Microfinance funds

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The Wall Street Journal has a summary in today’s paper on the growth of private for-profit microfinance funds.

Investors can choose among a variety of new investment vehicles, including equity and debt investment funds; bond-like securities that are ultimately backed by thousands of tiny loans and so-called loan-guarantee funds where, in some cases, participants lend their creditworthiness rather than cash.

…Most microfinance funds are debt instruments, which make loans to microfinance institutions and generate interest income for investors… There are also a handful of equity investments, which give investors shares in the microfinance institutions… Debt funds expect annual returns to investors of anywhere from 1% to 5%, while equity funds, which usually have more risk and longer investment terms, expect annualized net returns of about 5% to 10%... Some investment firms are marketing securities that are similar to bonds and are backed by microfinance loans.

While most of these funds target the very wealthy, some new opportunities have popped-up for smaller investors as well. Read the article for a comprehensive list of the industry's key players. For more, see MicroCapital. Also related: MicrofinanceTrust, Pierre Omidyar and Kiva.

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