Asia Investors Yet to Warm up to Microfinance
Singapore, February, 01 2010 -
Asia's institutional and private investors have yet to warm to the microfinance sector, despite its prominence in the region and its resilience as an asset class this past downturn.
Microfinance investment in Asia remains highly disproportionate to the sector's huge growth potential in the region, says Prashant Thakker, global head of microfinance for Standard Chartered Bank.
He was in Singapore recently for a conference on microfinance investments in Asia, which was attended by 150 financial representatives from 45 countries.
'Asia is the birthplace of microfinance and the largest market for microfinance, whether in terms of potential clients, the number of people near the poverty line or asset size,' Mr Thakker says. Total funds invested cross-border into Asia's microfinance sector amounted to over US$6.5 billion at the end of 2008, excluding local investments.
Microfinance institutions (MFIs) fund themselves in different ways - through deposits, donors or local bank funding - depending on their regulatory framework. With increased recognition of MFIs such as Nobel Peace Prize winner Mohammed Yunus' Grameen Bank in Bangladesh, interest from Western investors has grown.
'In the last four to five years, we've seen the emergence of large funding houses in Europe and America backed by foundations or family offices, who have put together socially responsible investment-focused funds. Institutional investors are putting money behind these funds. Private banks are packaging these for retail investors too,' says Mr Thakker.
But there has been no similar emergence of microfinance investors within Asia. 'So here is Asia, largest microfinance market in the world, funded mostly, in terms of private equity debt capital, by players from Europe and the US.'
Mr Thakker thinks the fairly diverse regulations governing MFIs could be a reason, though that has not stopped other investors. 'Either there is no interest or no awareness or maybe it's just a question of time before this opportunity is picked up by Asian investors too,' he said.
For a commercial bank like Stanchart, which invested over US$500 million in the past three years providing credit and financial instruments as well as technical assistance to MFIs, microfinance sits under its wholesale banking division and is subject to the same processes and operational risk controls as other businesses. 'It has to add to the bottomline. But it is a commercial opportunity that also has the potential to broaden social inclusion,' Mr Thakker says.
He thinks that microfinance as an asset class has proven its resilience in the last 18 months, with continued positive returns for investors and less severe risk deterioration than most financial industry sub-sectors.
'It offers attractive returns and a reasonable risk, and I'm not even talking about quantifying the social impact of those investments,' he says.