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From its early beginnings as a purely development-oriented
sector, microfinance has, over the years, transformed into
a profitable industry and is increasingly perceived as an
emerging, double bottom line asset class that has the potential
to generate equal, if not better, returns vis-à-vis
existing traditional investment options, while satisfying
essential developmental objectives.
Once the domain of socially motivated philanthropic initiatives
and development finance institutions, the industry has transitioned
into an important player, addressing a crucial missing market
at the base of the economic pyramid in a highly profitable
manner. Initial fears of mission drift are gradually giving
way to an acceptance of commercial microfinance, albeit
with concerns such as those raised when Banco Compartamos,
a Mexican microfinance bank, listed in April 2007, offering
30% of its equity worth $467 mn on stock markets in US and
Mexico.
One
look at the economics and it is not difficult to understand
why this grudging acceptance will turn into wholehearted support
sooner rather than later. To achieve its full potential as
an effective tool to alleviate poverty the industry has to
scale up and increase outreach. According to a McKinsey report,
globally, "Microfinance Institutions (MFIs) serve about
100 million borrowers and an average loan size of $170 pegs
the total market size at $17 bn; yet the potential demand
is 15 times the current market—estimated at 1.5 billion,
or half the 3 billion global working poor, i.e., $250 bn." |
