RAISING CAPITAL FOR MICROFINANCE: SOURCES OF FUNDING AND OPPORTUNITIES FOR EQUITY FINANCING

David Fehr () and Gaamaa Hishigsuren
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David Fehr: Center for Financial Studies, Southern New Hampshire University, 2500 North River Road, Manchester, NH 03106, USA
Gaamaa Hishigsuren: Institute for Development Evaluation, Assistance and Solutions (IDEAS), Southern New Hampshire University, 2500 North River Road, Manchester, NH 03106, USA

Journal of Developmental Entrepreneurship (JDE), 2006, vol. 11, issue 02, 133-143

Abstract: On a worldwide basis, microfinance institutions (MFIs) provide financial services to the poorest households. To date, funding of MFI activities has come primarily from outright donor grants, government subsidies, and often debt capital, including debt with non-market terms favorable to the MFI. These traditional sources of MFI financing may not be sufficient to allow MFIs to provide maximum services. There is a subset of the pool of mainstream equity investors who would consider investing in MFI opportunities, even knowing that they would not expect to earn the full economic rate of return that such investments would otherwise require. However, as part of their investment evaluation process, these investors would ask: What would the market determined required expected rate of return for my MFI investment be? What return on investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above two returns acceptable given my level of social motivation? How will I "monetize" my investment and when? The purpose of this article is to employ modern corporate finance techniques to address these questions.

Keywords: Microfinance; equity financing; financial analysis; poverty reduction (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (15)

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DOI: 10.1142/S1084946706000301

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