Funding a path out of poverty

Elliot Wilson

15 March 2008

Elliot Wilson explores how investors can back ventures that lend to the world’s poorest entrepreneurs

So there are solid reasons to invest in this fast-growing sector, but as with all emerging asset classes, liquidity is key. There are several routes available. Franco-Belgium bank Dexia’s £150 million Micro-Credit Fund, launched a decade ago, has extended loans to 92 MFIs across Latin America, Central Asia and Eastern Europe — none of which has ever defaulted. The fund’s managers charge no exit fee, and target only private individual and institutional investors with minimum investable capital of £5,000.

Geneva-based BlueOrchard, which co-manages the Dexia fund, chooses only ‘profitable, well-managed and fast-growing’ externally audited MFIs, boasting a minimum capital base of £500,000, according to its chief executive officer Jack Lowe. BlueOrchard is also an adviser to the £100 million Luxembourg-registered responsAbility Global Microfinance Fund, an open-ended fund covering MFIs across 24 countries.

Other possibilities include the Global Microfinance Facility, a pooled investment vehicle created by IFC in 2004 and managed by Cyrano Management. It originally invested $30 million in MFIs in ten countries and now a second facility of $165 million is being raised to invest across 17 countries.

It’s harder to play microfinance directly on the capital markets, as so few MFIs are listed. Investors could buy the frankly rather expensive shares of Compartamos in Mexico, which has more than 800,000 borrowers. In April 2007 Compartamos, which has an A+ local rating from Standard & Poor’s, completed an outsized listing, raising £200 million from institutional investors in a still-sizzling stock market.

If that doesn’t appeal, keep an eye out for the number of other microfinance groups that are currently preparing listings — including Prathminda’s benefactors, SKS Microfinance.