JPMorgan enters micro-finance field

Tuesday, November 20, 2007

JPMorgan has launched a micro-finance unit as part of its emerging markets strategy, becoming the latest investment bank to enter the fast-growing sector.

Rapid expansion of the industry and the impressive profitability of many micro-finance organisations have stimulated investor interest in a sector that was largely the preserve of non-profit bodies or governments until a few years ago. ?This is a global initiative, and part and parcel of the investment bank?s growing reach in emerging markets,? said Christina Leijonhufvud, head of JPMorgan?s new Social Sector Finance unit. The aim of the SSF is to achieve ?a double bottom line of social benefit and financial returns?, Ms Leijonhufvud said.

The move is symptomatic of the rapid growth of micro-finance in the developing world. By the end of 2006 micro-finance organisations had loans of more than $23bn outstanding to a total of more than 52m people, figures published last week by the Washington-based Microfinance Information Exchange showed.

But potential demand for ?sustainable? financial services among low-income groups in the developing world is $300bn, JPMorgan estimates.

?We are interested in having a social impact and we believe micro-finance is an effective tool to do so. [Moreover], this is a business opportunity that we think will grow over time,? Ms Leijonhufvud said.

The SSF will initially focus on those markets where JPMorgan has a considerable local presence, and its scope will include capital markets, structured products and principal investments.

While the micro-finance industry has attracted criticism from campaigners who argue that it fails to address the needs of the poorest countries, proponents maintain it is an essential weapon in the fight against poverty.

?Microfinance is not a silver bullet or a panacea, but it is one of the many tools needed in dealing with poverty,? Ms Leijonhufvud said.

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Source: Financial Times (link opens in a new window)