Does Foreign Ownership in Microfinance Interfere with Local Development

This paper explores consequences of the increasing trend towards foreign ownership among MFIs. In particular, it examines whether foreign ownership in microfinance interferes with the establishment of locally-driven MFIs, and thus, with the over¬all local development.

The paper examines data from a predominantly Latin American sample of MFIs from MIX-Market. Findings include:

• Local as well as foreign equity investments in MFIs increased during the sample period;
• Proportion of foreign equity in MFIs increased much faster;
• Evolution of foreign ownership varied according to different MFI categories and locations, differ-ent types of investors and investors country of origin;
• Countries most active in foreign ownership in microfinance include Germany, the USA and The Netherlands.

The increase in foreign ownership of MFIs has positive and negative effects for development. Foreign entities would make all the strategic and opera¬tional decisions concerning the MFI. This could lead to a loss of the local recognition of an MFI, and might interfere with the aim of establishing locally-driven MFIs, servicing empowered local clients, constructing local financial markets and developing a local economic environment.