Today's NY Times article on Kiva describes the recent online debate started a month ago by David Roodman's blog titled "Kiva Is Not Quite What It Seems" which criticized Kiva's misleading marketing on person-to-person microlending. Matt Flannery, Co-Founder of Kiva responded and reacted (by updating and improving on how Kiva explains itself to its user) to David's blog and to the NY Times article in an admirable way. As a supporter, promoter and lender to Kiva I believe that these online debates are healthy as it promotes transparency and makes innovative enterprises like Kiva an even stronger organization. Kiva has been a poster child for social entrepreneurship and in only 4 years have been able to create a platform that facilitates individuals (over 580,000) of all ages to participate in alleviating poverty with USD 25 (just recently crossed the USD 100 million mark). The phenomenal growth and its success also attracts attention. Constructive criticism is healthy, bad PR is harmful. I believe and trust that Kiva will emerge stronger from these controversies.
On Oct 31st, Kiva lender loans surpassed the USD 100 million mark! Congratulations to the Kiva team especially Matt and Premal for achieving this milestone. That is a lot of 25 dollar bits. I went back to check my first entry on Kiva when I congratulated them on getting their 501(c) status which was in Sept 2006 . Kiva has achieved so much in 4 years inspiring more than half a miilion people in the world to get engaged to empower people in developing countries.
“Impact investments aim to solve social or environmental challenges while generating financial profit. Impact investing includes investment that range from producing a return of principal capital to offering market-rate or even above-market financial returns. Although impact investing could be categorized as a type of “social responsible investing” (SRI) it contrasts with negative screening which focuses primarily on avoiding investments in “bad” or “harmful” companies -impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.” (source:based on GIIN)
I first heard this expression in spring 2008 at the Skoll Forum in Oxford described by Antony Bugg-Levine of the Rockefeller Foundation. (I thought I finally found the proper word to describe what I do, I am an impact investment advisor) A year later at the 2009 Skoll Forum, the Monitor Institute presented an excellent report titled Investing for Social and Environmental IMPACT and also A. Bugg-Levine announced that the Global Impact Investment Network (GIIN) was being formed. In Sept at the SOCAP 2009 in San Francisco one could confirm that “impact investing” had become the widely accepted expression by the rapidly growing social capital investment industry. On Sept 25th 2009, GIIN was officially launched and announced its 25 founding members of the GIIN Investor’s Council at the Clinton Global Initiative. A recent article in the Economist also profiles impact investing.
Over the past few years many new expressions have been created to describe investing for social and environmental impact and financial return. These include double or triple bottom line investing, blended value investing and BOP investing. Needless to say microfinance investments is one of the leading and successful examples of this type of investment. All these expressions are valid in their own right; however, it confuses the investors and makes it difficult to build the market mechanisms for this nascent industry to efficiently grow. It is great that we now have a clear terminology and definition and an institution such as GIIN which is dedicated to increasing the effectiveness of impact investing. Other great initiatives in this area include The Global Social Investment Exchange (GSIX) and Nexii, the electronic transactions and communication platform for the social and environmental markets.
How is the financial crisis impacting microfinance institutions (MFIs) and their clients? What can the microfinance industry do? These were the questions addressed at the virtual conference hosted by CGAP between Nov 18-20. There were 600 MFI managers, central bankers, investors, and advisers from 34 countries and the150 entries submitted by these participants provided a vivid and powerful picture of what is going on. According to the summary sent out by Elizabeth Littlefield, Director and CEO of CGAP,
"The dominos of the crisis-credit crunch, inflation, currency dislocations and global recession- are hitting microfinance in very different ways, depending on location, funding structure, financial state and the economic health of their clients. While many places seem unaffected today, there is little doubt that there will be impact: integration of microfinance into the mainstream does have costs."Other salient points from the summary report were;
-deposit taking MFIs are well-insulated from the crisis
-immediate concern is how the global liquidity contraction will affect the cost & availabilty of funding to non-deposit taking MFIs
-institutional investors in microfinance are not seeing significant redemptions but they do expect fundraising to become more difficult in the coming months
-advice to MFIs included: increase reserves, cut back on growth and focus on portfolio quality, make sure loan officers are informed and attentive to client needs and communicate early and often with lenders and investors
-concerns about overreaction by policymakers
-amid the anxiety some optimism...as some markets had become overheated so slower growth, tighter credit more conservative policies, better products and even consolidation of weaker institutions may be beneficial in the long run
I logged in during the 3 day conference and one positive impression was how the industry of microfinance (the players) continue to be willing and passionate to share and give information for the improvement of the whole industry, an attitude that the mainstream should learn from microfinance.
SKS Microfinance based in Hyderabad has raised 366 crore or $75 million from private investors. This is the fourth round of fund raising and was lead by Sandstone Capital. SKS has been one of the fastest growing MFIs in the world. According to its CEO Vikram Akula the funds will be used to leverage access to commercial finance and to scale their outreach in the next two years (doubling the current 1400 branches and 12,000 employees). SKS has raised funds in the past through Unitus Equity Fund, Vinod Khosla, Ravi Reddy, Sequoia Capital, Odyssey Capital, and Silicon Valley Bank. SKS currently has 3.3million clients across India and it plans to reach 8 million by 2011.
source: VC Circle
from the press release: BlueOrchard Finance SA
The 2007 BlueOrchard Loan for Development, BOLD 2, was elected “Sustainable Deal of the Year” on June 3, 2008, at the FT Sustainable Banking Awards Ceremony hosted by the Financial Times and the International Finance Corporation (IFC) of the World Bank Group. The BOLD 2 transaction is a landmark deal that has helped to broaden microfinance as an asset class for mainstream investors, while simultaneously providing credit to tens of thousands of individual borrowers at more favourable terms.BlueOrchard Finance S.A. of Geneva, Switzerland, and Morgan Stanley launched BOLD 2 at the end of April 2007. BOLD 2 is a Collateralised Loan Obligation (CLO) of unsecured loans amounting to USD 110.2 million, of which the equivalent to USD 106.7 million were lent to 21 microfinance institutions based in 11 emerging countries (Azerbaijan, Bosnia and Herzegovina, Cambodia, Colombia, Georgia, Kenya, Mongolia, Montenegro, Nicaragua, Peru, Russia).
