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How do I Choose the Best Microfinance Fund?

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  • Written By: Larry Ray Palmer
  • Edited By: Amanda L. Wardle
  • Last Modified Date: 19 November 2016
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Microfinance funds offer lending services to individuals with low income and to self-employed people who are unable to obtain these services through traditional banking institutions. Organizations operating microfinance funds use resources provided by investors to offer loans that may aid in helping others to improve their lives, either through business start-up loans or small personal loans. Investing in a microfinance fund is often considered a small investment choice that offers the satisfaction of performing a humanitarian service. Choosing the best microfinance fund for your investment is largely a matter of deciding which causes you support and looking for a microfinance organization that has shown positive results in supporting this cause.

There are many microfinance fund organizations in operation. They may help indigenous people in third world countries to find financial stability. Some assist self-employed individuals in growing a business. Other causes are also supported by microfinance funding. Typically, loans offered by microfinance funds are small or microcredit, but the organization may offer additional services such as insurance, savings, and fund transfers.

In many cases, the microfinance fund will provide an information packet to investors. Packets generally offer an explanation of the causes supported by the fund, as well as the primary microfunding tools used. Such information can help prospective investors find a microfinance organization that aligns with their personal interests.

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The information pack usually also includes a prospectus describing what the fund has done in the past and its future performance predictions. While the prospectus is not a definite indicator of future performance, it should be considered carefully. Past performance is often indicative of future results, so a microfinance fund with a track record of successful investment is considered safer than investing in an unestablished fund.

Terms and interest on the microfinance investment are important considerations. A short-term investor may be better able to invest a large amount for a six month period, while a long-term investor may choose to invest small amounts over the course of several years. Each microfinance fund organization has its own method of handling funding, which will affect the success of investments of either type. Before investing in a microfinance fund, investors should consider their own investment style and the liquidity of potential investment resources. In some cases, the microfinance organization will allow early withdraw of funds from an account, but this may be penalized; understanding the terms of investment is strongly advised.

Another consideration in choosing the best microfinance fund is the minimum investment amount. Some microfinance funds require a substantial minimum investment that puts these funds out of the range of small investors. Other funds have very low minimum investments, making it possible to invest on almost any budget. Funds with higher minimum investment requirements typically offer a higher return, so investors who can afford to do so may benefit from investing with these companies.

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