Microfinancing has recently seen an increasing debt burden, in the backdrop of scandals ranging from accusations of exploitation to suicides of delinquent lenders who are unable to cope with peer bullying when they cannot repay loans.

The Asian Development Bank has $1.9 billion to microfinance projects since 1988. To shoulder lending burdens across Asia, the Asian Development Bank has a regional $250 million risk participation program and fund. Under the new scheme, ADB will assume 50% of the default risk on loans and partner with local MFIs that are already operating micro-lending. The partnership will allow MFIs to increase lending to greater numbers of borrowers without assuming all of the risk.

The fund will target women, poor households, and struggling small enterprises–the same target groups that many MFIs focus on. But in doing so, ADB may have missed an opportunity to innovate and extend their reach to those who are even more neglected, such as those in extreme rural conditions and those who don’t participate in organized networks, such as women’s groups.

Recently, it separately committed $75 million for a private equity fund, managed by Equator Capital Partners, to take equity stakes worth $2 – 10 mn each in regulated, small microfinancing lenders to expand microfinance and small bank lending to poor, underserved groups in Asia and Africa, with ADB’s contribution solely for use in its developing member countries.

ADB’s participation will help leverage more investment from the commercial market, and provide a model for other private equity funds to follow in the small lenders market. It expects average investments to last about 5 years, with key target markets including Bangladesh, the People’s Republic of China, India, Indonesia, Pakistan, the Philippines, Sri Lanka, Thailand and Viet Nam.