MICROFINANCE

Today, more than 100 million people in developing countries benefit from $60 bn of loans issued by local microfinance institutions "MFIs" (banks and financial institutions) to finance self-sustainable micro-enterprises.

These micro-loans, in the size of $50 to $1,500 each, empower low-income households to develop small, simple but profitable businesses and allow vast social and economic benefits at community and country level. This apparent unconventional business model of lending money to the poor, can be traced back to the '70s in Bangladesh when the Grameen Bank was founded by Muhammad Yunus (Nobel Peace Prize 2006). Ever since it has grown into a socially and economically successful business worldwide. Microcredit, together with other financial services such as payment services, money transfer, micro-savings, micro-insurances shape a potential 1.5 billion people global industry: Microfinance.

MFIs issue micro loans after a careful due diligence process on the micro entrepreneurs repayment ability and the profitability of their businesses.

Disbursement of loans is implemented through structured lending approaches such as group lending or dilution of loans. Micro entrepreneurs are extremely conscious of their financial duties and deadlines as in many cases their social reputation and the future of their families depend on the success of their businesses.

Out of more than 10,000 MFIs worldwide, about 300 in Latin America, Asia, Africa and Eastern Europe hold the majority of the outstanding loans and clients. Top institutions perform ROE higher than 20% and write-off ratio less than 2% with financials stronger than those of western commercial banks.

As foreign investors have been entering the microfinance industry (Development Banks, Institutional Investors, Private Individuals), specialized investment fund managers have started to efficiently allocate investors' assets towards the most profitable, growing and socially concious MFIs both in the forms of debt financing and equity capital.
Outstanding social and financial assessment capabilities of MFIs are the key to spot the best performing MFIs under both social and financial standpoints.