MARKET: Exit Strategy/Graduation
USAID’s Microenterprise Development office (MD) activities at the market level have focused on the enabling environment and building market infrastructure on the one hand, and on access to capital on the other. An enabling regulatory environment is a critical driver for formalizing microfinance institutions (MFIs) and integrating them into the mainstream financial sector. The legal and regulatory framework can also have a significant impact on investor confidence in the transition to private capital. At the same time, greater integration into commercial financial markets is absolutely essential if the microfinance industry is to maintain annual growth rates of 20 percent or more. Donor financing is not sufficient to finance the aggregate demand from a rapidly growing industry. Still, there are many questions about how and at what stage of development the private sector will begin financing individual MFIs.
While an increasing number of microfinance investment vehicles (MIVs) have been created since 2005, and Wall Street investment banks have also entered the market, the bulk of the funding is still going to a small number of MFIs. MD seeks to explore what role donors should play in the market, and how they can gracefully and effectively exit from current investments and shift the focus of their interventions toward riskier frontier markets where private capital has not yet entered.