The year 2025 could mark a turning point for microfinance investments. After a phase in which rising interest rates favoured other asset classes, microfinance is becoming more attractive again. Microfinance gives low-income people in developing countries access to financial services, enabling them to become economically independent and improve their living conditions.
The turnaround in interest rates in 2022 led to higher yields in the money and bond markets. Microfinance, known for its low correlation to traditional markets, shone with stability in 2022 while the financial markets corrected sharply. However, its attractiveness declined thereafter because microfinance interest rates rose only with a time lag.
Microfinance 2025: a promising outlook
Interest rates in Switzerland have been falling significantly again since 2024. At 0.45%, the yield on a 10-year Swiss Confederation bond is currently half as high as it was a year ago. In this environment, microfinance investments are also interesting again from a yield perspective. Interest rates are in positive territory even after hedging in CHF, the low correlation to the financial markets was confirmed once again in 2022 and the need for financing in fast-growing but underserved emerging markets is unbroken. The social relevance is also high: at a time when many Western donors are drastically cutting their development aid in the South, private investment is all the more necessary. The outlook for the microfinance asset class is therefore positive.
Microfinance: how to invest?
At the end of 2024, Invethos entered into a partnership with Impact Asset Management (I-AM) in Vienna, a company that has specialised in microfinance for many years. At the same time, we ended our collaboration with Symbiotics and the Emerging Impact Bond Fund (EIBF). This fund was too small for our needs, while I-AM's Vision Microfinance Fund has assets of over EUR 550 million. Investments can be made in CHF, EUR and USD, the fund has been in existence for almost 20 years and is broadly diversified across countries and counterparties. The fund directly refinances microfinance institutions and thus enables low-income people in developing countries to access important financial services. In addition, I-AM offers a microfinance local currency fund that grants loans directly in local currencies. Investors take on a higher currency risk here, but the returns are correspondingly higher and a need for refinancing in local currency is met in the target markets.
Microfinance remains an interesting opportunity to achieve a financial return and at the same time make a positive contribution to social development. For further information, please contact Romana Doser at Invethos.