On March 1st Daiwa Microfinance Fund, the first Japanese investment trust fund to provide commercial financing for microfinance institutions was launched with the fund size of USD 242mn. The fund will be managed by Developing World Markets (DWM) which launched at the same time the underlying vehicle DWM Microfinance Fund-J.The fund is distributed by Daiwa Securities and managed by Tokyo Marine Asset Management. The minimum subscription is of Yen 1000 or 12 USD.
Daiwa seems to be leading the way amongst the big financial institutions in Japan regarding impact investments they had launched a bond that invests in IFC (which invests in MFIs) and also have distributed the GAVI bonds.
Japan has been lagging in the area of impact investments but during my last visit to Tokyo in mid January I could feel/hear that there is finally a lot more interest, awareness on the topic of social entrepreneurship and impact investment. I was lucky also to coincide with the official launch of the Ashoka Japan office. Bill Drayton was in Tokyo to give interviews and to introduce the Japan representative Kashiwa Maki and the long time Ashoka supporter Nana Watanabe. Ashoka Japan had started to operate last year the Youth Venture program.
I also met with Ichi (Hiroyasu Ichikawa) who I had met last year at SOCAP and Skoll who is doing a great job as a social media consultant in Japan. I also met several players in the financial industry that expressed their interest in making impact investments. Once there is interest.... Japan can move boldly... a lot to look forward to!
Looks like 2011 will be a breakthrough year for impact investments. A recent report by J.P. Morgan/Rockefeller Foundation and Global Impact Investing Network (GIIN) defines impact investment as "investments intended to create positive impact beyond financial return". In other words, investments intended to; improve or provide access to energy, water, education, health, housing, and financial services for the poor, create jobs or mitigate climate change while also providing a financial return.
The term "impact investments" only surfaced less than 3 years ago and now thanks to the impressive efforts of the Rockefeller Foundation and GIIN it is emerging as an asset class. It is capturing the attention of investors in all segments from philanthropic foundations, high net worth individuals, financial institutions and governments as they all seek to make more efficient use of their capital, achieve better returns (social, environmental and financial) and help solve the world's social problems. Estimates on potential market size (investment capital) over the next 5 to 10 years range from USD 400bn to USD 1 trillion. Major efforts have been made also in developing standardized metrics with Impact Reporting and Investment Standards (IRIS) and more recently on ratings the Global Impact Investment Reporting Standards (GIIRS) is testing its rating methodology with 25 pioneer funds. Impact investments has been featured in conferences such as Skoll World Forum, Clinton Global Initiative and SOCAP last year and certainly this year it will take center stage.
Suggested readings
Impact Investments- An emerging asset class (J.P.Morgan, The Rockefeller Foundation, GIIN)
Impact Investing: A Framework for Policy Design and Analysis (Pacific Community Ventures, Harvard University)
Money for Good (Hope Consulting)
Investing for Social and Environmental Impact (Monitor Institute)
related blog What is impact investment?
The microcredit crisis in India has been unfolding since mid October when the state of Andra Pradesh issued an ordinance to crackdown on microlenders. The ordinance required that all microlenders cease disbursing and collecting loans, register to the authorities and declare the interests charged. The state was concerned with the explosive growth of loans and around 50 suicides reports by rural men and women that were attributed to overindebtness. Although some of the MFIs have been able to resume their activities this kneejerk reaction by the state of Andra Pradesh has sent the industry into a crisis and is more likely to do harm than protect the poor borrowers. Shares of SKS Microfinance which had a successful IPO in August this year has been plunging and is currently less than half of its peak in September.The Indian microcredit industry is the largest in the world. The state of Andra Pradesh is the center of microcredit in India and home to India's largest MFIs such as SKS, Spandana, BASIX and Share Microfin as well as the government nurtured Self-Help Groups or SHGs. There has been excellent writeups on this subject and background which I can highly recommend.
- Indian Microfinance Crisis of 2010: Turf War or a Battle of Intentions? Intellecap White Paper
- Who is the Culprit? Accessing Finance in Andra Pradesh, CGAP
- India's Microfinance Crisis is a Battle to Monopolize the Poor, Vineet Rai, HBR
- Backgrounder on India's Microfinance Crisis, David Roodman
SOCAP 2010 took place in San Francisco on Oct 4-6. Over 1200 participants. Energetic, lively, sharing, innovative. Impact investments took center stage.Watch these amazing videos of Jacqueline Novogratz (Acumen Fund) Matt Flannery (Kiva) and many more http://video.socialcapitalmarkets.net/live-video-stream/ The first SOCAP Europe will take place in Amsterdam May 31-June 2, 2011.
This I believe will become a "classic" or the debate between "who should benefit from microfinance". My humble opinion...I think that both have valid points and there is enough room for both ideals as there are so many people in need for basic services at the BOP or bottom of the pyramid.
This book introduces innovative social/business models that provide sustainable solutions to the problem of poverty and portrays the insipiring people behind them.You can find an update on microfinance, BOP (base of the pyramid) initiatives, and microfranchising all which are improving the lives of the 4 billion people living at the BOP. VisionSpring, an innovative social microfranchising enterprise with the mission to reduce poverty and generate opportunity through the sale of affordable reading glasses is featured as a model case. The aim of this book was to share my insights on 1) how the business and social worlds have been converging, setting the stage for these innovative models to emerge, 2) how these models, together with the advent of Web 2.0, are creating a strong and positive movement towards a more responsible, sustainable and kinder world and 3) how all of us could make a difference.
This book is the updated English version of the German book that was published last year. I used lulu.com to publish this and I can recommend it.
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.
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.
"Realizing Property Rights" (Swiss Human Rights Book Volume 1) a book edited by Hernando de Soto and Francis Cheneval is now out (Publisher: Rüffer & Rub). This book deals with property rights as human rights seen from different cultural and historical contexts and from different thematic angles. It has been an honour for me to have been able to contribute a chapter for this book titled "Microcredit, MicroFranchising and Women Entrepreneurs"