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Microfinance investment vehicles in Sub-Saharan Africa: constraints and potentials

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  • Moulin, Bertrand

Abstract

This paper sheds the light on the potential and constraints of possible interactions between Microfinance Investment Vehicles (MIVs) and the two main African Microfinance models namely the cooperative model, well developed in West Africa, and the commercial model, found in East Africa. We assess if both parties can gain from those interactions. We argue that given the significant funding needs of Microfinance institutions (MFIs) in that part of the world, in particular with regards to equity investments and capacity building, the African microfinance sector requires resources that can only be provided with the contest of private investors. In this respect, provided some conditions are met, for instance the presence in these vehicles of Development financial institutions (DFIs) that play the role of catalysts by initiating investments and taking risks that private investors would not dare taking; MIVs could be suitable for the financing of the rural and the micro-enterprises segments which are still seen as highly risky investments. Those segments require more volumes and longer term funding, but they have a great potential positive effect on Microfinance recipients and more generally on the economies they live in. In the MIVs’ perspective, due to excessive risks’ perception, the interest for the African microfinance still remains limited to date; however, the increasing demand for socially responsible investments and the needs for Microfinance investment portfolios’ diversification will push those vehicles to commit more and more for investments in that part of the world.

Suggested Citation

  • Moulin, Bertrand, 2011. "Microfinance investment vehicles in Sub-Saharan Africa: constraints and potentials," MPRA Paper 32967, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32967
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    File URL: https://mpra.ub.uni-muenchen.de/32967/1/MPRA_paper_32967.pdf
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    References listed on IDEAS

    as
    1. Martin Desrochers & Klaus P. Fischer, 2003. "Theory and Test on the Corporate Governance of Financial Cooperative Systems: Merger vs. Networks," Cahiers de recherche 0334, CIRPEE.
    2. Nicolas Krauss & Ingo Walter, 2009. "Can Microfinance Reduce Portfolio Volatility?," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 85-110, October.
    3. Byström, Hans, 2007. "Structured Microfinance in China," Working Papers 2007:18, Lund University, Department of Economics.
    4. Marie Briere & Ariane Szafarz, 2011. "Investment in Microfinance Equity: Risk, Return, and Diversification Benefits," Working Papers CEB 11-050, ULB -- Universite Libre de Bruxelles.
    5. Marek Hudon, 2007. "Use of donor funds in the financing of MFIs," Working Papers CEB 07-020.RS, ULB -- Universite Libre de Bruxelles.
    6. Ludovic Urgeghe, 2010. "Les véhicules d'investissement en microfinance et le défi de la performance sociale," Mondes en développement, De Boeck Université, vol. 0(4), pages 69-82.
    7. Galema, Rients & Lensink, Robert & Spierdijk, Laura, 2011. "International diversification and Microfinance," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 507-515, April.
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    More about this item

    Keywords

    Microfinance; Microfinance investment vehicles; Sub-Saharan Africa;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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