Microfinance - On the Road to Capital Markets

This article discusses the ongoing integration of MFIs into global capital markets. It highlights challenges that confront these organizations in becoming sustainable enterprises with social as well as commercial objectives. Despite the powerful momentum created around microfinance in the last two decades, the industry is still far from reaching the entire unbanked population. The paper states that:

• Funding from capital markets provides an opportunity to integrate microfinance into mainstream capital markets;
• Securitization is likely to be the quickest route for the industry to gain investor acceptance as an asset class and access to mainstream capital markets;
• Despite recent proliferation of funding sources, there is considerable disagreement within the industry about fundamentals such as the proper mission of MFI funders.

For microfinance to flourish as an asset class, leading market participants, namely, issuers, investors and intermediaries, must engage in a debate over the optimal allocation of scarce funding resources. This would help them reach a consensus about how much and what kind of support should come from private sources and publicly subsidized capital, and where it is most appropriately allocated in the market.