Quite rare that one of the Wall Street news sources reports on microfinance, but Bloomberg had this to say today: “Banco Comercial Portugues SA (BCP PL): Portugal’s biggest bank in terms of loans plans to start a microcredit unit next month targeting borrowers who wouldn’t qualify for loans otherwise. The unit, which aims for 2,500 clients within two years, will make loans, normally of up to 15,000 euros and for as long as four years, to the unemployed, immigrants, new university graduates and others seeking funding for small- business ideas. The shares slipped 1 cent, or 0.4 percent, to 2.27 euros.”

Four organizations have joined forces to create a $35 million syndicate fund for microfinance investment in Africa. The fund will loan money to African microfinance institutions (MFIs), and by coordinating lending, seek to lend more efficiently.

The contributors are no strangers to microfinance investment. Most significantly, the Dutch social investment society OikoCredit is one of the world leaders in microfinance investment with a loan portfolio of E60 million. Also on board is Stromme Microfinance, a Norwegian Christian charity that has funded NGOs and churches since 1976. Less information is available on the other two contributors. Jitegemee Trust, which was created as a joint venture between the Kenyan and Dutch governments, is dedicated to providing aid to arid regions. The European Union and Kenyan government fund the Micro Enterprise Support Programme Trust (MESP). The MESP provides monetary and institutional support for MFIs. But it appears to be typical of quasi-governmental agencies that try to do everything from making loans to developing products to providing technical assistance to public policy.

The syndicate will be based in Kenya, which is home to 56 MFIs in addition to the four commercial banks involved in microfinance. The United Nations Capital Development Fund estimates that 1.1 million Kenyans depend on informal organizations for financial services, while another 3.8 million are served by MFIs, banks, and NGOs. Kenya’s largest MFIs are Equity Bank with a loan portfolio over $40 million and K-Rep Bank with a portfolio of $27 million.

In addition, the syndicate will consider loan applications from MFIs throughout Africa. Africa is home to untold thousands of MFIs—only nine have loan portfolios of $30 million or more—but the need is still immense. According to a Microfinance Information Exchange report on African microfinance, only 1.5% of Africa’s population has access to financial services.

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) “Group Raises Sh2.6bn to Fund Small Business”
3) “Overview of the Outreach and Financial Performance of Microfinance Institutions in Africa”
4) Microfinance Information Exchange

To access this article visit: “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America”

Authors: John Weiss and Heather Montgomery

Qualitative Information: Introduced as evolving for different purposes, microfinance within Latin America åö initially having a greater focus on commercial profitability åö is contrasted against Asia and the ideals of the Grameen Bank, a famous Bangladeshi microfinance institution (MFI). The authors propose that although NGOs are still important players within Latin America, there is a significant trend toward the commercialization of microfinance and thus MFIs’ focus on profitability. The article suggests that rural, impoverished regions particularly within larger countries such as Brazil, Mexico, and Argentina are under-addressed, but neither provides examples to support these statements nor distinguishes the types of MFIs and their target markets. While the authors agree that there are indications that MFIs have an impact on borrowers within Latin America, MFIs remain unsuccessful at reaching the poorest åö although they offer little propositions for MFIs to both achieve profitability and successfully touch the pooråÐest. They do, however, suggest more studies are needed on the impact and cost effectiveness of microfinance programs.

Downsizing of commercial banks, greater number of partnerships, increasing amount of local currency deposits, and the integration of the commercial and microfinance sectors—all current trends—are tightly linked.

As commercial banks have realized that poor people’s finance can be profitable, an increasing number have gone down market to tap lower income clientele. The World Bank’s microfinance unit, the Consultative Group to Assist the Poor, estimates that there are currently around 225 commercial banks “engaged in microfinance”— a figure that is increasing.

The main reasons for the emergence of commercial banks at the low-income level are: 1) Competition in existing markets driving banks into new ones, 2) Excellent repayment rates by micro-entrepreneurs, and 3) Technology allowing the poor greater access while transactions remain cost-effective. Though governments in some developing countries have required commercial banks to work in certain sectors, banks are increasingly lured in by the low risk, stability, and potential growth opportunities in the microfinance market. They are entering either directly by utilizing their own resources such as an internal microfinance unit, or with existing providers through partnerships.

