Successful Due Diligence When Evaluating Microfinance Investment Vehicles

Presenting a framework for evaluating MIVs

This whitepaper provides a basic framework for investors to evaluate microfinance investment vehicles (MIVs).

As MFIs continue to seek more accessible and affordable financing, little information is freely available to the public regarding the due diligence required when evaluating MIVs. Key factors that investors must consider include:

  • Ownership of the MIV, general partners, fund managers' experience and staff;
  • Investment committee members and structure;
  • Investment strategy, investment philosophy and process;
  • Due diligence process within the MIV;
  • Portfolio construction process, geographic diversification, targets and management of portfolio and investment due diligence process;
  • Risk management processes and controls, credit evaluation process, country risk, regulatory risk, foreign exchange risk management and liquidity management;
  • MIV operations and back office support;
  • Accounting and reporting procedures and regularity of reports sent to investors;
  • Investment returns, historical performance of the MIV and robustness of the return model behind the fund;
  • Clarity and impact measurement of social mission.

An increased focus on fundamental issues and transparency in microfinance makes the industry more attractive to investors. As more investors enter microfinance, MIVs will play a greater role in connecting private capital to MFIs.

About this Publication

By Stanisljevic, Z.