High Return, Low Risk
Microfinance institutions have an array of funding sources available, all of which should appeal to investors, says Vikram Gandhi, global head of Credit Suisse's financial institutions banking group.
Why are capital markets relevant to microfinance
Capital markets offer exponential growth opportunities to
microfinance. We think we are at the threshold of creating a
sustainable and powerful new asset class. For borrowers, the
capital markets can generate a flood of new funding which will
lower costs and dramatically expand loan programs across Latin
America and worldwide. The capital markets also offer
innovative ways for smaller microfinance institutions (MFIs) to
reach investors. For example, in March, [Swiss] microfinance
fund BlueOrchard, issued a landmark $99.1 million unrated
collateralized loan obligation that provided foreign exchange
protection to MFIs because 25% was covered by currency swaps.
It was one of the first to allow several MFIs to participate
and it offered local currency funding for their assets, thus
eliminating foreign exchange risk. For investors,...
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