MICROCAPITAL STORY: ING Review of Deutsche Bank’s Microfinance Activities, the Microcredit Development Fund, and the Global Commercial Microfinance Consortium

The Dutch Bank ING published its updated 2008 study on commercial bank microfinance activity, called “A Billion to Gain? The Next Phase”. A MicroCapital summary of the paper can be read here. MicroCapital is reviewing the microfinance activities of several of large international banks covered in the study, such as Deutsche Bank (DB).

Although not one of the 20 largest global finance institutions by market value, DB is a large global investment bank which operates in over 75 countries. In 2007, DB had a net income of EUR 6.5 billion, total assets of EUR 2.0 trillion, and a ROE of 18.0 percent.

Regarding its microfinance activities, DB arranges and manages 6 funds for a total of roughly USD 500 million in social investments. The first fund was launched over 10 years ago, and the bank is now active in 45 countries, lending money to roughly 100 partners. DB also has a 13 member Community Development Finance Group, of which 8 are dedicated full-time to microfinance investments.

With USD 5 million in assets, the DB Microcredit Development fund supplies credit to nearly 50 microfinance institutions (MFIs) in 27 countries. The fund was the first commercially-oriented microfinance fund by a global bank and gives loans ranging from USD 25,000 to 250,000. In 2005, DB launched the DB Start Up Fund, which focuses on MFIs in the earliest phase of development, complementing private equity stakeholders with loans. This fund offers loans of USD 25,000 to 100,000 and has USD 1.5 million in assets, a third of which was invested by DB.

DB also coordinates and manages the Global Commercial Microfinance Consortium (GCMC), which was launched in 2005. GCMC is a partnership between three development agencies, philanthropists, and 13 institutional investors. The fund assists commercially-focused MFIs access capital in locally-demanded currency via loans of up to USD 4.5 million. Currently, GCMC has USD 80.6 million assets, USD 1 million of which was invested by DB, and has approved over 40 deals in 21 countries. MicroCapital covered the fund’s initiation, and more articles about the fund’s deals can be found here.

In 2006, DB invested EUR 34 million in the European Fund for Southeast Europe, part of which went to an asset securitization deal for a large Bulgarian MFI. In September 2007, 21 German investors funded the DB German Fund for Microfinance with USD 83.3 million. The first sub-debt fund rated by Fitch, it provides loans of up to USD 6.9 million to MFIs in 15 countries. DB also invested USD 5.5 million in the fund. For further details, please see the following MicroCapital article.

Aside from funds, DB also invested in the Indian microfinance private equity company Aavishkaar Goodwell in 2007. Other investors were the Netherlands Development Finance Company and the IFC, a member of the World Bank Group. The combined investment was USD 8 million and was covered in the following MicroCapital article.

Aside from microfinance, DB also has two grant-based funds: the Eye Fund and the Enterprise Social Fund. With USD 20 million in assets, the Eye Fund supports sustainable eye care in the developing world. Click here for MicroCapital coverage of the Eye Fund. The second fund helps create low-cost housing for poor families in the United States. Finally, DB is expanding a technical assistance program in which treasury risk employees from DB and MFIs exchange places for a given period.

In 2008, DB plans to initiate 4 new funds: a Rain Forest Preservation Fund, an Education Fund, a Technology for Microfinance Development Fund, and a USD 200 million Multi-Issuer Rated Deal similar to GCMC. DB is also working on a multi-facility investment vehicle which includes grants, debt, and equity for single-country investors or donors.

by Jennifer Lee

Additional Resources:

ING Microfinance: “A Billion to Gain? The Next Phase”, by Matthijs Boúúaert, March 2008.

Deutsche: Home, Microfinance, Microcredit Development Fund, Global Commercial Microfinance Consortium

MicroCapital Story: “Deutsche Bank Leads New Global Commercial Microfinance Consortium, a $75 Million microfinance Investment Fund”, November 7, 2005.

MicroCapital Story: “Deutsche Bank Places a EUR 60 million (USD 84 million) Securitization of Subordinated Microcredits, the First to be Given and External Credit Rating”, by Amy Rennison, September 28, 2007.

MicroCapital Story: “The International Finance Corporation, Netherlands Development Finance Company, and Deutsche Bank Invest Jointly in Indian Microfinance Private Equity Company Aavishkaar Goodwell”, August 1, 2007.

MicroCapital Story: “Deutsche Bank Expands on its Microfinance Platform through the Creation of Eye Fund I”, March 9, 2007.