Partnerships between MFIs and commercial banks have enabled each to leverage their competitive advantages. While MFIs are more knowledgeable at the community level for instance, banks have the advantage in greater access to capital and existing infrastructure. The meeting of the commercial and microfinance sectors has come about through their collaboration. MFIs have scaled up to “access higher levels of credit, augment their portfolios, and strengthen management and efficiency levels,” while commercial banks have purposely scaled down to profit from this emerging industry. Both types of institutions “scale-up and scale-down” by redesigning their financial products to suite the clientele they are targeting.

Integration between these sectors leads to another current trend in microfinance—the increase in deposits as a source of funding. It is important for MFIs to turn from foreign debt investment, which is vulnerable to foreign exchange risk, to their own domestic and regional markets so that domestic savings can be transformed into “productive loans for the poor.” Due to limited knowledge and a lack of trust beyond the community, the local poor may therefore be more inclined to make deposits into local savings accounts. Within the last year for instance, the number of accessible savings and loan accounts among the poor has gone from 750 million to 1.4 billion. Furthermore, and importantly, foreign currency risk can be avoided when MFIs borrow and lend in the local denomination.

One of the main links between these trends is technological advancement. Efficient technology has allowed smaller and simpler banking transactions to become more cost effective, motivating commercial banks to scale down and reach a greater number of people. Low cost ATMS with picture and voice prompts for example, are bringing in rural and illiterate clientele. An in-country example is the State Bank of India, which is reaching out to whole villages through 10,000 personal computer kiosks with ATMs. Regional MFIs that are scaling up on the other hand, are able to link into international ATM networks, forcing greater integration of the two sectors. Local currency deposits have the potential to increase further from an expansion of service machines and phone banking systems. Such progress in physical banking and financial services infrastructure poises microfinance to emerge as an asset class.

1) Main article discussed in entry, United Nations Capital Development Fund (UNCDF): “Microfinance—Where We Are Now: And Where We Are Headed.”
2) The Consultative Group to Assist the Poor (CGAP): “Commercial Banks and Microfinance: Evolving Models of Success.”
3) “Microfinance Sustainability through Private Sector Partnership.”
4) Inter American Development Bank (IADB): “Savings Becomes First Source of Funding for Microfinance.”
5) “Managing Foreign Exchange Risk: The Search for an Innovation to Lower Costs to Poor People.”
6) “Microfinance: Facts and Figures.”
7) “Financial Institutions with a ‘Double Bottom Line’: Implications for the Future of Microfinance.”
8) “WSBI’s Contribution to the Collection of Data on Accessible Finance: Telling the Supply Side of the Story.”

To access this article visit: “Microfinance and Socially Responsible Investment in Latin America”

Authors: J. Cheng and M. De Sousa-Shields

Qualitative Information: The article argues that main reason for low investment in microfinance is that investors do not understand the industry, and therefore do not have the expertise to decide where to invest in microfinance. One solution is to invest in intermediary funds, which have the expertise to evaluate MFIs and make good investments. Rather than educate investors about MFIs, the article argues that MFIs should adapt to investors. MFIs lack of credibility with investors because many are from non-profit backgrounds. The article recommends that MFIs use financial tools that investors understand, such as portfolio securitization and bond offerings. Lastly, MFIs need better measurements of their social impact for investors.

There are about 300 commercially viable microfinance institutions (MFIs) worldwide. The total investment portfolio for these institutions is estimated to be $3.5 billion and is growing at a rate of 20-30% per year. Those MFIs, however, are rarities among the 10,000 MFIs operating today. So what separates the few commercially viable MFIs from the huge host of laggards?

1) “Commercial Microfinance: The Right Choice for Everyone?”
2) "The Impact of Interest Rate Ceilings on Microfinance." CGAP. May 2004
3) “Expanding Commercial Microfinance in Rural Areas: Constraints and Opportunities.”
4) “Microcredit Interest Rates.”
5) Subscription only: "Strategies That Fit Emerging Markets." Harvard Business Review: June 20056) “The Influence of Donors on Microcredit Sustainability: A Case Study of the Three Microcredit Programs in Vietnam.”

