Paper

Positioning Microfinance Institutions for the Capital Markets

How can microfinance institutions attract private capital investment?
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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.