The International Funding of Microfinance Institutions: An Overview

This paper discusses foreign funding of microfinance. To finance their expected strong growth, MFIs are in need of a huge amount of funding. Currently, foreign sources of funding meet a small portion of need, and offer significant opportunities for foreign investors. Foreign funding was initially dominated by non-profit investors followed by socially responsible investors and commercial investors. Trends in foreign funding of microfinance include:

• Investments are frequently guided by professional asset managers;
• Capital market structures like portfolio securitizations, collateralized debt obligations and initial public offerings have recently emerged;
• Apex institutions channel funds to multiple MFIs in a single recipient country;
• Main drivers of microfinance include international financial institutions and microfinance investment vehicles;
• MFI-initiated debt securitization deals and listing of MFI shares are also noteworthy;
• Capital market deals have become a significant feature of international microfinance intermediation in the last two to three years.

Many investors and intermediaries are testing the feasibility of engagement in MFI domestic currencies. International investors would add more value to microfinance development if they were able to tolerate more risk and work with less well-established MFIs.