Ms. Schröder, what have you done recently?

Oh, I'll have to think about that for a moment. I think my last major purchase was a racing bike that I bought a year or two ago.

Did you buy the bike with good intentions or do you really use it?

I often ride a road bike, it's my sport. I've also been to the Pyrenees and the Alps, and recently to Sardinia. It's been my hobby for about four years.

Why ride a road bike of all things? Jogging would be much less complicated.

I still do that too, especially when I'm traveling. However, this type of sport puts more strain on the joints. I also like hiking through the mountains. Some time ago, I joined a cycling club in Frankfurt, where many members rode road bikes and persuaded me to give it a try. I think it's a great sport, it awakens my ambition. When I want to cross a certain Alpine pass, it's a challenge that also shows me my limits.

Your decision to set up your own microfinance company in 2006 also sounds ambitious. How did you come up with this idea?

I got to know the subject of microloans in 2005. At that time, an employee of the KfW development bank approached me privately because she wanted to set up a microfinance fund. I was immediately enthusiastic about the idea of developing a financial product from loans to small entrepreneurs in developing countries. So I flew to Peru to see for myself that this concept works. And then I took the plunge and founded Invest in Visions GmbH.

You then launched the first microfinance fund for private investors in 2011. Why did it take six years?

We had to do a lot of lobbying with associations and the Federal Ministry of Finance. There was an initial attempt in 2007, but the legal requirements were too strict at the time. Then - also thanks to our lobbying - the laws were amended and we were able to get started.

Did investors even have this topic on their radar at the time?

At the time, the topic was completely unknown. Many people asked me why I was doing this now, as I was in a good position at Schroders Asset Management. But I no longer wanted to launch the 395th equity fund that was only minimally different from the others. I missed the feeling of making a difference in the world in my job - even though it can actually make a big difference what investors put their money into. However, hardly anyone had heard the term "impact investment" back then. At my farewell party, my colleagues joked that I would probably turn up in a poncho and Birkenstocks soon - that was the reputation impact investment had back then.

Today, however, the word "impact investment" tends to stand for nice marketing promises. What concrete impact will I have if I invest in your microfinance fund?

You're right, there is a lot of greenwashing or impact washing in the industry. If I invest in a sustainable equity fund, can I really achieve an impact if the portfolio manager buys a share and sells it in two months' time? Honestly, I don't think so. Our fund works differently. We give loans to microfinance institutions in developing countries, which use this money to give loans to people who want to build a livelihood.

What are microfinance institutions?

In principle, these are banks in developing countries that have focused on a target group that does not normally have access to financial services. The people in this target group are usually poor and cannot offer any collateral. Or they live so far out in the countryside that they have no access to the financial infrastructure.

Do I understand correctly: you are giving loans to a type of bank that gives loans to people who are not actually creditworthy. Isn't that highly risky?

I can understand these fears, but I can also say that the average repayment rate for these loans is 97%. This means that only three percent of the loans are not repaid. In addition, the loan sizes are very manageable, we are talking about an average of 1,200 US dollars per loan. We therefore have a very small portfolio and the risks are very, very broadly diversified. In addition, these three percent defaults are initially the problem of the microfinance institutions, as we do not grant the loans directly. The microfinance institutions factor loan defaults into their operating costs. We ourselves have not yet had any defaults.

Why do so few loans default?

Borrowers in the local countries often work in the service sector or agriculture. They sell goods on the roadside, drive cabs or cultivate fields. They need the loan to expand their stall, buy a better vehicle or a larger field. Thanks to these - from our point of view small - investments, their margins increase significantly, often reaching 50 percent or even higher. They are therefore also able to repay the loans. Even though interest rates average 24 percent.

Isn't that far too high?

By our standards, yes, but these are the interest rates in the local currencies, you have to remember that. But of course there are also black sheep among the microcredit providers who charge significantly higher interest rates than what is usual on the market. We don't work with them. The microcredit providers we work with make sure that the borrowers do not over-indebt themselves.

Have you personally met people whose microloans were financed by your fund?

Yes, and that is an absolutely great feeling. For example, I once stayed with a family in Uganda for a week. The father had received a loan of 500 US dollars and used it to buy land to plant coffee. His greatest wish was to use the proceeds to pay for his children's education and he managed to do that. He has eleven children and all of them have been able to attend school. Two have already been to university. This kind of thing encourages me to keep believing in the concept of microfinance.

Personal details: Edda Schröder was born in 1964 in a small village in East Westphalia and completed a banking apprenticeship and then a degree in business administration. Before founding Invest in Visions in 2006, she worked at Schroders Asset Management. In 2011, she launched the first German microfinance fund for private investors. The fund grants loans to microfinance institutions in developing countries. These institutions grant loans to small entrepreneurs who are not eligible for a traditional loan but want to expand their business. Invest in Visions managed wealth in the amount of 959.5 million euros in 2021.

‍