Investors More Interested in Microfinance: S&P

Microfinance is increasingly on investors’ radar screens and S&P is raising coverage of this sector, which is expected to yield deal flow in the Latin capital markets. “The lack of consistent metrics for analyzing MFIs [microfinance institutions] has hindered investment at a time when microfinance is growing at a significant rate,” says Cynthia Stone, managing director and chair of S&P’s EM council. “And despite the level of interest, mainstream investors need standard metrics before they can invest in this particular sector.” S&P says its new report on the sector provides needed recommendations for a rating methodology that can be used globally and consistently to rate MFIs within countries, across borders, and across asset classes. In May, S&P graded the first publicly rated microfinance CDO and it expects to rate an additional two to three transactions in the months ahead, with issuance levels potentially reaching $500m by the end of 2007. “As the existing microfinance institutions also become adept at handling this new inflow of funding, and more MFIs enter the market, securitization volumes could reach between $1bn-$3bn annually over the next decade,” says S&P.