Far Below Subprime, the Credit News Is Good

Who knows the most about that? Not academics or politicians but businesspeople and investors. That was one of the key reasons why my co-author, Phil Smith, a successful oil and gas executive, and I wrote, A Billion Bootstraps: Microcredit, Barefoot Banking and the Business Solution for Ending Poverty (McGraw-Hill Business, 224 pages). Nothing else was available that made a good introduction for investors or anyone else who wanted an overview of this burgeoning financial sector.

(Click here to see a video interview with Eric Thurman by TheStreet.com's Gregg Greenberg.)

Since demand is growing at an exponential rate among the millions of micro-entrepreneurs who are in great need of working capital loans, micro-bankers will need an estimated $10 billion to $20 billion in the next five years. It has become clear that neither the savings of micro-entrepreneurs, private donations, nor assistance from governments meets the demand for loans. No doubt the strong recent trend of MFIs becoming for-profit, regulated, scrutinized from an auditing standpoint and rated as full-scale financial institutions will accelerate.

Microfinance investment has an attractive risk/return profile. Microfinance debt offers a better return than monetary instruments. It offers an excellent alternative to fiduciary deposits or certificates of deposit. It offers lower volatility than typical emerging-market equities or bonds, as it is invested in instruments not yet quoted on stock exchanges. And the leading MFIs are highly solvent and have a low risk profile.

Which lending institutions and funds are investing in MFIs? Nearly 100 investment opportunities are listed at www.mixmarket.org. In addition, many MFIs are setting up investment funds of their own. A Billion Bootstraps contains an appendix of leading MFIs that would be a good place to begin exploring personal involvement in microfinance whether as a donor or an investor.