The latest on microfinance investment

> Posted by Stephanie Dolan
Although the number of surveys focused on microfinance has proliferated in recent years, CGAP’s annual “MIV Survey Report” stands out as one of the industry’s original surveys designed to track trends in the microfinance investment market.  CGAP recently published the findings of their fourth edition of the survey
In 2010, 90 microfinance investment intermediaries (MIIs) responded to the survey, totaling approximately $7.6B in assets under management ($5.5B devoted exclusively to microfinance).  This edition of the survey focused on financial performance, as well as funds’ practices related to the environment, social performance, and governance (ESG). 
The survey’s findings confirm trends identified by other surveys and industry publications.  Although still extremely active, the microfinance investment market, like so many other industries, has experienced a slowdown in growth and profitability.  The rate of growth of MII assets under management slowed for the second year in a row and is expected to decline further. Returns have declined as well, partially due to excess liquidity on-hand given MFIs’ reduced demand for capital. In 2009, average net portfolio yields dipped to a historical low of 7.9% and the average net return for debt funds declined from 5.9% to 3.2% year over year.
However, it’s not all bad news: private equity funds are growing rapidly, which can contribute to improving long-term governance and oversight at MFIs; funds are increasingly aware of the risk entailed in their work and have increased provisioning practices for fixed income; and local investors are becoming more active, accounting for 31% of debt investments in 2009.  Perhaps most exciting is the demonstrated increase in MIIs’ commitment to ESG practices, with 81% endorsing the Smart Campaign’s Client Protection Principles.