Raising Capital Through Equity Investments in MFIs: Lessons From ACLEDA, Cambodia
This paper presents issues in equity investment in microfinance institutions (MFIs). The paper focuses on microfinance projects, nongovernmental organizations (NGOs) and companies that are geared for growth and need to attract capital from investors.
The paper does not consider cooperative MFIs (village banks or credit unions) that are owned by their members, who provide equity capital themselves to finance the expansion of their own organization.
Further, the paper provides:
- A general description of development stages of microfinance industry in a country.
- Details on three different types of investors that provide equity to MFIs and their focus:
- Donors (grants);
- Public investors;
- Private investors (share capital).
- The fundamentals of the investment analysis that public and private investors apply:
- Development phase of the microfinance industry;
- Leadership status;
- A clear vision and commitment to become a profitable MFI;
- A realistic business plan;
- Profitability and growth;
- An appropriate ownership structure;
- An appropriate governance structure;
- Proper management information systems;
- A conducive environment;
- A sound exit strategy
Finally, the paper presents a case study that describes the development of an MFI, ACLEDA (the Association of Cambodian Local Economic Development Agencies) that has been successful in attracting equity from investors.