Microcredit: Looks can be deceiving

Microfinance comprises financial services designed for individuals and small enterprises that do not have access to traditional banking and associated services.

It encompasses microcredit, which provides small loans to disadvantaged clients.

• The positive impacts of microcredit are often taken at face value by investors and financial institutions with limited assessment of customer protections or monitoring of social impacts.
• Responsible microcredit serves an important role in financial inclusion and without it, many of the global poor – particularly women – would be financially excluded and have poorer social outcomes. [1]
• The evidence suggests that microcredit can lead to positive outcomes, but when there is an absence of appropriate consumer protection and supervision, abuses can occur. [2]
• As responsible investors, we are actively engaging with our investee companies from the banking sector to gather additional information to help better determine whether they are providing responsible microcredit that supports positive outcomes in society.

Without it, many of the global poor – particularly women – would be financially excluded

At Royal London Asset Management, we have been active in our research and engagement around microcredit. Through these actions, we believe that we have identified best practice in the area – helping us assess the credentials of institutions engaged in microcredit and helping guide our future activity in this area.

[1] Financial Inclusion Overview (worldbank.org)

[2] Friend or Foe to the World’s Poor? Settling the Microfinance Debate | Blog | CGAP

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