My for-profit microcredit organization has started a nonprofit subsidiary foundation to focus on areas of the microfinance sector that are not yet commercially viable, such as vulnerable groups. Since private investment is a more sustainable long-term solution than grant funds, we want to address these gaps in the near term and encourage corporate money without saturating the market for future funding. How can we avoid risks like crowding out commercial investment, or failing to exit at the right time to allow our for-profit counterparts to take over?
I think the answer to your question starts with understanding the measures that the for-profit lenders use to assess the attractiveness of a market and use those performance measures (e.g. number of borrowers, average loan size, average loan loss rate) to determine exit date. In other words, once you've proved the market is attractive to for-profit entities by achieving your targets, your plan is to leave the market. In addition, I would inform the for-profit community of your plan to exit the marketplace when these metrics are achieved. Such communications should mitigate the risk of crowding out. In a sense you need to "sell" this market to the for-profit lenders by quantitatively demonstrating its profitability and developing a compelling plan for how the for-profit entities will make money once they enter the market.
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