Microfinancing seems like what I am doing at the end of the month handling my indeed ‘micro’ bank balance, but it turns out it is not. Microfinance is the provision of banking services to individuals or small businesses who lack or have difficulties to get access to conventional financial services. It includes microcredits, micro-insurance products, checking and savings accounts, fund transfers and in particular financial and business education1 2. The intention of microfinance is to enable people and businesses the opportunity to develop and thus enhance social and financial inclusion by creating an opportunity to become self-sufficient.
The basic idea of microfinancing has been around for centuries in various forms such as informal borrowing and lending 3. The Concept has gained wide attention of financial and development sectors and has found many supporters 4. It is practiced all over the world in developing as well as in first world countries. However, it does show limitations due to structural and cultural issues. It is criticized that in some cases microcredits drive poor households into larger debts rather than out of them. 5 6 Nevertheless, many success stories are based on microfinancing and typically payback rates are shown to be very high7. It is estimated that, globally, MFI reached more than 130 million low-income and underserved clients at the end of 20178.
Another term related to microfinancing is ‘social banking’ or ‘social impact banking’. You could think of it like my grandma helping me out at the end of the month, investing in me because she believes in me. She believes I will positively contribute to society and therefore have a positive impact. Social impact banking aims specifically at conscious sustainable investments that create a positive social impact, often by providing microfinance services and using impact assessments to measure changes and improvement.
In Austria, the Erste Group and UniCredit Bank Austria are involved in this area. UniCredit has already been proven to be successful in Italy: within the first year of operations UniCredit has approved 72.9 million euros of financing, 25.300 students, as well as 370 UniCredit tutors, have been involved in the financial education programs and they delivered a total of 1.245.000 certified training hours9.
Microfinancing for micro-enterprises is one out of three pillars that form this newly launched Social Impact Banking initiative of UniCredit Bank Austria. The bank provides financing up to 25.000 Euro to entrepreneurs that would have problems to get financing via traditional banking channels. In addition to the financial resources, they plan on supporting entrepreneurs by transferring skills and giving access to a network of mentors 10 11. Financial education and inclusion, as well as financing and promotion for organizations and enterprises with a positive social impact, are the other two pillars. The latter’s target is to enable people with great visions and desires to start their own company by providing the initial starting capital or to get the capital to develop and strengthen their micro-enterprise. UniCredit seeks to generate wider societal benefits and sustainable economic returns on the bank’s investments, which they aim to reinvest in further Social Impact Banking initiatives.
Microfinancing has evolved from microcredits to a full range of various bank services. The basic concept of Social Impact Banking as it is now practiced by UniCredit has been around for many years but has been reinvented within a modernized approach. It thereby follows a current and sustainable concept, taking into account environmental, social and governance (’ESG’) risks, which is in fact, a favorable and encouraging development. To what extent, however, the initiatives will have a measurable positive impact on society we will see in a few years’ time. As well as my grandma will find out if her investments in me will flourish …