The low-key business of advancing tiny loans to the poor in developing countries is not the most obvious starting point for a new asset class on Wall Street. Microfinance has always struggled to develop because of a lack of access to financial markets. But the consistent profitability of microcredit companies is turning heads, according to Acción International, a non-profit organization that promotes small lending programmes worldwide. Its affiliates extended loans of almost $2 billion last year. “Microfinance as an industry is becoming a separate asset class for Wall Street,” says Acción International’s president, Maria Otero.
Latin American microfinance firms are proving to be acceptable credits for mainstream financial investors looking for high-yielding but relatively secure assets. Mexico’s Financiera Compartamos (Let’s Share), along with Peru’s Mibanco (My Bank) and Colombia’s WWB Cali are leading the field by tapping their domestic markets via US investment banks such as Citigroup. Since 2002, Compartamos, which has managed an annual 40% profitability rate in the past five years, has sold $57 million-worth of bonds in Mexico via Citigroup, with the latest bond last year marking a spread of just 117 basis points, making the most of strong and deep local capital markets that did not exist a decade ago.