Microfinance industry which started from its humble beginnings is now attracting a deluge of private investment, raising appropariate apprehensions that the industry may be on its way to loose sight of its mission to alleviate poverty. According to the World Bank, in the year 2008, microfinance sector attracted $14.8 billion in foreign capital, up 24% from the previous year. The majority of it was from private investors.

Those advocating for-profit approach highlight that the improved access to foreign capital and expertise is beneficial for the sector, while the ones on the traditional side opine that the MF sector is in eminent danger of becoming similar to the predatory moneylenders.

The influx of so much private capital into microfinance is a mixed blessing. Though it has freed many MFIs from their reliance on donor funding, but has in turn laid stress on them to maximize profit and therefore there is a great potential of the social goal of helping people out of poverty being sidelined. As per Venture Intelligence Consultancy, the Indian microfinance market grew at a compound annual rate of 90% between 2003 and 2008. It attracted around $200 million through 27 private-equity investments in 2009 alone including from many blue-chip names such as Silicon Valley Bank and Sequoia Capital.

The microfinance industry is also paving way to see the first IPO launch by an MFI i.e. SKS, India’s largest MFI and the fifth-largest in the world. Many more MFI would surely follow suit and the inflow of private equity investors would make this easier. Investors are attracted by they fact that returns on microfinance investments are reasonably uncorrelated to other asset classes. They have also produced positive returns even in volatile times.

However, the market is not totally immune from the credit crisis. The rapid growth in India is also fueling fears that the market could overheat as it did in Morocco and other countries. There's a risk of making too many loans and getting people over-indebted. Also some parts of India are in danger of becoming over-saturated with micro-loans. Some experts fear that MFIs lose track of their purpose when they become beholden to institutional investors.