The Asian Development Bank (ADB) will provide up to $10 million for a private equity fund that aims to expand microfinance and small bank lending to poor, underserved groups across the region.

ADB's Board of Directors approved the equity stake in the ShoreCap II Fund. It will invest in microfinance institutions and small business banks in both Asia and Africa, with ADB's contribution solely for use in its developing member countries.

"ADB's investment is ultimately intended to help increase the economic contribution of microfinance clients and small businesses to regional growth," said Robert van Zwieten, Director of the Capital Markets and Financial Sectors division of ADB's Private Sector Operations Department.Small lending institutions have been expanding rapidly across Asia but not enough to accommodate the huge demand for capital and banking products.

ADB noted that small business banks, which are a key source of loans for small-and medium-sized businesses, the lifeblood of economic activity in the developing world, struggle to find the necessary capital to meet customer needs. The fund – which will be managed by Equator Capital Partners, an independent fund management company registered in the US – will take equity stakes in regulated, small lenders with high growth potential who can reach neglected groups such as women entrepreneurs and rural microenterprises.

Key target markets will include Bangladesh, the People's Republic of China, India, Indonesia, Pakistan, the Philippines, Sri Lanka, Thailand, and Vietnam. The goal is to take minority stakes in companies with investments of $2 million to $10 million each, and to exit holdings over an average of five years, with Asian investments making up about half the fund's total portfolio.