I have been intrigued by microfinance since my days as a credit analyst and commercial lender at ShoreBank, an institution which also uses a bank model to extend credit to the economically disadvantaged - primarily in the United States.    While I am convinced of the social benefits of microfinance Connie Bruck wrote a very thoughtful article on microfinance in the October 30 New Yorker, Millions for Millions, which got me thinking about the investment potential for ESG investors. 

I review of the organizations mentioned in the article did not yield very much information for people and/or institutions interested in investing in this area.  However, I did find an excellent website, www.microfinancegateway.org, sponsored by CGAP (The Consultative Group to Assist the Poor) a consortium of 33 donors who support microfinance.  It appears to be a very comprehensive resource for people and institutions with an interest in microfinance.  In their FAQ section they address the question of return.

 "Can microfinance be profitable?  Yes it can. Data from the MicroBanking Bulletin reports that 63 of the world's top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies programs might have received, of about 2.5% of total assets."

While not a compelling return, an investment would at least keep pace with inflation. 

Further web trolling produced a Wall Street Journal 2006 article on direct investing in microfinance firms,  A New Way to Do Well by Doing Good --- Microfinance Funds Earn Returns on Tiny Loans To Poor Entrepreneurs Abroad, which listed a number of potential vehicles and estimated returns, a number of which were above 2.5%.  I've attached links to all the funds mentioned on the resources page of the ESG Alpha website. 

Microfinance is still a young industry and certainly not without its challenges.  That said, my short review of the sector suggest that, in additions to its social benefits, microfinance offers some potential as a viable investment alternative.