To access this article visit: “The Microfinance Experience of Latin America and the Caribbean”

Author: A. Ramirez, of the Inter-American Development Bank SME Division

Qualitative Information: The beginning of the article has a concise history of microfinance in Latin America. Mr. Ramirez describes the virtuous and vicious cycles of MFIs; small MFIs have higher costs per loan that translates into a competitive disadvantage and prevents them from expanding operations. Large MFIs, on the other hand, have lower costs, which gives them an advantage and allows them to expand even more. Mr. Ramirez points out lots of problems, but does not provide any solutions or recommendations for reaching more clients. Nor does he explicitly discuss the commercialization of microfinance, which seems quite relevant to the microfinance experience of Latin America and the Caribbean.

The Ugandan market for microfinance services has over 1,300 microfinance institutions (MFIs) in operation. While one would hope that such a glut of MFIs would necessarily ensure the market was being served, this is unfortunately not the case.

According to the Bank of Uganda (BoU), the industry suffers from an urgent shortage of licensed deposit-taking institutions. However, this does not mean that deposit services are not being offered illegally. Among Uganda’s many MFIs, just 3 are licensed to take deposits, while many more offer such services, even though unlicensed.

The scarcity of formal ways to save comes at an enormous cost to poor people, who have limited access to formal, regulated financial services (p. 3). They are generally left with no alternative to the non-regulated MFIs that accept deposits illegally. In Uganda, 99% of clients saving in the informal sector report having lost some of their savings (p.3), with losses averaging 22% of the amount saved in the past year.

If non-regulated microlenders follow the letter of the law, that is, they do not accept savings deposits, they forego valuable capital for their loan portfolios. Prospects are dim for small operations that may serve as few as 10 people (which make up the majority of MFIs in Uganda). The government’s effort to weed out unlicensed deposit-taking institutions includes setting minimum asset holding requirements in order to be eligible to legally take deposits.

In an ostensibly inclusive move, the Bank of Uganda is encouraging all microfinance institutions to apply for licenses to take deposits. This is far harder than it sounds. Smaller microlenders will not be able to meet this regulatory burden for many reasons, including taxes, onerous paperwork, and of course, reserve and capital requirements.

We have yet to see a government launch a wholesale attack on microlenders who illegally accept deposits. Will Uganda be the first? Probably not, as Ugandan government officials would be hesitant to take any action that might upset the misguided donors who have created this problem by subsidizing microlenders outside the law.

Additional Resources

1) Subscription only: "Central Bank to Crack Down on Unlicensed MFIs."

2) "Central Bank Warns MFIs On Deposit-Taking."

3) Consultative Group to Assist the Poor (CGAP): "Regulation and Supervision of Microfinance."

4) The Monitor: "Register or Close Down, MFIs Told."

"El Financiero," a Mexican Finance newspaper, tells a story where, at first, all is bright for our hero microfinance: the Mexican government representatives talk of poverty reduction and the displacement of loan sharks. These loans are really working! The story then crescendos: the situation is so good for these micro-businesses that the Mexican government now plans to establish "The Fast Opening Business System," a new government program to help all the poor micro-entrepreneurs register their businesses formally. Does this mean greater regulatory burden for all those struggling to make ends meet?

A point of explanation is needed: people from the developed world often assume that micro-enterprises are new ‘start-ups,’ but such is not the case. Due to the dearth of formal jobs in the developing world, most people are self-employed, and have always been self-employed. So, the Mexican government is not making it easier for common folks to ‘open’ a business as the catchy name of their new bureau implies. Instead, the government seeks the registration of businesses that micro-entrepreneurs have been running for years to feed their families.

Is there something in this for the micro-business owners other than new taxes, paperwork, and bureaucrats winking for a greased palm?

Of course the formal registration of micro-enterprises should be supported, and of course one of the great benefits of successful microfinance is that it creates wealth, which in turn enlarges the tax base, hopefully helping to stabilize and clean up dreadful governments. However, this should be a natural evolution. Once a micro-enterprise starts to grow, the proprietor has ever-more reasons to formalize her business: i.e. renting commercial space, offering the business as a micro-loan guarantee, or offering benefits to her employees. In this way, the best thing governments can do for new recipients of micro-loans is stay out of the way, not think up new bureaus over U.N. luncheons.

