Microfinance is the issuance of small loans, usually by microfinance institutions (MFIs), to poor or underserved populations with the intent to help such groups move out of poverty, thus empowering them to create greater opportunities for their families. Traditionally, these MFIs are supported by foundation and government grants and by individual donations.

Most individual donors have been attracted to microfinance because of a socially-conscious motivation. Through microfinance, an individual can make a positive contribution to the lives of the poor, underserved, or marginalized. Whether motivated by social justice issues, the desire to provide better economic opportunities for the poor, or the inclination to shape in a small way the world we live in, the individual donor generally believes that his or her contribution is being used effectively to alleviate poverty.

Individuals who choose to invest in microfinance likely do so in part for the social impact of their investments. Such investors currently receive small financial returns, ranging from zero to three percent, although this may change as more investment products are brought to market. In the meantime, there is good news for investors seeking social returns: it is now possible to know more about the actual effectiveness of individual MFIs in alleviating the poverty of their clients. For example, MFIs from the countries listed here are beginning to collecting poverty outreach and alleviation data.

Questions to Ask

Individual investors who are concerned about their investments reaching the poor and poorest populations can ask:

• What measures are taken to ensure that investments really support the poor and poorest populations? Poverty assessment tools? Social audits? Other?
• How often are the poverty profiles of microfinance institutions updated?
• How does my investment manager define poor, very poor, and extremely poor? Are these categories comparable across microfinance institutions? Are they based on national or international definitions of poverty?

Disclosure:
References to the sponsors of specific investment funds are presented for illustrative purposes only and should not be considered an endorsement or recommendation by Grameen Foundation. Grameen Foundation does not provide investment advice and investors are encouraged to perform their own due diligence and, if necessary, consult with a financial advisor before investing in a particular fund or other investment product.