International Investment Funds: Mobilising Investors towards Microfinance

This paper studies various investment vehicles that provide financial services to microfinance institutions (MFIs). It analyzes a number of criteria such as the objectives of the funds, the product mix, the different legal structures, the nature of the shareholders, who the sponsors and the fund managers, how these funds are distributed, etc.

The paper further studies the portfolio structure, risk profile, size and distribution of the microfinance investment funds and states that:

• Although microfinance investment funds are gradually moving towards a greater commercialization, they are probably not ripe yet for true capital markets;
• The International Financial Institutions (IFIs) have played a central role in creating the first funds solely dedicated to microfinance;
• With the fast development of the microfinance industry and the limited resources of IFIs, other sources of funds have to be found.

The paper concludes that:

• As the commercialization of microfinance increases, investment funds in their broad definition are a convenient tool to collectively invest in a diversified pool of MFIs;
• The type of structure, as well as the location of the structure, will depend on the objectives of the promoters as well as the investors targeted;
• Microfinance specialists, together with traditional capital markets professionals, need to continue to build and promote the adequate structures to meet this demand.