Success amidst the turbulance

Dirk Elsen, Director of Emerging Markets

2015 was a challenging year for Emerging Markets and so far, this picture has not changed much in 2016. The ongoing volatility in the markets where we operate is connected to different economic and geopolitical developments, such as the plummeting commodity prices (including oil), the devaluation of the Russian ruble and Chinese yuan, and mounting political tensions as a result, amongst others, of the armed conflict in Syria. Despite the mounting turbulence, we managed to retain our success; our emerging markets funds collectively grew by EUR 112 million in 2015, an increase of 17.9% to EUR 734 million. We entered into new relationships with financial institutions in El Salvador, Nicaragua, Peru, Bolivia, Mali, Nigeria, DR Congo, Bolivia, Uzbekistan, Sri Lanka, India, China, and Myanmar. We further developed our trade finance portfolio, including cocoa cooperative COCCAV in Ivory Coast, and made our first renewable energy investment in a non-financial institution: M-KOPA Solar in East Africa.

Regional differences

Even with our growth, we continue to monitor the geopolitical and economic developments because they do have an impact on the inclusive finance sector, although it differs per region.

We expect the current volatility to continue for some time.

In Central Asia, for example, the oil-exporting countries and the countries whose economies are strongly tied to the slowing Russian economy were severely hit. The Azerbaijan manat devaluated by 43% against the US dollar by the end of 2015, whereas the Kazakh tenge followed the devaluation of the Russian ruble to a record low. As a result, many countries in this region face an economic slowdown. An additional problem for most countries in the region is the decrease in remittances from migrant workers living in Russia. They have less to send back to their families, which has a negative impact on the economy of many Central Asian countries. Consequently, many microfinance institutions in this region are facing a challenging time.

On the other hand, many Central American and South Asian economies, like India are benefitting from the current fall in oil prices. These countries are net energy importers, who see their balance of payments improve. And in the case of Central America, the recovery of the US economy provides a strong boost through increased trade and remittances from migrant workers.

Outlook Emerging Markets

Combined, all of these developments made 2015 an eventful year for our Emerging Markets activities. The volatility in the markets also had an adverse impact on our funds’ performance. From a macro-economic perspective the outlook is not entirely positive. We expect the current volatility to continue for some time. In our investment policy we will take the current economic and political circumstances into account by diversifying our country and currency exposures and by adjusting our hedging policy.

Despite the mounting turbulence, we managed to retain our success.

However, the potential for growth across most inclusive finance markets is high as financial exclusion remains widespread. Despite the rapid growth of the financial inclusion rate over the past few years, 2 billion people worldwide still have no access to financial services. The need for inclusive finance is evident and so are the opportunities for us to continue making a strong contribution to a more inclusive world.

Inclusive Finance

Triodos Investment Management has been active as an investor in the microfinance/inclusive finance sector since 1994 through a number of specialised funds. At year-end 2015, these funds provide finance to 100+ microfinance institutions and banks in 45 countries in Latin America, Asia, Africa and Eastern Europe. These institutions reach 15.5 million low-income people with loans. Approximately 10.2 million low-income people use savings services offered by these institutions. Triodos Investment Management holds equity stakes in over 20 financial institutions; a senior staff member of Triodos Bank joins the Board of Directors and actively contributes to the governance of these institutions.

For an overview of our activities in emerging markets, please visit the Emerging Markets investment strategy page