Private Equity International is centred around the financial inclusion investment area. Maj Invest advises three financial inclusion funds: Danish Microfinance Partners K/S (Fund I), Maj Invest Financial Inclusion Fund II K/S and Maj Invest Financial Inclusion Fund III K/S. The funds are financial-first impact investing funds.
The concept of financial inclusion originated in 1976 with the work of Professor Muhammad Yunus at the University of Chittagong in Bangladesh to develop a credit delivery system to provide banking services to rural poor people. Professor Muhammad Yunus received the Nobel Peace Prize for his efforts to alleviate poverty as the pioneer and founding father of the microfinance model. Financial inclusion is the provision of a broad range of financial services such as services and products in respect of credit, deposits, lending, payment services, money transfers, insurance, pension, housing and mortgage financing.
The financial inclusion sector has strong underlying market growth, driven by a large demand for formal financial services from a client base of billions of people below the middle class in emerging markets. 1.7 billion people are currently without any access to financial services, and 3-4 billion people have only limited access and are in demand for more formal and affordable financial services of higher quality to improve their livelihood and develop local economies.
The client group consist of people that are below the middle class but above extreme poverty. They are typically small business owners performing productive income-generating activities, or small agricultural productions supporting their households with produce for own consumption and for sale. They have limited financial resources and do not have enough income or a strong financial record to become clients of traditional banks which typically cater to the middle class. The client group consist of primarily microloan borrowers with typical average loan sizes of USD 200 to 2,500, and of micro, small and medium-sized enterprise (MSME) borrowers with average loan sizes of USD 2,500 to 15,000.
Interest rates on credit products in the financial inclusion sector are typically around 25-35 percent per year, which is a consequence of the high capital and operational costs of this business model requiring a close interaction with clients. In addition, some countries have considerable levels of inflation that must be compensated for in profitability. As a result, financial institutions have a very small profit margin on each transaction, and profitability is only obtained by financial institutions with a high level of efficiency and a large volume of small transactions.
Each financial institution set their own interest rates in accordance with national legislation and financial regulation, local competition, capital and operational costs. Most often the financial inclusion sector provides an attractive alternative of formal and fair financial services to the target client group, compared to the black market.
It is required that the financial institutions are committed to internationally recognized social and client protection standards. This is ensured during an investment process with a thorough due diligence, and during the ownership period as active owners with close monitoring and cooperation through board participation. Close cooperation with the management of the financial institutions and other shareholders is ongoing to avoid non-compliance and breaches of such standards. In the event of non-compliance, the funds will intervene, engage in dialogue with all stakeholders, ensure that an action plan is developed to solve the issues as quickly as possible. As a last resort, it may become necessary to exit the investment if it proves impossible to change inappropriate practices.
To support our financial inclusion activities in Latin America and Asia, Maj Invest has established offices in Lima and Mumbai, where our dedicated teams with local knowledge operate.