Microfinancing and Emerging Markets
Microfinance involves providing small loans (microcredit) to very small businesses in very poor places, which include many emerging markets. These small loans to start small businesses have proven power to lift people out of the worst of poverty. Microfinance offers a way to support people who are moving out of poverty but still have a way to go before they can join the middle class.
Microfinance funds collect money from investors to invest in different local microfinance institutions, leading to a diverse portfolio. Some funds are interested in profits; some are not. Some to look into:
Calvert Foundation is the charitable arm of Calvert Group, a socially responsible investment company. It bonds used to fund economic development activities around the world, especially in microfinance. Rates of return are similar to those on bank certificates of deposit (CDs), although these notes aren’t insured and have more risk.
Gray Ghost Ventures started life as a microfinance fund, but the firm has expanded into providing funding for a range of for-profit businesses, with the funding designed to improve life for the world’s poorest people, especially in communications and education. The firm deals primarily with high-net-worth investors and institutions.
MicroPlace is a subsidiary of online auctioneer eBay that specializes in microfinance investments. It allows individual investors to select the types of investments they’re interested in, the rate of return they’d like to earn, and the length of time that they’re willing to lock up their money.
MicroVest is a United States–based microfinance fund that works with high-net-worth individual investors, charitable foundations, and other institutional investors that want to invest in microcredit institutions all over the world.
OikoCredit was founded by the Church of Sweden to help religious institutions invest some of their endowment and pension funds in microcredit. It still works with churches, but it also accepts investments from others.
Publicly traded institutions
A handful of microfinance institutions are publicly traded, with their stocks listed in the countries where they operate. Most of these firms started as nonprofit lenders and grew enough to become independent and profitable.
Among the public microfinance companies are:
Banco Compartamos operates in 325 communities in Mexico, making loans that average less than $1,000 each. It has worked with more than 1.5 million customers since its founding as a nonprofit organization in 1990. It makes both business and home-improvement loans. Its specialty is forming groups of women who take out loans together and support one another in business through education and sharing ideas.
Equity Bank, based in Kenya and with operations in Uganda and Sudan, offers a full range of savings and lending services designed for people without a lot of money. Among its many products is mobile banking, where people can transfer funds through their phones.
SKS Microfinance is the largest microfinance company in India and, by extension, the world. It has 1,627 branches and 5.3 million customers, which it refers to as members.
Many microfinance lenders prefer to raise money in the bond market rather than take accounts from different investors. Some of these issuers are nonprofit or governmental organizations looking for an efficient way to attract private-sector investors:
Banco Compartamos, a publicly traded Mexican microfinance company, has also issued bonds backed by its loans to help finance its expansion.
BlueOrchard Finance), based in Switzerland, works as an intermediary between microfinance investors and lenders. In recent years, it has issued bonds through major American and European investment banks to help large-scale investors allocate some of their fixed-income investments to microfinance.
The European Bank for Reconstruction and Development is an intergovernmental economic development institution. It oversees a range of economic development projects, primarily in lesser-developed areas of Europe.
International Finance Corporation, the investment arm of the World Bank, works on economic development projects that improve the private sector in emerging markets. Although most of its work is with large infrastructure programs, the IFC also invests in microcredit, and it has issued bonds to fund it.