CDC Group, a UK government-backed fund-of-funds, has committed $4.5 million (€3.3 million) to Access Microfinance, a microfinance investor in Africa and Central Asia.
AccessHolding has attracted total commitments of $28.7 million. It held a first closing at $24 million in September 2006.
CDC has now committed $12.5 million to microfinance funds since 2004, following earlier investments of $4 million each in Lok Capital and Shore Capital International’s Indian funds.
Microfinance is the business of making small loans to the poor, with amounts often starting below $100.
CDC investments director Hywel Rees-Jones said: “Microfinance allows us to enter geographies which are more difficult to get into, and there is a clear sense that getting capital to the poorest people is a good thing.”
The market is often untapped in these countries, he added, with more than 90 percent of people not having banking relationships. This leaves room for strong profits, he said.
According to figures published by CDC, the global microfinance industry has grown rapidly, with more than 12,000 microfinance initiatives worldwide servicing over 60 million clients – up from 8 million in 1998.
Hywel predicted in the next ten years it would become a mainstream business, although he was unsure whether larger mainstream banks would enter the market. There have been few exits from microfinance deals, he said, so in this respect the market remains largely unproven.
AccessHolding was established in August 2006 by German consulting and management firm LFS Financial Systems, which specialises in micro and SME finance. It has stakes in commercial banks in Azerbaijan, Madagascar and Mozambique that provide loans to companies in the local regions.
AccessHolding is undertaking due diligence on other investments, which include the establishment of a greenfield microfinance bank in Tanzania. The company expects this to be completed by the end of 2007.