The rating agency said that it has three strong microfinance CDOs in the pipeline, one of which may price at the end of the year. The report points out that the loans exhibit resilient performance with low default rates. Most microfinance institutions, which lend to entrepreneurs in developing, non-investment grade-rated countries, report defaults in the 1-2% range. “An important factor will be the data provided by the MFI,” said Kochubka.
“There is room for improvement on the transparency and availability of information available to investors. MFI should start to get used to the difference from working with funding from multilaterals or philanthropic institutions that may not require the same level of management and best practices as is generally accepted in the institutional market,” Kochubka added.
As the market opens to traditional institutional investors such as pension funds and life insurers, the sector can be expected to grow beyond targeting the 100–200 top-tier microfinance institutions, which receive the majority of funding at present, to the second- and third-tier MFI. A secondary market may also grow out of the around 100 private funds that exist in the sector, allowing invest to divest shares and providing some liquidity to the market.