Positioning Microfinance Institutions for the Capital Markets

This paper explores key elements of the microfinance industry and their relationship to increased access to capital markets. The paper:

• Identifies specific areas in which the microfinance industry can consider making improvements for better access to investments, such as:
  • Industry language;
  • Organizational behavior of microfinance institutions (MFIs);
  • Deal structure.
• Uses the following research methodology:
  • Conversations with investment professionals;
  • Review of industry research;
  • Practitioner experience.

The paper argues:

• The current approach in microfinance, regarding the raising of capital, presents challenges to attracting investors;
• Most institutions have a non-profit mindset and seek donor support;
• For microfinance to raise private investment, MFIs must orient themselves in a new direction;
• There are a number of examples of successful private capital investment.

The paper offers the following suggestions for MFIs to increase their likelihood of success in attracting private investment:

• Professional presentation - in terms of its space, management and staff;
• Accurate documentation - up-to-date financial books and a good management information system (MIS);
• Transparency in dealings;
• Sound governance;
• Suitable ownership structure - the MFI should be a private, incorporated, legal entity;
• Demonstration of sustained profitability.