Abstract:
Microfinance is a field that has received increasing attention over the years in the development community. It consists of the delivery of financial services to people excluded from traditional banking institutions. For many years, most work was done on issues like credit and saving methodologies. However, the emphasis has switched in recent years to institutional sustainability to maximize impact through the commercialization of microfinance. A key component of microfinance commercialization is the mobilization of funds from money and capital markets, to decrease dependency on donors and governments and to enhance the financial intermediation of microfinance institutions. One of the most innovative ways to mobilize funds for microfinance lending is through the establishment of microfinance funds that channel investments from capital markets to microfinance institutions either as loans, guarantees or, less often, equity. BlueOrchard Finance has been a major actor in this arena through the management of the Dexia Microcredit Fund (DMCF).
Learning Objective:
This case traces the evolution of DMCF and highlights the many obstacles its managers have faced in trying to connect microfinance with capital markets. Perceptions and expectations of potential fund investors and borrowers, transaction costs, deals standardization, competition, foreign exchange risk, and market liquidity are issues that are tackled throughout the case in order to stress challenges in the further development of microfinance funds.
