Paper
Microfinance: An Emerging Investment Opportunity
A closer look at the role that investors might play in the development of microfinance sector
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20 pages
This study discusses the microfinance sector transitioning process from a donor-driven, NGO dominated framework, towards an increasing involvement of capital markets. The main reasons it identifies are:
- Microfinance institutions (MFIs) have begun exploring new funding opportunities;
- Private sector investors appreciate microfinance investments.
The study examines the increase in involvement of private sector investors and foreign and MFI funding on seven core assumptions:
- Private sectors getting attracted to microfinance investment vehicles (MIVs);
- Increase in socially responsible investments;
- Change in regulatory framework;
- Increase in number of joint investment activities;
- Frequent use of structured debt instruments;
- Microfinance being regarded as an attractive supplement for portfolios;
- MFIs absorbing commercial funding and effective channeling.
Discussing various MIVs, it states that they are:
- Microfinance development funds that act as non-profit entities or cooperatives, and primarily target the development of MFIs;
- Dual-objective microfinance or commercially oriented vehicles aiming a balance between social and financial returns;
- Commercial funds which have predetermined financial rate of return.
The study demonstrates that a greater degree of institutional and individual investor involvement would not only narrow the funding gap of MFIs and scale up microfinance, but also offer a dual nature investment opportunity.
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