Martin Cech is fund manager of Erste Asset Management’s sustainable microfinance fund ERSTE RESPONSIBLE MICROFINANCE. In this interview, we want to talk about how sustainable investing can reduce child labour.
What does a microfinance fund do differently than a normal fund?
Cech: The goal of microfinance funds is not only to achieve a positive return, but also to exert a positive social impact. These funds are therefore also referred to as impact funds, i.e. funds whose positive impact can be measured. The invested money helps people in developing and emerging countries to build a professional existence. Microfinance is therefore also a tool to reduce poverty in the world, which is often the root cause of child labour.
How can this impact be measured?
Cech: Due to the very broad diversification across more than 80 countries and more than 400 microfinance institutions, an exact measuring is not easy. But we do know that via our fund some 15,000 people have enjoyed fair loans at the moment. Taking into account their social environment, about 100,000 people currently benefit from the investments of our ERSTE RESPONSIBLE MICROFINANCE fund. In addition to the direct debtors who use loans to implement their business ideas, their children and employees are also indirect beneficiaries of microfinance. We also measure the share of loans that are used for professional investment rather than for consumption on an ongoing basis. That ratio is currently around 85%.
Why do microfinance funds so often come with a focus on emerging economies? Isn’t there any need in Europe?
Cech: Microfinance has its origin in Bangladesh, where Muhammad Yunus founded Grameen Bank in order to realise his idea of microfinance funds. Due to the global demographic and the strong contrast in the standard of living, microfinance plays an important role in many emerging and developing countries in Latin America, Africa, Central Asia, South-East Asia, and Central and Eastern Europe. But there are also initiatives in the industrialised countries that follow the motto “Banking the unbankable”, often operated by the government or NGOs. Here, the goal is to ease access to financial services for peoplew with financial distress. In Austria, “Zweite Sparkasse” has successfully implemented this model since 2006.
What influence can microfinance funds have on child labour?
Cech: Our umbrella fund is only invested in funds that exclude “exploitative child labour” and the infringement with labour rights in their investment guidelines. It is impossible to ensure 100% checkability. But prior to investing, we check the microfinance funds locally and take samples by visiting final customers and looking at their business practices. Globally speaking, a large part of child labour happens in agriculture, followed by the service industry. Microfinance is meant to give customers the opportunity to build a professional existence for themselves. Almost two thirds of the recipients of microfinance are women. As a side project, children are given better education opportunities. According to a study by Dehejia and Gatti from 2002, “… access to credit markets can reduce child labour much more effectively than restrictions or direct bans.”
ERSTE RESPONSIBLE MICROFINANCE is an umbrella fund that invests mainly in existing microfinance funds. In some cases, the fund also participates directly in granting loans to microfinance institutes that work with the money, grant micro loans, and operate in other financial services such as micro insurance, electronic banking, mobile banking etc.
Der ERSTE RESPONSIBLE MICROFINANCE ist ein Dachfonds, der vorrangig in bestehende Mikrofinanzfonds investiert. Vereinzelt beteiligt sich der Fonds auch direkt an der Kreditvergabe an Mikrofinanzinstitute (MFIs), die mit geliehenem Geld arbeiten, damit Mikrokredite vergeben aber auch andere Finanzdienstleistungen wie Mikroversicherungen, Sparprodukte, Electronic Banking, Handy Banking etc. betrieben werden können.
|Risk notes according to 2011 Austrian Investment Fund Act|
The Austrian Financial Market Authority (FMA) hereby warns: In accordance with section 166, para. 1, point 3 of the 2011 Austrian Investment Fund Act, ERSTE RESPONSIBLE MICROFINANCE solely invests in alternative investments that might bear higher investment risks compared with traditional investments. These investments in particular may incur losses up to the total amount of the invested capital.
ERSTE RESPONSIBLE MICROFINANCE may make significant investments in investment funds (UCITS, UCI) pursuant to section 71 of the 2011 Austrian Investment Fund Act.
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