Moreover, plenty of reform of existing legislation is essential if microfinance is to reach its potential, such as streamlining red tape for all businesses. The article ends on yet another gloomy note. Amidst the excitement of the U.N. meeting, an attending government official generously offers the important participation of his particular bureau, adding that more government programs should get involved!

1) Don’t place ceilings on interest rates
2) Promote the concept of microfinance as a crucial means to resolve poverty
3) Adapt existing legislation rather than promulgate new laws
4) Eliminate unfair competition from public institutions, which often loan at below market-level interest rates
5) Actively work to improve and stabilize the business environment and general macroeconomic situation (benefits include reducing interest rates to make more capital available, stabilizing interest and exchange rates, improving infrastructure)
6) Scale-up microfinance by integrating it with the formal financial sector (benefits include economies of scale, risk management expertise, physical infrastructure and branch networks, and information, administrative and accounting systems)
7) Encourage commercial entry into the financial sector by reducing high reserve requirements to increase available capital
8) Non-prudential regulation
9)Encourage a diversified environment of regulated and unregulated institutions that meet performance standards
10) Develop transparency and performance standards

1) Main article discussed in entry, El Financiero: "Viables."
2) Consultative Group to Assist the Poor (CGAP): "The Impact of Interest Rate Ceilings on Microfinance"
3) Women’s World Banking (WWB): "Policies, Regulations and Systems that Promote Sustainable Financial Services to the Poor and Poorest"
4) "Impact of Government Regulation on Microfinance"
5) CGAP: "Guiding Principles on Regulation and Supervision of Microfinance"
6) "Regulatory Requirements for Microfinance: a Comparison of Legal Frameworks in 11 Countries Worldwide"

The Journal of Microfinance is one of the industry standards. In the Winter 2004 issue, Peter Crabb addresses the critical issue of foreign exchange risk management, which is arguably the hottest and most relevant topic in microfinance investment this year. While his article provides a clear primer, he does not address the elephant in the room: why, with all the hundreds of millions of tax and charity dollars spent on microfinance, do we as an industry still not have an effective way to manage this essential risk? Analysis, analysis, and analysis everywhere, but nary a drop of commentary on why the industry remains dysfunctional! No one seems up to the task of tackling this high-finance challenge. And since those who write the commentary are paid by the same donations and tax dollars as those who should step up, do not hold your breath for a critique of microfinance leadership on this issue, or any other for that matter.

Additional Resources

1) Subscription only, main article discussed in entry, Journal of Microfinance: "Foreign Exchange Risk Management." Journal of Microfinance: Winter 2004.
2) Women’s World Banking (WWB): “Foreign Exchange Risk Management in Microfinance.”
3) Microfinance Matters: "Managing Foreign Exchange Risk: the Search For an Innovation to Lower Costs to Poor People."
4) Microcapital Institute: “Currency Risk in Microfinance.”

As part of its effort to increase credit flow to rural farmers, India’s National Bank for Agriculture and Rural Development (NABARD) will extend a pilot project, initially launched in eight states, to include the entire country this year.

The project is geared towards promoting and facilitating entrepreneurship among farmers. The project aims to educate farmers, who are encouraged to create "joint liability groups" which are akin to traditional self-help groups (SHGs) yet comprise a cross-section of farmers and participate in agri-business workshops. The number of such groups has grown by 49% in the past year. The workshops are meant to expose farmers to viable investment options such as minor irrigation and agricultural engineering.

For the past two decades, agriculture credit has grown by 15%. But with newly focused attention on the potential of this group, credit availability has increased by 40%. Sadly, the history of government-driven expansion of credit often creates more poverty, not less.

Additional Resources

1) Main article discussed in entry, Hindu Business Line: "NABARD to Extend Farm Credit to All States."

You may have heard the hype about the eBay fortune being on its way to revolutionizing philanthropy through for-profit investing, but the numbers tell a different story.

