Small Money Big Impact

CHAPTER 10Investing in Microf inance

And while the lack of financial services is a sign of poverty, today it is also understood as an untapped opportunity to create markets, bring people in from the margins and give them the tools with which to help themselves.

Kofi Annan¹

Microfinance has grown into an established asset class. Private institutional investors in particular have considerably contributed towards its impressive growth in recent years.

The investment process is crucial for the quality of a microfinance portfolio, and a professional microfinance manager will always combine a top‐down portfolio construction process with a bottom‐up investment approach. Only a meticulous analysis of an MFI locally will allow for careful selection of investments.

Investments in microfinance have an attractive risk‐return ratio, both individually and in the overall portfolio context. The outstanding characteristics of investments in microfinance act as diversifiers of an investor's total portfolio.

10.1 MARKET DEVELOPMENT

To begin with, predominantly development institutions such as the World Bank or the KfW Development Bank were investing in microfinance to employ their financial means sustainably in financial inclusion and the fight against poverty. Today, the asset class has established itself with institutional and private investors alike. Pension funds, foundations, fund of funds ...