Investing in Microfinance: The Case of Tunisia

After the Tunisian revolution, people were hit by the bitter reality of the Tunisian miracle of Ben Ali’s regime: an unemployment rate of 20% (INS [2013]) and a poverty rate reaching 25%. With no access to loans, low-income people find themselves in a vicious circle of poverty that will lead them to either begging or criminality. Many of the country’s poor people carry heavy life baggage; the stories of their personal life lives could have been ripped from the pages of Les Misérables. Such realities pushed the government to make draconian changes leading to more liberalization of the microfinance sector, in an attempt to alleviate poverty and enhance social inclusion. Among the new players allowed into the market are private equity (PE) firms. The decision to allow PE participation caught the industry by surprise, since the Tunisian microfinance sector had always been restricted to nonprofit associations, far from the reach of PE firms. The change gave rise to numerous questions: Why would a private equity firm invest in the micro-finance sector? Why now? Is the sector profitable? Is it competitive? What is the investment strategy?