Private Capital Invested in Microfinance

 

Channeling Private Investments from the Global North to the Global South

IDEAS’ Executive Director, Carter Garber, is a pioneer in the field of encouraging socially responsible investment from the Global North to the Global South.

Carter was the founding Manager of one of the first international entities to encourage US private investors to invest directly in microfinance and community enterprises. Previously, MFIs were almost totally dependent on donations, but he thought that if managers were going to make poor entrepreneurs borrow and pay back loans then MFIs should do the same thing. In 1991he set out to create an MFI which was not dependent upon donations and was sustainable with its only capital source being loans.

The Nicaraguan Community Development Loan Fund grew from an initial $60,000 of loans from individuals to a capitalization of $2.5 million. It was far more successful than anyone had imagined, returned over $1 million to private investors, and it achieved operational self-sufficiency during Carter’s four year tenure. He set the systems in place for it to quickly double its capitalization. The Loan Fund borrowed monies from hundreds of individuals, churches, religious orders and denominations, and foundations.

It now has grown into two separate institutions, the Nicaraguan Credit Alternatives Fund (NICA Fund managed by WCCN, www.wccn.org/where-we-work) and PRESTANIC, a Nicaraguan non-profit microfinance institution, which is rated by Microfinanza and is an active member of ASOMIF, the Nicaraguan MFI network. PRESTANIC is the 75 th largest MFI in Latin America, according to the InterAmerican Development Bank. See www.asomif.orgThe two loan funds that we helped found each have over $3 million invested in loans in microfinance in Nicaragua. Together, over the last 15 years, they have lent over $20 million without a single late payment of interest or principal to investors.

In his doctoral dissertation, Carter documented the entities that were lending to the Global South. It is entitled Private Financing of Microcredit: The Models and Potential of U.S. Socially Responsible Investment in International Small Enterprise Credit.

IDEAS CONSULTING ON CAPITAL MARKETS

For several years, IDEAS consulted with the staff and board of CARE USA on the formation of MicroVest, a global investment facility based on a limited partnership model. MicroVest was created as a capital-mobilizing intermediary for MFIs. It is organized along commercial lines with a strong private sector board. Its objective is to provide capital to self-sustaining financial institutions that serve the poor. An independent institution with a professional investment management team, MicroVest was founded by three non-profit institutions: CARE , MEDA and Seed Capital Development Fund. The founders bring:

  • A world-wide presence with operations in over 75 countries;
  • 50 years of experience developing micro- and small-businesses, plus hands-on experience managing MFIs;
  • 150 microfinance programs and microfinance institutions; and
  • A proven track record of creating and managing investment funds.

IDEAS helped write the business plan for first fund, MicroVest One LP , which was launched on January 1, 2004 with US$ 15 million in committed assets, with the potential to grow to US$ 75 million. MicroVest One makes debt and equity investments in existing microfinance institutions. MicroVest plans follow-on funds specialized funds targeting sectors such as housing, and new financial instruments. For more information, see www.microvestfund.com/aboutmv.html. IDEAS did due diligence on fair trade coffee producers and exporters for the Calvert Foundation when it wanted to explore lending in the sector. The Foundation invested an initial $1 million in 5 coffee cooperatives in Latin America after recommendations by IDEAS. As of 2006, the Foundation has increased its lending to $3 million in fair trade coffee. The Foundation is a leading entity in channeling private investments to microfinance in developing countries internationally. Their web page has many interesting details on investees and investors, www.calvertfoundation.org. IDEAS during the 1990s did due diligence and site visits for the microfinance institutions in Latin America, which were borrowers from Partners for the Common Good 2000 Loan Fund. IDEAS was a part of the consulting team which recommended a permanent structure for this U.S. based nonprofit Community Development Financial Institution (CDFI), whose mission is to promote economic justice and social change by providing access to debt capital to community-based ventures that advance the ” common good”. PCG seeks to support innovative organizations and emerging sectors that have high potential to create economic opportunities for low-income people, women, people of color, at-risk populations, and others who are often left out of the economic mainstream. For more information, www.pcgloanfund.org. IDEAS has provided capital markets consulting and due diligence in Latin America for Oikocredit, the largest lender to microfinance in the world, and to NOVIB, both of the Netherlands. For more information, see www.oikocredit.coop.