High Return, Low Risk

May 1, 2007

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 institutions?
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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