Microfinance Investment: A Primer

This paper describes changes in the microfinance investment landscape. It discusses investment flows into microfinance, their diversity, and changes that can be expected in the future. The paper states that microfinance investment opportunities were once under the purview of multilateral financial institutions, governments, and nonprofit organizations but have now grown significantly for private investors and institutions. This trend reflects investors growing attraction to microfinance and impact investments, which emphasize both financial and social returns. Key points include:

• Microfinance investment vehicles (MIVs) which emerged in the 1990s were the first funds to invest in MFIs;
• MIVs channel private capital to MFIs through loans, equity, and guarantees;
• Factors such as high growth enable MIVs and their investors to provide financial access to poor and under-served populations, recoup their capital, and earn interest;
• Investors can currently select from a wide variety of MIVs reflecting diversity of fund objectives and underlying assets;
• MIVs invest in MFIs based on criteria such as institution size, performance, location, client demographic, loan methodology, and range of products and services;
• Access to standardized, objective information, and robust analysis is essential as the microfinance investment industry matures.