Microfinance is experiencing an unprecedented investment boom. The past five years have seen remarkable increases in the volume of global microfinance investments. Between 2004 and 2006, the stock of foreign capital investment—covering both debt and equity—more than tripled to US$4 billion.
The entry of private investors is the most notable change in the microfinance investment marketplace. New players arrive on the scene every month. Forty specialized microfinance investment funds have been established in the past three years alone. Individuals and institutional investors—including international retail banks, investment banks, pension funds, and private equity funds—are all looking for ways to channel capital into microfinance, and investment banking techniques are being introduced to create investment vehicle alternatives that appeal to an increasingly broad range of investors.
This new investment stream is good news for microfinance providers. Microfinance needs a broader capital market to secure the funding required to scaleup outreach and serve a greater number of financially excluded, low-income people.