(Justmeans.com / CSR News) - Microfinance is rapidly becoming a strong viable asset class and, accordingly, an attractive investment for commercial investors.  An April 2009 CGAP report states, “Microfinance is one of the few asset classes with a positive return in 2008…in stark contrast to the 12% drop for fixed-income corporate indices in emerging markets.”1

            As noted by Michael Hokenson, Managing Director, Minlam Asset Management LLC, “Microfinance, due to its common underlying economic drivers and its dissimilarity to other asset classes, can be considered its own asset class.  It has risk that can be categorized, an index can be created, and benchmarks can be established.”  Hokenson adds, “We believe there is genuine interest in microfinance from the institutional market. It meets the tremen- dously important criterion of diversification.  Given the proper strategy, it has the ability to deliver attractive risk-adjusted returns.”

            Several investors & managers echo this view.  Roger Frank, Managing Director of Benchmark Asset Managers LLC, a commercial, for-profit investment firm, states, “While the common perception of sustainable investing is that it is a niche activity, our experience shows that positive sustainable investments can also yield competitive returns.”

            Given the conventional view that the demand for microfinance loans is US$250bn, microfinance represents a significant investment opportunity.  As of December 2008, CGAP lists 104 active Microfinance Investment Vehicles (MIVs) with estimated assets under management (AUM) of US$6.5bn2--this highlights an impressive threefold increase from US$2bn AUM in 2006.3 Much of this growth can be attributed to private investment funds and institutional investors. Surveys by CGAP indicate that investments in MIVs by institutional investors jumped from 14% to 41% between 2005 and 2007.4

            Investors currently favor fixed-income instruments (representing close to 80% of investments5), but equity investments grew by 95% between 2006 and 2007.6 A February 2009 joint JP Morgan/CGAP report notes that by the end of 2008, there were 24 specialized microfinance equity funds with total AUM of US$1.5bn.7

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