microfinance institutions (MFIs) continue to grow
August 5, 2010 at 4:16 AM Leave a comment
Investments in microfinance institutions (MFIs) continue to grow. Significant media attention, as well as the emergence of new distribution channels, has generated a strong interest among new investors.
Retail investors, high net worth individuals and institutional investors all invest in MFIs. These investors often seek a double bottom line (i.e. both a social and a financial return). Investors can make either a direct investment in a microfinance investment vehicle (MIV), which in turn invests in a MFI, or an indirect investment via a fund-of-funds, which in turn invests in a MIV. Investments can range from US$100 to millions of dollars depending on the type of investor and vehicle.
MIV deals typically include debt, equity, or guarantee transactions, with debt deals being the most common. As the field is still in its infancy, equity transactions are not as prevalent.
Currently, the global average transaction is about US$1.5 million, and most transactions are hard-currency transactions. However, to support the growth of the industry and its risk management, it is critical that investments are done in local currency.
Ratings and assessments of MFIs play an important role in the investment process. The role of ratings and assessments is two-fold: 1) to allow MFIs to make an internal performance evaluation and adjust accordingly; and 2) to support investors in their due diligence process.
Source: CGAP
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