NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, May 3, 2005

Microfinance funds lift poor entrepreneurs — and benefit investors
With about $200 of his own money and a $1,500 loan, Vahid Hujdur rented space in the old section of Sarajevo and started repairing, then reselling discarded industrial sewing machines. Eight years and several loans later, Hujdur now has 10 employees building, installing, and fixing industrial machinery.
Hujdur didn’t get his initial loan from a local bank. “They were asking for guarantees that were impossible to get,” he recalls. Instead, the capital came from LOKmicro, a local financial institution specializing in microfinance — the lending of small amounts to the poor in developing nations to help them launch small enterprises.
Microfinance institutions (MFIS) such as LOKmicro get capital from individual and institutional investors in the U.S. and Europe via microfinance funds. Groups that run the funds collect the money, vet the lenders, offer them management assistance, and administer investors’ accounts. In the vast world of global finance, microfinance is, well, microscopic. But it is growing. The microfinance Information eXchange, an industry tracking group, says its universe of 60 leading microfinance institutions lent $3.1 billion to poor borrowers in 2003, the latest available figures. That’s more than twice the $1.4 billion loaned in 2000. But because the loans are small, sometimes $50 or $100, the money goes far. Microcredit Summit Campaign, another microfinance watcher, says the 779 MFIs in its database serve about 81 million customers in Latin America, Eastern Europe, Africa, and Asia. Loans are made for a variety of purposes: manufacturing, transportation, agriculture, and retailing.
Story found here.