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New CGAP Report charts rise in Foreign Investment.
Microfinance is experiencing an investment boom as more and more private
investors are getting involved, according to a new report from CGAP, the
Consultative Group to Assist the Poor, a microfinance industry body housed at
the World Bank.
Between 2004 and 2007, foreign investment in microfinance institutions that
provide loans and savings for poor people in developing countries more than
quadrupled to reach a total of US$5.7 billion. So far, the vast bulk of this
private investment in microfinance is socially motivated, says the paper,
entitled Foreign Capital Investment in Microfinance: Balancing Social and
Financial Returns.
There are now 93 investment funds specializing in microfinance. Fifty- three of
these have been established since 2005. "With daily headlines trumpeting big
investors seeking huge profits in microfinance, it is tempting to believe that
this investment boom is about mainstream investors coming into the sector
looking for purely financial returns. In fact, most investment in microfinance
today involves a social motivation alongside a financial motivation," says
Elizabeth Littlefield, CEO of CGAP. "Since social mission is at the core of
microfinance, there is a natural fit with socially motivated investors."
Despite the entrance of new private investors, Development Financial
Institutions - the private sector arms of government-owned development
institutions, such as the World Bank's IFC which is doubling its investment in
microfinance every year - provide about half of the total foreign investment
into microfinance today. Development Financial Institutions have more than
doubled their investment in microfinance over the last three years from just
over US$1 billion in 2004 to US$3 billion at the end of December 2007.
Individual investors are also growing, whether high net worth individuals such
as Pierre Omidyar of eBay who gave $100 million to Tufts University to create
the Omidyar-Tufts Microfinance Fund, or retail investors whose interest in
microfinance has been facilitated by new online lending platforms such as
kiva.org or the SEC-registered Microplace.com.
Institutional investors, from international banks such as Citibank, global
investment banks such as Morgan Stanley, and global insurance companies such as
TIAA-CREF, plus emerging markets private equity investors such as Sequoia,
Blackstone Group, Carlyle Group and Dubai-based Legatum who are investing in
the most developed microfinance markets such as Mexico and India, show that
microfinance is gaining increasing credibility as an investment for the right
investors.
According to the co-author of the report, Xavier Reille, the high level of
investment and the involvement of these new private investors is good news for
microfinance: "These new investors are introducing investment banking and asset
management skills that are helping the sector to develop," says Reille. But the
report warns that investment is still highly concentrated in a small number of
investment-ready institutions. The largest 150 microfinance institutions
account for 86 percent of the total assets, and investments are highly
concentrated in a very few markets. "While this funding could help reach
millions of poor people with financial services, it is still limited to
well-developed microfinance markets in Latin America and South Asia, and
failing to reach the vast majority of poor people living in Sub-Saharan
Africa," says report co-author Sarah Forster. "It's these more difficult
markets that microfinance must reach if it is to have a real impact on poor
people's lives."
Download the report, Foreign Capital Investment in Microfinance: Balancing
Social and Financial Returns (Pdf)
http://www.cgap.org/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/Documents/FocusNote_44.pdf (To view this Web site, please
copy and paste the URL into your browser.)
CGAP (The Consultative Group to Assist the Poor) is the world's leading
resource for the advancement of microfinance. CGAP provides the financial
industry, governments and investors with objective information, expert opinion,
and innovative solutions to effectively expand access to finance for poor
people around the world. More information: www.cgap.org
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