Positioning Microfinance Institutions for the Capital Markets
This paper explores key elements of the microfinance industry and their relationship to increased access to capital markets. The paper:
- Identifies specific areas in which the microfinance industry can consider making improvements for better access to investments, such as:
- Industry language;
- Organizational behavior of microfinance institutions (MFIs);
- Deal structure.
- Uses the following research methodology:
- Conversations with investment professionals;
- Review of industry research;
- Practitioner experience.
The paper argues:
- The current approach in microfinance, regarding the raising of capital, presents challenges to attracting investors;
- Most institutions have a non-profit mindset and seek donor support;
- For microfinance to raise private investment, MFIs must orient themselves in a new direction;
- There are a number of examples of successful private capital investment.
The paper offers the following suggestions for MFIs to increase their likelihood of success in attracting private investment:
- Professional presentation - in terms of its space, management and staff;
- Accurate documentation - up-to-date financial books and a good management information system (MIS);
- Transparency in dealings;
- Sound governance;
- Suitable ownership structure - the MFI should be a private, incorporated, legal entity;
- Demonstration of sustained profitability.