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Microfinance is experiencing an investment boom fuelled by socially responsible investors

Microfinance is experiencing an investment boom fuelled by socially responsible investors, according to a new CGAP Focus Note by Sarah Forster, Geoeconomics and Xavier Reille, CGAP, the Consultative Group to Assist the Poor, a microfinance industry body housed at the World Bank. Between 2004 and 2007, foreign investment in microfinance institutions that provide loans and savings for poor people in developing countries more than tripled to reach a total of US$4 billion. So far, the vast bulk of this private investment in microfinance is socially motivated, says the paper, entitled Foreign Capital Investment in Microfinance: Balancing Social and Financial Returns.

This high level of investment and the growing involvement of private investors is good news for microfinance: "These new investors are introducing investment banking and asset management skills that are helping the sector to develop" says Reille. But the report warns that investment is still highly concentrated in a small number of investment-ready institutions. "While this funding could help reach millions of poor people with financial services, it is still limited to well-developed microfinance markets in Latin America and South Asia, and failing to reach the vast majority of poor people living in Sub-Saharan Africa", says report co-author Sarah Forster. "It´s these more difficult markets that microfinance must reach if it is to have a real impact on poor people´s lives."

The latest trends in international microfinance investment have relevance to the UK. They show how it´s possible to attract private investment into social enterprise if one can create appropriate investment vehicles and scaleable business models which deliver both social and financial returns.

CGAP (The Consultative Group to Assist the Poor) is the world's leading resource for the advancement of microfinance. More information: www.cgap.org

To download the pdf version of the report, please submit your full name and email address.

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