Needed: Capital for small and risky MFI’s

It’s not easy being a philanthropist, an international financial institution (IFI)or even a socially responsible investor these days. Even if you’re not actually giving away funds, but lending at an interest rate, some will accuse you for not doing the right thing. A recent study by MicroRate point to the fact that even thogh social investors like IFIs and philanthropists were meant to take risks which commercial investors thought was too risky, in fact, they don’t. Instead they have “grown lazy”, as The Economist phrases it in a recent article. They are lending to the large MFI’s and the less risky funds, probably because it is easier.

This is nothing new. Large MFI’s have lots of funds. Small MFI’s don’t. As the FIG – Fonds International de Garantie, Geneva – says:

“The global microfinance industry is experiencing an unprecedented resource gap in which the largest MFIs receive the bulk of financial resources. As a result, small and innovative MFIs, especially those working with marginalized and rural populations, are being increasingly neglected.”

Who should close this investment gap? Clearly, the IFI should look for the more risky investments, but some other vehicles might be appropriate for small MFI’s too. Kiva has the possibility of channeling investment for small MFI’s, and C4 – a Danish initiative – could turn out doing that as well, using an innovative eBay like credit history platform.

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