Why so much attention to Pierre Omidyar? High stakes: he is estimated to be worth $10 billion, only 1% of which he plans to retain. The rest will be given away or invested with a social purpose. In June, he demonstrated his commitment to microfinance with a $4 million grant to the nonprofit Grameen Foundation USA (GFUSA).

(Omidyar.net extends the commitment to microfinance with an online discussion board with a microfinance focus.)

The Omidyar Foundation undertook a facelift when it was transformed into the newly christened Omidyar Network in 2003, now housing both a foundation and an arm that makes investments.

The news that the Network would revolutionize philanthropy by no longer purely donating to nonprofits "shocked the philanthropic community," as reported in Business Week and Newsweek. However, despite his belief that "for-profit companies can have a big impact on society," most of Mr. Omidyar’s activity is grant-making. In the second half of 2004, less than $5 million was invested in social-mission for-profits, while a prorated $91 million was granted to nonprofits. From these numbers, we have to wonder what’s stopping Mr. Omidyar from giving this revolutionary idea a chance to get off the ground.

That said, the Network reporting on its site is not clear. So, we are using some guess work here.Omidyar Network uses the terminology “non-profit investment” and “pro-profit investment” as its two super-categories when reporting on its website. What does this mean? For instance, the donation to the Grameen Foundation was a “non-profit investment.” How is this different than a grant? After our inquiries to Omidyar Network, we have guessed that there is no difference.

In the Omidyar Network’s defense, the language has indeed gotten quite muddy around the new field of ‘social enterprise,’ where organizations with a social mission can either be non-profit or for-profit.May we suggest a clear distinction: is a return on capital expected? If yes, then it is an investment. If no, it is a grant.

In other words, our critique may be misplaced if Mr. Omidyar’s group is making ‘program-related investments’ (PRIs) to non-profits instead of grants. A PRI is the legal term describing when a foundation expects a return on its grant-making capital from a nonprofit.

So, let’s hope we are wrong about Mr. Omidyar’s group. Let’s hope he really is expecting a return on his philanthropic dollars to in turn create more philanthropic dollars. But current giving patterns and opaque reporting make us doubt they are actually pursuing the sophisticated philanthropic strategy their press proclaims. Too bad. We could use some visionary leadership in microfinance to model market discipline for all the other players on the investment side.

More on PRIs in the next entry  

Additional Resources

1) Omidyar Network: "On Microfinance" discussion forum
2) Omidyar Investments
3) "Grameen Foundation Receives $9 Million to Finance Micro-Loans."
4) Press Release: "eBay Founder to Create Organization to Fund Social Change."
5) Omidyar Network record of news coverage

Is ‘philanthropic investment’ just a contradictory term to make charity sound business-like? In the US, Program-Related Investments (PRIs) have served as a way for foundations to earn a return on their grant-making dollars since 1969. Such investments made by foundations to support charitable activities offer the potential return of capital within an established time frame, and are well codified in US law. PRIs are the perfect way for foundations to capitalistically and responsibly support microfinance.Of the 66,000+ grant-making foundations in the United States, only a few hundred make PRIs. Giving by the nation’s grant-making foundations increased by 7% in 2004, to $32 billion (pg. 1), but PRI financing makes up a negligible proportion. Why such dismal numbers?

The answer turns out to be the cultural inertia within foundations and non-profits. A return on capital requires a different sort of rigor than social work. And this is just the tip of the iceberg. In 2004, US foundations granted $32 billion, but they held $476 billion in assets. Imagine 1% of this principle corpus invested in microfinance, this would open the door for commercial capital investment. Whereas most huge chunks of capital (pension funds, insurance companies, mutual funds, hedge funds) fall under the ‘prudent man’ US law that obliges the prioritization of profits, foundations (and universities) enjoy leeway under the prudent man rule to invest per their missions.

The irony of course is that microfinance may well out-perform the market, so ‘prudent man’ would be irrelevant. But, we are not an asset class yet, so to get there, we look for leadership not just in your grant-making, Mr. Omidyar, but in your asset management. PRIs are an opening for you to introduce Wall Street to our emerging asset class.

