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Social investors are individuals or institutions (high net-worth, foundations, endowments, and retirement plans) which choose to apply non-financial characteristics to their investment decision-making. These non-financial characteristics are often related to the investors' value system or social mission, and may include concern for environmental protection, strong organizational governance, and a desire for a more economically just world. This group believes its investments should provide both social and financial returns, although the expectations for those dual returns may vary widely from one social investor to another.

For social investors who want to increase their investment in international community investing or for those seeking to diversify their asset allocation, microfinance has evolved as a practical investment option, for two reasons: There is a growing number of microfinance investment products on the market, and the microfinance sector is gaining a reputation for successfully responding to the needs of the poorest members of our global society.

Growth of Social Investing in Microfinance

Statistics show that microfinance has become a popular investment choice. As of December 2007, there were 91 microfinance investment funds with $5.4 billion in assets under management.* While this figure may seem relatively small compared to the $2.7 trillion dollars** managed in the social investment marketplace in the United States, it represents a robust year-over-year growth of 79 percent.

Many of the assets invested in microfinance belong to commercial investors seeking only a financial return. But as microfinance investing has gained more prominence, questions are being raised about its social as well as financial returns. To date, microfinance's success in reaching the poor and helping them move out of poverty has been largely informed by anecdotal evidence. However, increasingly strong metrics are beginning to distinguish among microfinance institutions' (MFIs') success in poverty alleviation. With growing capital entering the microfinance sector and new lenders entering the marketplace under the guise of helping the poor, the time has come for social investors to focus more critically on the social return of their microfinance investments.

* MIV Survey 2008: High growth and improving returns for microfinance funds, CGAP, October 3, 2008

** 2007 Report on Socially Responsible Investing Trends in the United States, Social Investment Forum, 2008