Microfinance Investors Adjust Strategy in Tougher Market Conditions

This Brief presents major trends within the microfinance investment vehicles (MIV) sector emerging from this year’s CGAP MIV survey powered by Symbiotics. It highlights the growing commitment among MIVs to sound environment, social and governance (ESG) practices.

MIVs are confronting the most challenging investment environment since the 1990s. Over the past two years, microfinance investors witnessed some debt defaults and a major slowdown in demand for capital in sharp contrast after the heady market growth experienced in previous years. Trends include:

• Local currency funding is growing strong;
• Returns are suffering as cash holdings surge;
• MIVs are exhibiting stronger commitment to ESG issues;
• MIVs have been categorized into four peer groups based on their funding base and legal structure.

MIV asset managers expect a growth rate of around 15% in 2010. With record cash positions, asset managers are scaling back their fundraising, focusing their efforts on risk management and investment diversification, and actively searching for investment opportunities in large frontier microfinance markets. They are also likely to continue to improve their ESG practices to differentiate their fund from other investment funds.