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Microfinance investment: Ups, downs, and future outlook

by on Sep 28, 2011  |  posted in Microfinance  |  0 Comments
Microfinance has recently taken a bit of bruising in the media, and investors have taken note. This negative publicity, combined with tighter government regulation on microfinance and the lingering effects of the financial crisis, led to the lowest growth rate (12%) of total microfinance investment vehicle (MIV) assets in the past six years that MicroRate has surveyed this industry.  As a rating agency dedicated to evaluating performance and risk in microfinance institutions (MFIs) and MIVs, MicroRate surveys MIVs each year to provide a more complete picture of the forces and issues driving our markets. Our latest survey found that MIVs, entities connecting private capital and microfinance, had a difficult time investing in MFIs because of competition with low-priced, domestic funding in key countries. This leaves us asking, “What is the future of microfinance investment, and given these challenges, will investors lose interest and look for another type of impact investment?” Thankfully, the story of microfinance investment in 2010 is not completely negative. While growth was sluggish in the beginning of 2010, MIVs noted improved performance of their underlying assets, the MFIs, along with increasing demand for funding. Given that trend, MIVs estimate a rebound in growth for 2011 into the 20-30% range. It also seems that the bad publicity has had some constructive effects on the industry that will lead to future growth and development. A key take-away from the survey is the energetic, industry-wide commitment to improved social performance measurement and reporting. Institutions at all levels are subscribing to world-class standards of client protection, and incorporating social performance targets into their funding terms and surveillance processes. During the six years that MicroRate has been conducting its annual survey and analysis, we have witnessed the dramatic growth of MIVs connecting private capital with microfinance. It has been a period marked by exuberance, dramatic reversals, and now, cautious optimism. Throughout these changes, MIVs have played a decidedly critical role in microfinance funding around the world.  We expect that this role will only increase and grow in the future, but at more prudent rates than before the global financial crisis and with a stronger focus on social performance.

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