The Future of the Microfinance Industry

Louise Westerlind, [http://www.cgap.org/|CGAP]:

Five big things in 2007:

  • Exponential growth of socially responsible investment (SRI): (>US$4 trillion)
  • Investors made big strides in addressing the need for local currency products
  • [http://www.nextbillion.net/newsroom/2007/12/17/compartamos-ipo-sparks-ideological-debate-over-microfinance|Compartamos IPO] triggered healthy discussion about investors' motivations. (Stock ticker BMOSF).
  • THe handful of IFIs and the 95 MIVs investing in microfinance are doubling their aggregate portfolio

From 2005-2007, socially responsible investment assets surged by 6x average investments: 18% growth, while the average growth for broader managed assets was only 3%.

11% of US total assets under management today is involved in SRI, but only a tiny fraction of SRI is in emerging markets.

There are many differences among the tiers of microfinance institutions.

The top microfinance institutions (tier 1) re the engine of the industry. They receive 91% of foreign capital investments.

The investment landscape is getting more and more complex: international finance institutions, indivdiuals, institutional investors. They invest through governments and networks, and also through microfinance investment vehicles.

The microfinance institutions landscape is also getting more complex.

MIVs are overtaking IFIs in amount of investments.

MIV: microfinance investment vehicle
IFI: international finance institution

Most investments are in hard currency, and most are done in greenfield institutions.

The net return on microfinance funds are getting better and better. But there are risks. Different industry players have different concerns:

Practitioner concerns: competition, cost control, inappropriate regulate, interest rates, credit risk.

Latin American market is different than Africa. In Africa, the leading concerns are too little funding, management quality.

2008 observations:
*More money but lack of investment options
*Market for fixed income is looking...
*The private equity market may look more promising

http://www.mixmarket.org/

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