Tapping the Financial Markets for Microfinance: Grameen Foundation USAs Promotion of this Emerging Trend

This paper attempts to define the role of the financial markets in the microfinance sector. Stating that the global unmet demand for microfinance is pegged at around US $296 billion, the paper makes a case for long term role of the financial markets in biding the huge unmet demand.

The paper explains that financial market intervention would benefit the poor as:

• Professionally managed profitable microfinance institutions (MFIs) are emerging from the sector;
• Evidence shows that MFIs serving the poorest are most cost efficient and have the highest portfolio quality;
• Evidence suggests that the poverty level of customers does not impact the profitability of the MFIs.

The paper states that there has been an initial interest in the financial markets and highlights the following transactions:

• US $15 Million bond issues by Compartamose in Mexico;
• US $4.3 Million securitization deal between ICICI Bank and Share Microfin in India;
• US $40 Million bond issue by Blue Orchard microfinance securities I in international markets.

The paper concludes by:

• Recommending that access to financial markets is not a short term solution but a long term prescription for Microfinance markets;
• Encouraging organizations such as Grameen Foundation, USA, to play a proactive role in developing financial products that may help MFIs to access commercial markets and improve outreach.