Microfinance is proving to be an effective tool for stimulating economic and social development on a global scale. The World Bank recently estimated that global needs for microfinancing amount to some US$ 250 bn. This further underpins the importance of the market for providing financial services. Microfinance is an important focus area for SNS Management as it reduces this demand and offers investors interesting investment alternatives.

The SNS Institutional Microfinance Fund offers investors the chance to invest in this growth market. The growth of microfinance organisations' (MFIs) credit portfolios can amount to as much as fifty percent per year. Despite this strong growth, most MFIs have managed to improve their efficiency, keep financing costs low and losses on loans to a minimum. The portfolio return exceeds that of major banks. MFIs in Latin America, Central Asia and Eastern Europe are particularly profitable, without negative side-effects for the micro-entrepreneurs.

As matters stand, the total market for microcredit is some US$ 25 bn. The World Bank estimates a potential market of between US$ 250-300 bn. This growth potential implies considerable capital needs over the coming years. An associated challenge is to offer microfinance on a broader scale while maintaining the quality of the MFIs. The private sector will have an important role to play here by offering expertise and capital. Investors' broad interest in microfinance is explained by the combination of a non-correlated investment, good financial return and social progress for 'the poorest of the poor'.

Until recently, microfinance consisted solely of providing loans. Direct investment went hand-in-hand with an overly-high risk. The value of share interests was hard to assess and exit strategies were tricky in many developing countries. This has changed. MFIs' demand for risk-bearing capital has risen, risks appear to be manageable and tradability has improved greatly. It can be expected, therefore, that interest in share interests in MFIs will increase considerably over the coming years.