Market transparency: The role of specialised MFI rating agencies

Abstract

Two recent studies, one by CGAP in 2003 and the other, in 2004 by Patrick Goodman (sponsored by ADA) show the substantial volume of international investment funds available for microfinance. The latter study indicates that there are now over 40 investment funds supporting microfinance institutions (MFIs) and that some 75% of the funds available are allocated to debt financing with virtually all the rest being allocated to equity financing. However, as the CGAP study indicates, overall foreign investment is only a small proportion of the global total of microfinance lending - $1 billion out of an estimated global total of $15 billion in microfinance loans at end-June 2003. This substantial amount of microfinance lending has taken place because of a significant shift in the financing of microfinance portfolios from being almost exclusively donor-funded to significantly investor-financed. Finance is now being sourced from domestic sources (apex-level NGOs, development banks and even from commercial banks) as well as from the international investment funds referred to above. Prominent amongst the institutions lending to MFIs in Asia are the Palli Karma Sahayak Foundation (PKSF) of Bangladesh, Permodalan Nasional Madani (PNM) in Indonesia, People's Credit and Finance Corporation (PCFC) in the Philippines and the Small Industries Development Bank of India (SIDBI). The encouraging experience of these institutions in revolving wholesale funds for microfinance has accelerated interest in microfinance investment. As a result, more domestic apex institutions (as wholesale lenders) as well as domestic commercial banks, such as ICICI Bank in India and Bank Mandiri in Indonesia, have become active in this field. In addition, international funds have also shown increasing interest in investing in microfinance. © 2009 Springer-Verlag Berlin Heidelberg.