Microfinance sector ()

Profitable businesses attract competition, and unchecked competition eventually kills returns. We just watched this classic Capital Cycle play out in the Microfinance sector with brutal efficiency.

Following the 2022 regulatory changes, the industry rushed into a gold rush, leading to a massive liquidity trap by late 2024. Borrowers were over-leveraged, and the “growth at any cost” model collapsed under its own weight.

But in markets, the point of maximum pessimism is usually the best time to look closer. While the weak players are still exiting or shrinking, the best-in-class banks have strengthened their balance sheets and are ready for the upcycle.

We believe the risk-reward is now heavily skewed in favor of the patient investor. In this video, I break down exactly how this cycle broke, and why we are betting on the recovery.