping to tackle these challenges.
Grassie said: “With sufficient engagement from institutions like Deutsche Bank, impact investment has the ability to become an asset class of true significance. It should be fully integrated into the business model to make it not just a ‘nice to have’ but an integral part of business.” Deutsche Bank is one of the world's largest impact investment advisors. The G8 conference is expected to help boost the growing social impact investment market by exploring issues such as sustainable agriculture, affordable housing, clean technology, and financial services for the poor.
“A new model of ‘sustainable capitalism’ can emerge. My vision is for every asset manager to have a social investment fund.”
$2.4 billion of change
2012 | $2,402m*
Protection and innovation:
Deutsche Bank launches the Global Commercial Microfinance Consortium II to direct funds to institutions that focus on microfinance client care through client protection, customer service and product innovation.
With the establishment of the Community Clean Heat Fund, the bank creates a vehicle to provide building owners in low-income neighborhoods with access to financing to upgrade heating plants and reduce building emissions.
2011 | $2,042m*
In partnership with Shell Foundation, Deutsche establishes the Carbon Initiative for Community Impact to provide financing to assist climate entrepreneurs involved in carbon reduction with the registrations needed to trade carbon credits.
The New York City Energy Efficiency Corporation is created through the efforts of the City of New York, the National Resources Defense Council and Deutsche Bank as a new energy efficiency financial intermediary. Its mission-driven business model is to catalyze financing for private building owners to complete energy efficiency retrofits.
2010 | $2,038m*
Eye care for the poor:
In partnership with the International Agency for the Prevention of Blindness and nonprofit organization Ashoka, Deutsche Bank launches the Eye Fund to expand eye care services to the poor in developing countries.
Housing and economic development in Haiti:
Deutsche Bank raises $5.8 million in donations to help Haiti recover from its devastating earthquake. The bank concentrates on housing production and economic development, and pioneers the Haiti Entrepreneur House to combine asset building and income generation for the country’s emerging middle class.
2009 | $1,734m*
Deutsche and the Community Preservation Corporation launch the Neighborhood Energy Loan Program to raise private sector capital to fund energy efficiency retrofits in New York City.
2008 | $1,705m*
Protection for microfinance clients:
A turning point in the development of the microfinance industry, the Pocantico Declaration leads to the first formal set of principles to protect the rights of microfinance clients. Hundreds of microfinance institutions, investors, networks and associations sign up to these principles, which are now embedded in the Smart Campaign.
2007 | $1,453m*
Deutsche launches VG Microfinance Invest, the first microfinance fund to be rated by Fitch. It provides subordinated debt finance to mature microfinance institutions globally and helps facilitate organizational transformations.
The bank's Supportive Housing Acquisition and Rehabilitation Effort (DB SHARE) assists developers of supportive housing through grants and loans, resulting in development of 19 buildings providing permanent housing for 2,300 vulnerable New Yorkers.
2006 | $1,351m*
Deutsche raises $10 million for tsunami relief and distributes $1.8 million to self-employed entrepreneurs in affected countries through microcredit.
2005 | $1,079m*
Rebuilding post Katrina:
The donation of a day’s trading fees by the bank raises $1.8 million to assist Gulf Coast communities to rebuild post Hurricane Katrina. Concessionary loans re-boot the devastated small-scale fishing industry and finance the construction of replacement housing.
Global commercial microfinance consortium:
The largest fund of its kind at launch, the Global Commercial Microfinance Consortium is the first commercial fund to provide microfinance institutions with financing in local currency, and the first to attract institutional investors.
2002 | $878m*
Arts as a tool for economic development:
Recognizing the potential of arts and culture as a tool for economic development and community revitalization, the bank’s Arts and Enterprise program directs new investment into neighborhoods where cultural institutions are driving vibrancy and growth.
2000 | $807m*
With the fourth round of its Working Capital program, Deutsche provides $2.3 million in grants and 0% interest loans to community development organizations, catalyzing affordable housing development and other social ventures in Harlem, Chinatown, Central Queens, South Brooklyn and other neighborhoods.
1997 | $430m*
First global microfinance fund:
Deutsche Bank becomes the first global commercial bank to establish a microfinance fund. The Deutsche Bank Microcredit Development Fund is capitalized with resources from the bank’s clients and its own resources and jump-starts the flow of private capital to microfinance institutions. With small loans, the entrepreneurial poor in the developing world can start and grow small businesses.
Deutsche establishes the New Initiatives Fund, using philanthropic resources to create a source of high-risk, low-cost and patient catalytic capital to finance social enterprises in the US and throughout the developing world. The fund meets the growing demand for capital from social enterprises that fall between donor support and commercial investment.
1996 | $430m*
New businesses in the neighborhood:
The Neighborhood Franchise Project by Deutsche Bank in partnership with the Ford Foundation supports new businesses in emerging neighborhoods. Combining debt and technical assistance, the project offers local residents the chance to realize their entrepreneurial dreams.
1993 | $182m*
Home ownership opportunities:
Closing Assistance Support for Homeowners (CASH) is established by Deutsche Bank to create home ownership opportunities for moderate-income families within underserved communities. The consortium, including philanthropic foundations and commercial lenders, provides more than 400 loans to support first-time homebuyers.
Foreign bank financing:
Global Resources for Affordable Neighborhood Development (GRAND) is a Deutsche-led foreign bank financing consortium organized to provide capital for the building of affordable housing. The consortium finances production of more than 2,500 homes in 23 developments throughout New York’s five boroughs.
1990 | $85m*
Community Development Finance Group:
The Community Development Finance Group is established by Deutsche Bank as a platform to direct financing to disadvantaged communities within the United States. Reinvestment activities focus on affordable housing and economic development, with a dedicated effort to partner with nonprofit community development corporations.