Foreign investment in microfinance : debt and equity from quasi-commercial investors
Reille, Xavier | Ivatury, Gautam
Microfinance institutions (MFIs) will only be able to serve massive numbers of the poor with high-quality financial services when these MFIs have tapped commercial sources of funding and deposits. Commercial and quasi-commercial foreign investment is one growing and potentially important source of funds for promising MFIs. For microfinance institutions that are eligible to receive it, foreign investment can help achieve scale by mobilizing local investment and improving management and governance. A recent CGAP study on the volume of foreign investment in microfinance has revealed that foreign public, and private investors have allocated US$ 1 billion to microfinance, and have already committed about US$ 680 million to MFIs through debt, equity, and guarantees. The note stipulates foreign investment is an important and growing component of total funding for the microfinance industry, yet it remains small relative to domestic sources of funds. But, although foreign investment can play an important role in improving governance, catalyzing local financing, and increasing MFI transparency, these benefits are not evenly distributed. Therefore, it is suggested the volume of commercially-oriented foreign investment in microfinance will only increase, and reach deeper markets as investors and MFIs adopt greater transparency and standardization.
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