Microfinance Investment Vehicles in Sub-Saharan Africa: Constraints and Potentials

This paper sheds light on potential and constraints of possible interactions between Microfinance Investment Vehicles (MIVs) and the two main African microfinance models namely the cooperative model, well developed in West Africa, and the commercial model, found in East Africa.

The paper states that the African microfinance sector requires resources that can only be provided by private investors, given MFIs' funding needs in Africa, in particular with regard to equity investments and capacity building. MIVs could be suitable for the financing of rural and microenterprises, which are still seen as highly risky investments, provided some conditions are met, such as the inclusion of Development financial institutions that play the role of catalysts by initiating investments and taking risks that private investors would be hesitant to take. Conclusions include:

• Rural and microenterprises require more volumes and longer term funding, but have great potential;
• Interest in African microfinance remains limited due to MIVs' excessive risks perception;
• Increasing demand for socially responsible investments and the need for microfinance investment portfolios diversification will push MIVs to commit to investments in Africa.