Microfinance Investment Funds - Key Features

This paper identifies Microfinance Investment Funds as an increasing source of funding to microentrepreneurs via MFIs established in developing countries. It lists the following similarities and differences between MFIs and Microfinance Investment Funds:

• Similarities:
  • Development objective;
  • Professionalism of managers;
  • Diminishing requirements for subsidies;
  • Need for additional funding for sustainable growth.
• Differences:
  • MFIs have realized that financial returns are as necessary as social returns and have transformed into more formal and professional institutions - Microfinance Investment Funds are just beginning to realize this.

The paper:

• Identifies the following key players in Microfinance Investment Funds – private donors, development agencies, private individuals, and institutional investors;
• Distributes Microfinance Investment Funds based on their objectives, risk profiles and size;
• Discusses the increasing commercialization of the microfinance sector, looking at:
  • Socially responsible investment and financial opportunities;
  • The growing involvement of the traditional sector in the international and local capital markets.

The paper concludes by outlining the following benefits of Microfinance Investment Funds:

• Risk diversification;
• Investor and donor harmonization and coordination;
• Wide range of financial and social objectives;
• Financial discipline;
• Flexible instruments;
• Effective public-private partnership.