Investing in Microfinance: Making Money, Making a Difference
This paper discusses microfinance investments and the role of The Inter-American Development Bank (IDB) in the success of microfinance in Latin America and the Caribbean (LAC).
Microfinance has evolved into a business model that offers a variety of financial services to microenterprise owners and workers. It now attracts a growing number of individual and institutional investors. Most of them participate via professionally managed microfinance funds that channel money to MFIs. IDB and its private sector instruments, including the Multilateral Investment Fund (MIF), have played a large role in the success of microfinance in LAC. IDB:
- Was the first institution to provide loans for microcredit projects without sovereign guarantees;
- Assisted small NGOs in testing new credit schemes;
- Funded state-owned organizations that provided financing to MFIs.
Current microfinance project design reflects the continued commercialization of the industry, with investments often structured alongside private financiers and development partners. Modern microfinance transactions are structured in a way that attracts traditional financiers and also taps local and international capital markets. MIF directly participates in the corporate governance of investee institutions in IDB's new projects.