Again, to give Mr. Omidyar and his group the benefit of the doubt, maybe his asset managers and his grant-makers do eat lunch together regularly, maybe they are just “ramping up,” and will fulfill his righteous vision one day soon.

Additional Resources

1) The Foundation Center: Foundation Growth and Giving Estimates: 2004 Preview
2) Although dated, the best document discussing PRI trends is still the Foundation Center’s PRI Financing: Trends and Statistics 2000-2001
3) MicroCapital Blog: Mr. Omidyar’s Philanthropic Vision: a Work in Progress, Part 1

The credit bureau pilot project underway in Morocco is part of a broader open source project, MIFOS, to create a full framework for the industry. The Grameen Technology Center (GTC), a US non-profit in Seattle, has partnered with PlaNet Finance Morocco, a French NGO, to develop and test the program.The project consists of a central database which is sent data from each of the participating microlenders. The client software at the microlender extracts data from multiple data sources (Oracle, Access, etc) and uses a parametrizable SQL statement to pull from the microlenders’ system. In lay terms, the MFI has a tool at their location that allows them to send a standardized set of information to a centralized location. Then, each participant is allowed to make queries of the centralized server to see what customer records exist at other microlenders. (Thanks to James Daily at the GTC for information).Despite the growing preponderance of microfinance institutions worldwide, ways to track credit histories have been inadequate. Even in Latin America, where anywhere from 20-50% of the economically active population is employed in the microenterprise sector, credit bureaus have only recently begun to incorporate information on microentrepreneurs (p. 8). As competition in microfinance lending intensifies, borrower information becomes all the more important (p. 2).

Additional Resources1) Main article discussed in entry: "Model Credit Bureau ‘Open-Source’ Solution Being Tested in Morocco." 2) Grameen Technology Center: "Credit Bureau Pilot Project" 3) Microfinance Matters: "Credit Bureaus in Latin America: Expanding Financial and Other Services to the Base of the Pyramid." 4) Microfinance Open Source (MIFOS) Project5) Inter-American Development Bank (IDB): “Credit Bureaus: Leverage Information for the Benefit of Microenterprises.”

Why is profitability so out of reach for many microlenders? By definition, microlenders operate in emerging markets, which places them squarely in the middle of notoriously challenging business environments. Harvard Business Review (subscription only) provides us a useful analysis of the challenges, but actually gives scant "strategies that fit emerging markets’ as the acticle title states.

Even though developing countries are the fastest-growing market in the world, the article gives us very little real strategic advice. In the end, they say nothing more than to go with one of the following: – adapt your strategies – change the contexts – stay away
Thanks, Harvard.

1) Subscription only: "Strategies That Fit Emerging Markets." Harvard Business Review: June 20052) World Bank (WB): "Developing Country Growth Is Fastest In Three Decades, But Global Imbalances Pose Risks."
3) "Emerging Giants: Building World Class Companies From Emerging Markets."

At the Inter-American Development Bank’s (IDB’s) forum last week on remittances, a million dollar tracking agreement was signed, addressing a lack of uniformity in collecting information on remittances to Latin America and the Caribbean.

Migrants to more industrialized countries, or even from a rural to an urban area, often send home a portion of their income, commonly referred to as remittances. The United Nations Capital Development Fund (UNCDF) estimates that in 2003, more than $88 billion was sent to developing countries from workers based elsewhere. Remittances follow foreign direct investment (FDI) as the world’s second largest source of capital flows. However, in developing countries, remittances play a much larger role relative to FDI, representing 2.9% of the total GDP ($26 billion) and 380% of FDI. Figures for remittances are generally conservative, as the true value is most likely much higher because a significant portion is transferred through informal methods (not through wire services or banks). In comparison to other forms of capital flow, such as FDI, remittances offer a steady source of funds that is relatively immune to political or economic fluctuations.

In recent years, “remittances sent by migrant workers have become a major source of hard currency for many countries in Latin America and [the] Caribbean.” According to the Multilateral Investment Fund (MIF), autonomously administered by the IDB, this region last year received around $45.8 billion from its expatriates. Approximately $1 trillion is generated by foreign-born adults in the United States annually, of which one-tenth is sent abroad in the form of remittances. In the past five years, awareness of such huge flows of capital has resulted in widespread competition to facilitate the transactions. Initially, immigrants were paying exorbitant fees to send money home, but with increased attention, competition has made the transfer of remittances home much more appealing, and easier.

