The Investment Opportunity in Microfinance: An Overview of Current Trends and Issues

This paper examines the various trends that characterize investment in microfinance. Investment in microfinance has a social impact as well as prospects of profit for investors. To achieve social impact and financial objectives, investors need to be sensitive to MFIs position in their markets in terms of operating costs and interest rates, and the underlying economics of their borrowers. Trends in microfinance investment include:

• Increasing emphasis on quality of service, including cost;
• Proliferation of shareholder-owned MFIs;
• Increased need for equity;
• Sources of equity funding such as foreign private investment, public, local and philanthropic investors, commercial banks downscaling and equity focused microfinance investment vehicles.

The paper states that investing in MFIs is no different from any other emerging market private equity investment. Microfinance is not only another asset class but also a powerful contributor to the alleviation of poverty. Finally, the paper discusses the social returns on investment and the risks involved, social performance measurement, global standards on social performance and the limitations of microfinance.