WHO’S WHO IN MICROFINANCE: SNS Asset Management

SNS Asset Management is a subsidiary of SNS REAAL, the fifth largest financial institution in the Netherlands. The asset management division was founded in 1997 after the merger of SNS bank and De Hollandse Koopmansbank. The firm, which is a participant in the United Nation’s Principles for Responsible Investing initiative (PRI), currently has EUR 19b in assets under management.

SNS Asset Management approaches the microfinance sector from a socially-responsible angle that still focuses on the benefits competition. According to the Responsible Investor, an online magazine, Theo Brouwers, co-director at SNS Asset Management, believes that, despite current debates over for-profit microfinance, the key to microfinance succeeding in poverty alleviation is to funnel institutional capital to developing countries lacking funds.

An excellent example of the SNS approach is its view on Mexico, a country that has seen a great deal of controversy over for-profit Compartamos. According to Brouwers, “In Mexico, we [SNS Asset Management] looked to invest in smaller microfinance companies to bring in more competition in the right way.” So, SNS aimed to improve microfinance in Mexico not by attacking the high interest rates of Compartamos but by investing in smaller MFIs that could take advantage of the lack of competition to become profitable. These actions represent a belief that the investments will lead to an expansion of microfinance services to those in need and increased competition, which will likely lead to an improvement in services and further decrease in interest rates.

Looking to the future, Brouwers believes that the micro-lending sector has the potential to reach about USD 250b, a significant increase from the USD 5.5b in borrowing this year. He also envisions a consolidation of microfinance institutions (MFIs) and a possible move from group lending to individual lending. These views are likely to shape SNS’s future investments in microfinance.

SNS Asset Management’s first foray into microfinance investing began in January 2007 with the establishment of the SNS Institutional Microfinance Fund. The fund, which has been capped at EUR 160m, is open only to Dutch institutional investors. The fund invests 70 percent of its capital in loans to MFIs and the other 30 percent in equity. It also uses subordinated and convertible debt in addition to straight loans. Loans from the fund can be denominated in local currency, United States Dollars or Euros. Although difference sources present slightly varying figures, individual investments in the fund ranged from USD 500,000 to approximately USD 10m. According to the Responsible Investor, the fund had net return of 6.4% in its first year of operations.

While a list of recipient MFIs was not readily available, MIX Market reports that the fund has invested in Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Cambodia, Georgia, Nicaragua, Peru, Mexico, Kosovo, Bolivia, and Ecuador. Also, it is known that the fund provided a loan of approximately USD 5m to the Micro Finance Bank of Azerbaijan (MFBA) denominated in local currency. To learn more about the SNS Institutional Microfinance Fund, please read these previous MicroCapital stories.

Due to the popularity and subsequent oversubscription of the initial SNS Institutional Microfinance Fund, the Responsible Investor reports that SNS Asset Management is currently fundraising for a second EUR 100m fund. The new fund will be identical to the first in structure and will be run by Developing World Markets (DWM), an American investment bank and asset management firm which also ran the first fund in conjunction with Triple Jump, a Dutch asset management company. SNS Asset Management also recently purchased a 10 percent share of DWM. The new fund is not yet listed on MIX Market, the Microfinance Information eXchange. The original SNS fund is listed, although financial details differ significantly from those in other reports. This is likely because the date on the MIX Market data occurred when the fund was just getting underway and had not completed its investments nor had SNS began moving towards creating a second fund.

According to the Responsible Investor: “Brouwers says the development of microfinance at SNS has also led it to examine related initiatives across the company, including what he says will be an innovative suite of fund products in the sectors of food, agriculture, land and water themes in Africa, developed specifically to meet the fiduciary needs of pension funds.” An example of this new direction includes the SNS REAAL Water Fund, which “invests in drinking water, public hygiene, sanitation systems, irrigation and waste water and water management projects in Africa, Asia and Eastern Europe.”

SNS has also commissioned studies from the University of Groningen in order to help demonstrate the potential of investing in microfinance to investors. According to the Responsible Investor, “one demonstrated that microfinance could contribute to the diversification of an investment portfolio. Another demonstrated that larger microfinance projects could have bigger social impacts.”

By Greg Casey, Research Assistant

Additional Resources:

Responsible Investor: “SNS Asset Management: the growing pains and gains of microfinance”

MicroCapital story, December 10, 2007: “Micro Finance Bank of Azerbaijan Receives First Private Investor Loan in Manat Currency (AZN)”

MicroCapital story, June 18, 2007: “SNS REAAL’s SNS Asset Management of the Netherlands, Developing World Markets (DWM), and Triple Jump Conclude Investment Opportunity of SNS Institutional Microfinance Fund”

MicroCapital story, February 16, 2007: “SNS Asset Management launches a micro-credit fund: SNS Institutional Microfinance Fund in Partnership with Developing World Markets and Triple Jump”

MicroCapital story, August 26, 2007: “Philip Vassiliou of Legatum Capital Publishes Editorial Supporting For-Profit Microfinance in The Economic Times”

MicroCapital story, August 1, 2008: “Nobel Laureate Muhammad Yunus Speaks Out Against For-Profit Microfinance from Asia-Pacific Microcredit Summit”

MicroCapital story, April 7, 2008: “New York Times Reports on Controversial Microfinance Giant Banco Compartamos of Mexico”

MIX Market: Profile for SNS Institutional Microfinance Fund

SNS Asset Management: Home

SNS Asset Management: SNS Institutional Microfinance Fund