The microfinance industry stands to benefit greatly from a more intimate involvement with money transfers related to remittances. Research shows that recipients of these funds are often the same people as those targeted by microfinance institutions. This offers microfinance institutions (MFIs) an important opportunity to facilitate money transfers for a fee, as well as to cross-sell other financial products. By commercially linking with money transfer institutions, MFIs have the opportunity to expand their operations, by offering a (formal) savings mechanism for micro-borrowers, and also providing a guarantor of credit to the same people.

Additional Resources

1) Inter-American Development Bank (IDB): "Remittances."
2) Inter-American Development Bank (IDB) Remittance Forum: "The Impact of Remittances on Microfinance"
3) Inter-American Development Bank (IDB) Press Release: "Competition, Coverage and Technology Seen As Key Factors In Cutting Cost of Remittances to Latin America and the Caribbean"
4) Development Gateway: "Leveraging Remittances for Microfinance"

In a developing country of just 7 million people, with one of the lowest GDPs of the former Soviet Union, one would guess that a significant microfinance deal would be done by a European development bank, not by a commercial entity. This recent transaction, the fourth in a series worth a net total of $9.5 million, pales in comparison to the scale of transactions on the world financial markets. It also pales to the current total worldwide foreign direct investment (FDI) in microfinance, which is approximately $1.9 billion. Microfinance investment now represents .5% of worldwide annual FDI.

The fact that quasi-governmental development banks in a small and poor (even by regional standards) country like Tajikistan can place 4 simultaneous investments in the microfinance industry would have been unheard of not many years ago. Growth of foreign investment in microfinance has accelerated in recent years, signaling an emerging asset class, although 90% of this investment is from public sources like these Tajikistan deals.

Yet, despite growing foreign investment in microfinance, meager deal-flow plagues the industry. Only subsidized investment banks survive on such slim deals.

For this reason, we urge you to do business with the best microfinance funds that are pooling regional investments to provide market-rate returns. Only the growth of these funds will cultivate the deal-flow necessary for Wall Street to enjoy an asset class and the global poor to enjoy financial services.Additional Resources1) Analysis of recent growth trends of both domestic and foreign sources of MF investment funding
2) Excellent springboard for articles related to the market for foreign investment in microfinance 3) Time: "Why Micro Matters: Wall Street is Figuring Out How to Profitably Package Tiny Loans to Third World Entrepreneurs."
4) For more in-depth articles that discuss the commercialization of microfinance, visit the MicroCapital website(Tajikistan-specific sources) 5) UN-sponsored paper that discusses the investment climate in Tajikistan6) Findings of study that investigated various economic factors in Tajikistan7) Paper discusses current FDI climate in Tajikistan, as well as need for further investment for economic growth 8) European Bank for Reconstruction and Development’s (EBRD’s) involvement in Tajik microfinance institution9) TMSEF May 2005 Newsletter (EBRD-sponsored Tajik Micro and Small Enterprise Financial Facility)

Elizabeth Littlefield, former Managing Director at JP Morgan who now leads the Consultative Group to Assist the Poor (CGAP) a World Bank (WB) program, recently expressed her esteemed view of the current and future direction of microfinance. One subject she approached stood out in particular: the explosion of investment funds in the microfinance industry. This explosion, however, does not mean the capital markets have embraced microfinance. While 58 investment funds were recently launched, “over 90% of the so-called ‘private’ socially responsible money is really public money at its origin.” This is clearly an important growth trend in the industry, but it points to the remaining need for improvement in order to be profitable.

In the article, Ms. Littlefield highlights the growing situation where the “commercial sector is coming down and the microfinance sector is building out and they are meeting in the middle.” This convergent evolution strengthens the industry, making the mass scale of operations possible in the very near future.

Additional Resources
1) Microfinance Matters newsletter article: “Microfinance – Where We Are Now: And Where We Are Headed”