Microfinance Investment Vehicle: An Emerging Asset class (MFInsights)

This study reviews Microfinance Investment Vehicle (MIV), an intermediary that mobilizes funds from investors to MFIs in the developing countries.

The study further describes two survey carried out by MicroRate to generate information about MIVs and meet the information needs of investors. Some of the results and findings from the MIV survey are as under:

• The MIV’s growth rates have been driven by active distribution, financial innovation, and high involvement from International Finance Institutions and the private sector;
• Economies of scale appearing with 13 funds have total asset of more than US$20million;
• The fastest growing MIVs are the largest and over 70% of growth comes from just 6 MIVs;
• Geographically, MIV microfinance portfolio is heavily concentrated in Latin America;
• Commercial MIVs tend to invest in debt financing;
• The highest growth rates are registered by those MIVs which have better resource placement in MFIs;
• There exists tremendous diversity. Only a small number are funds others are specialized investment vehicles like Collateralized Debt Obligation (CDO).

Finally the study concludes with the trends and implications:

• Shift to more commercial source of funding will continue and accelerate;
• As MIVs grow they will have to deal with social investors seeking real double bottom line returns;
• More information on MIVs would be required to compare performance and judge MIVs;
• MIV’s are a fast growing industry with eagerness for microfinance which might result in increased bad investment decisions.