Micro-lending market takes rising interest rates in its stride

Micro-lending market takes rising interest rates in its stride

Fund managers are optimistic that the booming market for impact lending to small businesses in developing countries can survive sharp increases in global interest rates, after coming through the coronavirus pandemic relatively unscathed.

The global impact lending market has grown from $715bn at the end of 2019 to $1.164tn today, according to data from industry body the Global Impact Investing Network. This has been driven by surging investor demand for more ethically-minded investments and products that can make a positive difference to society or the environment.

Much of this growth has largely taken place in an environment of low global interest rates, supported by trillions of dollars of quantitative easing by western central banks, which made for easier conditions for borrowers, globally.

But, with US interest rates shooting up from near-zero to between 4.5 per cent and 4.75 per cent — their highest level since 2007 — in less than a year in a move to tame inflation, the market for lending to micro businesses faces a serious challenge.

However, some analysts and fund managers believe that the structure of the market and the financial health and flexibility of the underlying borrowers mean that any rise in defaults will be limited.

“There’s not a lot