If you invest your money in microfinance funds, you’re doing good. But are you doing well? The World Bank seeks to answer that question today, by releasing the first performance figures on how microfinance investment funds are doing. And it turns out they’re doing pretty well, certainly by the standards of your average collateralized debt obligation.
Indeed, when it comes to for-profit institutions which are not lending money to microfinance institutions but rather taking equity stakes in them, there are concerns that they might be doing too well:
The recent development of private equity players investing in high-growth microfinance institutions with target returns in the 20-30 percent range, say the authors, raises the question of whether an increasingly profit-maximizing investor base will allow microfinance to uphold its social mission. "If private equity investors want high and fast returns, there are pressures that go along with that", says Reille. "It could fuel aggressive lending practices, particularly in the absence of effective consumer protection and low financial literacy, as is often the case in emerging markets."