Capital availability for microfinance is hardly a problem for mature markets, as sources are ample and diverse. Despite this, many microfinance providers are unaware of the multiple sources of funds available to them. Here are some external sources for MFIs:
Saving Deposits in Microfinance
Micro-saving products, also known as retail deposits, offered by MFIs serve as a low-cost source of funding and are a common practice in Philippines, Uganda, Pakistan, Peru and Kenya. Since safekeeping the public’s money is risky, most governments only allow microfinance banks to offer this product. However, some NGO MFIs with large equity pools may be allowed to accept deposits as well. Potential pitfalls here include too much or too little liquidity of cash (read other challenges for MFIs).
Commercial Debt Capital in Microfinance
Short-term loans (available easily) and long-term debt (available in large quantities) can be acquired from commercial banks. Additionally, international investment funds, also known as microfinance investment vehicles (MIVs), act as intermediaries between investors and MFIs, by selling securitized debt. Some famous examples are:
Triodos Microfinance Fund, Oiko Credit, Blue Orchard, Microvest, Fund for South East Europe (EFSE)
Even though loans from commercial source are generally priced at the market rate, which new and small MFIs may find expensive, debt capital is a popular source of funds for microfinance providers.
Soft Loans and Grants in Microfinance
Concessionary/soft loans (low-cost debt) or grants may be sourced by microfinance providers from socially responsible investors, which include national and regional development banks, aid agencies, international NGOs, non-profit corporations, charitable trusts, or funds held by donor and development agencies, such as:
Grameen Trust, Swedish International Development Agency(Sida), USAID, United Nations Capital Development Fund (UNCDF), ADB, World Bank, Bill and Melinda Gates Foundation, Ford Foundation, IMF, ACCION, CARE.
Some development agencies only interact with governments, but their funds can be accessed indirectly by MFIs.
Individual Philanthropic Sources in Microfinance
Non-profit investors, such as individuals interested purely in the social impact of microfinance, often lend their own money to MFIs through peer-to-peer online platform, the most famous of which are Kiva (read about this revolutionary business model here) and MicroPlace.
However, raising funds through the internet is a tricky business, and you can read more about this here. Similarly, high net worth individuals who are interested in philanthropy often give away great sums of money to MFIs, in an act known as ‘venture philanthropy’.
Equity Capital in Microfinance
Equity capital, which acquired through the sale of ownership shares, via capital markets, is the most expensive source of capital for MFIs, but most attractive for investors because of high returns prevalent in the microfinance sector. This source of funds is the subject of widespread criticism because some public MFIs seem to lose track of their social objectives, as Bank Compartamos did.
Further Reading:
Microfinance funding sources in the EU : Who is leading and who is following
Dear Sir,
CNPI S.A is a commercial Micro-finance institution that whiches to be become a micro-bank since its creation in 1999 it has evolved with more than eleven thousand clients with about fifteen agencies. It will need a capitalization of about 10 to 20 million USD.tHKS.
We are an MFB licenced by the Central Bank of Nigeria, we are passionate about supporting the active poor to help reduce poverty in our country. We presently operate from our head office and two cash agencies called customers interactive centers with over eight thousand clients. We intend expanding the client base by opening more interactive centers, consequently the business will need about $600000 for its recapitalization.We will submit ourselves to all due diligence that is required. thank you