We try to increase the proportion of ‘Tier 2 and Tier 3’ microfinance institutions in the portfolio, which are more likely to serve very poor communities. We invest in innovative models that use technology to lower operational costs and are able to reach out to very poor people.
Historically, the microfinance industry referenced a system of three or four "tiers" to differentiate between MFI types with the main indicator usually being the size. The MicroRate’s system, for example, is based on a three-tier structure that applies three simple, objective indicators that together act as proxies for an MFI’s level of maturity. The three indicators are sustainability (as determined by return on assets, ROA), size (total assets in USD), and transparency (level of regulation and reporting). Tier 2 and 3 MFIs are smaller institutions focused on microfinance and are more likely to serve very poor communities.