Microfinance Investment Funds: Objectives, Players, Potential (Paper)

Publication Date: Nov 2004
Published by: Kreditanstalt fur Wiederaufbau (KfW)
Document Type: Paper

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Are the microfinance investment funds following the same path as the microfinance institutions?

This paper draws a parallel between the development of microfinance institutions (MFIs) and that of microfinance investment funds (MFIFs) using the following as bases:

• Social and development objectives;
• Potential and necessary financial returns along with social return;
• Institutionalization and professionalization;
• Social return and financial return balance;
• Funding and investors.

The paper states that:

• MFIs are evolving from donor funded institutions to true commercial entities;
• MFIFs are slightly less developed in their move towards greater commercialization.

Further, the document analyzes the various actors in the field of microfinance investment funds:

• Key players:
  • 43 existing and new MFIFs;
  • 16 development agencies, foundations and NGOs acting as investors.
• Types of investors:
  • Private donors;
  • Development agencies;
  • Private individuals;
  • Institutional investors.
• Distribution of MFIFs based on:
  • Overall risk profile;
  • Objectives;
  • Size.

The document analyzes:

• The increasing commercialization of microfinance;
• The new structures being established;
• The gradual interest of the traditional financial sector.

The paper concludes by summarizing the main benefits of microfinance investment funds.