Microfinance will become an increasingly significant investment niche for retail investors in the years ahead, suggests a new report from Deutsche Bank.

The study finds that microfinance will evolve into a niche investment product that will increasingly attract both retail and institutional investors. It also says that microfinance will benefit from a strong rise in socially responsible investments, and increasingly appeal to a wider range of commercial investors. As a result, the study forecasts individual and institutional investments to rise to US$20 billion by 2015.

Data from the report shows that although the microfinance sector currently has an estimated total loan volume of US$25 billion outstanding, there is still a tremendous funding gap estimated at US$250 billion. To scale up microfinance, an increasing involvement of private sector investors is a key priority.

“Private sector investors have already invested around US$2 billion, but they have barely started to explore the full potential of microfinance investments,” said Raimar Dieckmann, Deutsche Bank analyst and author of the study.

“Microfinance has undergone a significant transformation in recent years,” said the bank’s chief economist, Norbert Walter, presenting the key findings at a luncheon in New York. “This study has demonstrated that the steadily growing popularity of microfinance has reached a global audience and continues to be a key facilitator in helping to fight poverty in both developing and developed countries.”

Other key findings of the report include:

  • the volume of total microfinance loans has risen sharply in recent years from an estimated US$4 billion in 2001 to around US$25 billion in 2006;
  • since 2004, both international public and private sector investors have doubled their investments which together have reached over US$4.4 billion; and
  • total foreign funding is expected to increase to roughly US$25 billion by 2015, 80% of which is expected to come from institutional and individual investments. The remaining US$5 billion will be provided by international financial institutions.