Microfinance Private Equity

Microfinance investor demand rises worldwide in spite of financial crisis

MicroRate has published its State of Microfinance Investment : The 2010 MicroRate MIV Survey highlighting that interest in microfinance funds remains strong despite the recession.

Microfinance investment vehicles (MIVs) are a relatively new category of funds that mobilize investments in rich countries and channel them to microfinance institutions (MFIs) in the developing world. “The flow of funding through MIVs is one of the little noticed triumphs of development,” says Sebastian von Stauffenberg, CEO of MicroRate.

While MIVs’ assets continued to grow at a commendable 22% (2009) reaching over $6 billion, prior to the financial crisis, the annual rate of growth was 97% (2007). “Pre-crisis growth rates were not sustainable. MIVs now have an opportunity to strengthen their organizations and lending criteria, focusing on the needs of MFIs,” reflects Sebastian von Stauffenberg.microrate microfinance investment survey

“While demand from microfinance investors remains, it is being met by weaker demand for funding from MFIs,” says Sebastian von Stauffenberg. “We’ve observed that MFIs tend to borrow from local funding sources first and MIV funding is used during peaks of growth. When MFI growth slows as it has in 2008 and 2009, demand for MIV funding decreases disproportionally.

MIVs are now faced with notably higher levels of liquidity than previously observed due to this decrease in MFI’s need for funding.” The significant increase in liquidity was exacerbated by lending to MFIs by public development finance institutions (DFIs).

A liquidity-providing facility was announced by DFIs at the end of 2008, but by the time the funds were disbursed in mid-2009, there was no credit shortage to relieve and instead these funds displaced private funding. Damian von Stauffenberg, founder of MicroRate, comments “One would wish that DFIs were less intent on meeting their lending targets and more attuned to the needs of the institutions they are trying to help.”

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