Paper
Raising Equity through Microfinance Investment Funds
A look at the potential of various types of microfinance investment funds
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This paper analyzes Microfinance Investment Funds (MFIFs), their investment in equity and their various types.
The paper states that:
- There are three main categories of MFIFs: microfinance development funds, quasi commercial microfinance funds and commercial microfinance funds;
- Their key differentiating factor is their balance between social and financial aspects;
- They also differ in their aim, focus, financial returns, donors/investors and technical assistance.
The paper discusses the challenges that MFIs investing in equity face in the areas of:
- Leverage of funds;
- Valuation of equity participations and exit;
- Bridging the gap between dividend distribution or retained earnings;
- Seed capital and critical mass;
- Distribution (how to shift the funding of mature MFIs).
The paper offers the following conclusions about the future of these MFIFs:
- Quasi-commercial MFIFs will continue to invest mainly in equity, with a focus on maintaining the development mission;
- Microfinance development funds will continue to attract funding from socially responsible investors to mature and less mature MFIs;
- Commercial MFIFs will continue to grow the fastest as microfinance becomes part of the investors' investment portfolio;
- Commercial investors will include institutional investors and private individuals.
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