These funds were on-lent by the microfinance institutions (MFIs) to approximately 70,000 low-income people - over half of them women - for entrepreneurial activities.
Congratulations to both BlueOrchard and Morgan Stanley for mainstreaming microfinance and increasing the outreach of loans to the poor.
On October 24th, MicroPlace launched its web site that allows people to invest as little as $100 in microfinance. More precisely, people can purchase investment notes with returns ranging from 1.5 to 3.0% that are issued to a particular microfinance institution. This is great news as this provides another option for people to participate in supporting microentrepreneurs worldwide. So now in addition to Kiva which allows people to support microentrepreneurs with a loan (you get capital back but no interest) you have MicroPlace where you can make money from these loans "doing good, doing well". This news has been covered by Businessweek, Reuters, Fortune etc but the best article out is by Rob Katz of nextbillion titled "Kiva vs. MicroPlace-What is the difference?" an excellent read. Kudos for Calvert Foundation, which is the first issuer for MicroPlace. Calvert has been offering for the past 10 years community investment notes including those that went to fund microfinance institutions and these notes were offered to the public at large. One of the very few choices that have existed but now their efforts can be inmensely scaled!
One request to MicroPlace/ebay and to the microfinance investment community. Kiva is a non-profit so everyone can participate but investments in MicroPlace is only available for US investors (US residents). I am aware of the constraints in the investment world but can we/someone make a platform or several platforms for investments so that everyone can invest?
CGAP has released a draft Focus Note written by Richard Rosenberg. CGAP Reflections on the Compartamos IPO: A Case Study on Microfinance Interest Rates and Profits. The successful IPO of Compartamos on April 20th and the enormous gains produced through the sales have provoked discussions concerning 1) the very high interest rates charged over the years 2)were the grants given to Compartamos used inappropriatelly to benefit private investors and 3)governance issues on balancing social and commercial objectives after the IPO. Thus this is a very well written and welcome report providing the base for discussions and brainstorming needed for the microfinance industry. As the author puts it;
"All of us who are involved in commercial transformation-that is, moving microfinance operations from not-for-profit to for-profit institutional forms-need to be clearer and more realistic in dealing with the inevitable consequences of those transformations."
A story that came to our attention through the courtesy of Mark Straub.
Sequoia Capital, the famous venture capital firm for its early stage investments in Google, Yahoo, Paypal, YouTube and others leads the $11.5mn equity investment in SKS Microfinance, one of the fastest growing microfinance institutions in the world. According to the press lease of SKS Microfinance, Sequoia Capital is the lead investor with $6.5mn. Other investors include Unitus Equity Fund, Vinod Khosla, Ravi Reddy, and Odyssey Capital.The funds will provide the stimulus that SKS needs to achieve its ambitious goal to provide financial services to over 5 million poor families by 2010. Another example of convergence in the investment world.
According to the FT(March 30th) Danone plans to launch next month with the help of Credit Agricole a novel mutual fund to invest in microfinancing projects in the world's poorest countries. The idea is to raise initially 100mn Euro and it will be named Danone Communities Fund. This move follows the pioneering social business, Grameen Danone Foods Social Business Enterprise, a 50-50 joint venture established last year between the Grameen Group and Groupe Danone. This is probably the first private sector corporation (not a financial institution nor a foundation)that is launching a microfinance investment fund.
Procredit Holding AG, the parent company of the largest microfinance group in the world, announced a significant capital increase of EUR 74mn to make their paid-in capital a total of EUR 216mn. The new private sector investors are 1)TIAA-CREF, a US based asset management company with more than $380bn in assets under management and the leading provider of retirement saving products in the academic, research, medical and cultural fields and 2) the Omidyar-Tufts Microfinance Fund. These two American investors purchased non-voting preference shares amounting to EUR 40.5mn and the company’s existing shareholders Kfw, FMO , IFC and responsAbility Global Microfinance Fund also participated in the capital increase.
This seems so far the largest private equity investment in microfinance by a single private sector investor. TIAA-CREF invested $43mn in Procredit Holding AG. Development World Markets advised Procredit Holding AG on this transaction.
According to the press release of Procredit the additional capital will be used to expand Procredit activities in Sierra Leone, Honduras and Mexico. Procredit currently operates in 18 countries in Africa, Latin America and Eastern Europe. As of the end of July 2006, the Procredit group had a loan portfolio of EUR 1.8bn and deposits of EUR 1.5bn outstanding to more than half a million of micro and small entrepreneurs in developing countries and transition economies. News releases. Procredit, TIAA-CREF, DWM.
BRAC one of the largest microfinancial institutions with over 5mn borrowers and 100,000 employees has closed a landmark securitization deal structured by RSA Capital, Citigroup, FMO and KfW. This deal is denominated in Bangladesh Taka (BDT) and will provide a total of 12.6bn BDT over the course of 6 years. BRAC will receive 1bn BDT (US$15mn) financing every 6 months totalling US$180mn over 6 years. Read BRAC's press release here
The microfinance industry continues to tap resources from the capital markets. This year 2 large CDOs were launched US$100mn by BlueOrchard Finance S.A. and a US$60mn by Development World Markets. Pure microcredit securitization deals have so far been very few.