The article below provides another practical example of microfinance, ending with the following paragraph:
Mr Seiler is inspired by Muhammed Yunus, founder of Grameen Bank, the Bangladeshi lender. Now microfinance is turning full circle: in 2008, Grameen established posts in New York and Berlin, for those who fail conditions imposed by high street banks in those countries. Amadeo Giannini would understand.
Building wealth with tens of thousands of small accounts
By Brendan Maton
Published: January 4 2009 18:27 | Last updated: January 4 2009 18:27
Leo Seiler is fond of telling the story of Amadeo Giannini, a microcreditor who over 100 years ago saved many farmers and small merchants when their region was racked by a severe earthquake and fires.
While other banks in the region struggled to provide extra finance in the aftermath of the quake – not least because the fires kept their vaults and the money therein too hot – Mr Giannini ran his simpler operation from his own rural home, making loans to those who travelled on foot or by horsecart to ask for credit in person.
The region in question was San Francisco and the date was 1906. The loans helped rebuild the city. Mr Giannini’s bank later bought the bonds that financed the building of the Golden Gate Bridge and his acumen in the world’s fastest-growing economy eventually saw him become chairman (and indirectly controlling shareholder) of Bank of America.
Mr Seiler himself is something of a self-made man. Like Mr Giannini, he was born into a comfortable family, but had to work during the summer holidays. His first job was as a gofer at Raffeisen Capital Management in Vienna. Although he was not a trainee portfolio manager, he asked the right questions. Twenty-three years later Seiler Asset Management looks after several billion euros on behalf of wealthy clients.
In discussing his life, Mr Seiler abhors the word “career”. “It comes from the word for ‘racecourse’. I don’t want to be like an animal running round in circles.”
He prefers to be smarter with his energy, travelling across various time zones promulgating various projects but most notably, the Dual Return Vision Microfinance Fund, a separate venture from SAM.
Mr Seiler says Dual Vision is Europe’s biggest “pure” microfinance fund. Pure means all debt; the fund’s €80m (£77m, $112m) capital goes straight to microfinance institutions and, thence, to needy entrepreneurs, farmers, shopkeepers and small businesses.
For investors familiar with 50-200 holdings in a portfolio, it comes as a revelation to see almost 95,000 businesses served, and possibly 195,000 individuals. These data appear prominently on the fund factsheet.
Mr Seiler is adamant that this form of financing is more useful than socially responsible investing. “I hate the word ‘ethical’. SRI just seems to pick ‘best-in-class’: so you get the best-in-class oil company; the best-in-class chemical company. I don’t know if what we are doing is ‘ethical’. I do know that it is a practical solution to one problem.”
One might argue that microfinance is a practical solution to hundreds of thousands of problems, given that it is trickle-down investing. Microfinancing could grow from $5.5bn at present to as much as $250bn, according to responsible-investor.com.
Mr Seiler cautions, nevertheless, that most of the world’s poor cannot be reached this way. “I would say there are only 500m-700m people who live in societies that are sufficiently stable for microfinance to flourish,” he says.
That leaves billions more reliant on charities, non-governmental organisations and fortune. Dual Vision does not, for example, invest any money in Africa. Mr Seiler cites the high level of corruption and rarity of African microfinance institutions (MFIs) accepting dollar or euro-based loans as two major dissuasions.
Elsewhere in the world, Dual Vision makes loans in euros or dollars. The local MFIs then bear currency risk. The lack of activity in Africa is a stark reminder that earning returns is this fund’s second, integral vision. Mr Seiler draws out a garish pink plastic wallet from his pocket. It is made by a women’s collective in the Philippines. “Our first venture,” he beams proudly. “I distribute these wherever I go. They are made from old drinks containers.”
When Vision Microfinance first visited the collective, the women did not trust them.
“They were used to paying rates of 20 per cent. Per day not per year,” he says. “That means if there is five dollars in the till at the start of the day and not six dollars by the end of the day, the loan sharks can beat you up or damage the property.”
By contrast, the MFI takes approximately 20 per cent a year; Dual Vision takes roughly 8 per cent. Of that gross income, 2.2 per cent goes in fees, leaving currently over 5 per cent for end clients. The MFI rate of interest here is not a global standard, however. Of the 2.2 per cent management fee, 1.5 per cent goes to agencies assessing and monitoring the MFIs such as Symbiotics of Geneva and the likes of Standard & Poor’s.
Mr Seiler says it has been a conscious decision not to spend on post-spend monitoring. In other words, if there are defaults, the fund will take a hit. The counter-argument is that the loans are so small and diverse, a fatal loss could only be suffered if an entire country combusts.
Mr Seiler is inspired by Muhammed Yunus, founder of Grameen Bank, the Bangladeshi lender. Now microfinance is turning full circle: in 2008, Grameen established posts in New York and Berlin, for those who fail conditions imposed by high street banks in those countries. Amadeo Giannini would understand.
Copyright The Financial Times Limited 2009
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