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Monthly Archives: June 2010

MicroCred completes the sale of its Mexican operations to Creation Investments’ Portfolio Company Aspire

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MicroCred completes the sale of its Mexican operations.

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Paris, June 7th, 2010
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On June 4th, the MicroCred Group completed the successful sale of its Mexican operations. MicroCred concluded an agreement with Fig Tree Ventures (a management company of microfinance institutions based in the US) on the sale of MicroCred Mexico. The transaction includes assets of EUR 4.1 million as of April 30, 2010 and covers all Mexican activities of the MicroCred Group.
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As part of this agreement, Fig Tree Ventures and its investment partner, Creation Investments, hope to merge MicroCred Mexico with their Mexican microfinance company, Aspire.. Aspire, founded in 2008 by FTV and Creation Investments, is a micro, small and medium enterprise finance company based in Guadalajara. Aspire has two major shareholders: Fig Tree Ventures, and Creation Investments Social Ventures Fund I . Through this transaction, Aspire aims to expand its distribution network in Mexico by establishing itself in the State of Veracruz Aspire offers an individual business loan product customized for the Mexican market. After less than 20 months of operation, Aspire is break-even and managing a portfolio with PAR > 30 of 4.6 as of the end of May 2010.
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MicroCred’s Chairman of the Management Board, Mr. Arnaud Ventura, announced that: “The completion of this agreement is an important step in our strategy to focus our resources in Africa and in China. Our contract with Fig Tree Ventures also offers customers the opportunity to maintain their access to a reliable and quality funding resource.”
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Selling of MicroCred Mexico
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About Fig Tree Ventures: Fig Tree Ventures, LLC (FTV) is a management company based in the US and focused exclusively on the creation, development and management of microfinance companies. FTV is owned and operated by three partners who collectively have more than 35 years of direct microfinance company management experience globally. All three partners are currently based in Mexico and will be involved in MicroCred Mexico to ensure its success.
www.aspire.com.mx
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About Creation Investments: Creation Investments is an investment management company committed to eradicating global poverty through direct investments in economic development. Creation Investments Capital Management, LLC currently manages Creation Investments Social Venture Fund I, a private equity fund which makes investments in microfinance institutions and other social ventures. www.creationinvestments.com
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About MicroCred: MicroCred S.A. is an investment company that aims to create a group of companies and banks specialized in microfinance. MicroCred has developed an innovative model to provide microentrepreneurs excluded from the traditional banking system access to financial services. PlaNet Finance, Société Générale, Axa Belgium, the International Finance Corporation, (World Bank Group) the French Development Agency (AFD), the European Investment Bank and Developing World Markets (DWM) are among its shareholders.
www.microcredgroup.com

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Rick Halmekangas
rick@figtreeventures.com
(00 1) 202 684 6682
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Patrick Fisher
patrick.fisher@creationinvestments.com
(00 1) 312 784 3988
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For more information:
www.microcredgroup.com
Contact Presse : Marion Ivars
mivars@microcred.org
(00 33) (0)1 49 21 26 47
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With Impact Investing, a Focus on More Than Returns

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With Impact Investing, a Focus on More Than Returns

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By PAUL SULLIVAN
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The very phrase “impact investing” sounds rapacious, but it is an emerging hybrid of philanthropy and private equity that proponents say is about to become more widespread. It is also something that has some very rich people intrigued.
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“It’s filling the space in between this historical space around philanthropy — charitable giving to fight poverty and alleviate misery — and the traditional investing space that is return-driven,” said Julia Sze, director of investments at Wells Fargo Family Wealth, who ran an impact investing conference in San Francisco on Thursday.
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More often, impact investing is described by what it is not. It does not work in the same way as socially responsible investing, which excludes areas a person does not want to invest in — like tobacco or guns — through a simple screening process. Impact investing focuses more on bringing about change — helping the working poor in India buy a home, for instance.
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While most of the money is going into areas like helping to reduce poverty and improving the climate, it is not philanthropy. Investors expect at least a return of their capital with an adjustment for inflation and, in many cases, a lot more than that.
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And while microlending is a part of it, impact investing is different from what is offered by Web sites like Kiva. With minimum investments often around $1 million, it is also more sophisticated. In addition, these investors have a defined plan to sell their investments after a specific amount of time.
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I came to think of impact investing as a private equity fund for social change. This may sound like an oxymoron, given the criticism that private equity funds have faced recently over their management of companies they have taken private. But the structure is similar: there are three or four capital calls in the first year, and the fund is not fully invested until the fourth year. As the end of its investment period nears, the fund then starts to look for ways to sell its investments. Doing good matters to investors, but they also hope for private equitylike returns of close to 20 percent a year.
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And like private equity, these investments are illiquid and can be risky. Because the area is so new, the funds lack the traditional track records and transparency.
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For this reason, many of the people interested in impact investing are focused on more than the returns.
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“I think we have to look at investment as a positive tool in advancing human goals,” said Chris Redlich, who sold his family’s company, the Marine Terminals Corporation, in 2007.
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He has taken $10 million, or about 1 percent of his net worth, and started to invest it in a series of funds. One fund is run by Grassroots Capital and makes traditional microfinance investments. Another is a fund focused on affordable housing in India. A third concentrates on energy technology in China.
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As for returns, Mr. Redlich said he expected his children and grandchildren to reap the benefits from what he was doing now. He is also realistic about the pros and cons of what he is doing. “With each dollar, you have to understand both the positive side — building up societies — and the dark side — the impact of industrial growth is significant. We have Superfund sites today where people didn’t think what they were doing was a bad thing at the time.”
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The glow of doing a social good mixed with high returns would seem attractive to high-net-worth individuals. But impact investing is still in its infancy. The Global Impact Investing Network, a nonprofit group, said that current impact investments amounted to about $50 billion. It projects this area to grow to $500 billion by 2014, putting it at roughly 1 percent of all managed assets.
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“I think the tipping point is now,” said Camilla Seth, director of programs and operations. “This activity has been happening for 10 years but investors have been insulated.”
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Not all agree that a boom is upon us. John Skjervem, chief investment officer of Northern Trust, said his firm had long been prepared for the boom in socially responsible and impact investing but it had yet to materialize. “Impact investing hasn’t made much of an impact yet, but we’re ready for it,” he said. “There still isn’t sufficient awareness of it.”
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He said his group managed $150 billion, of which $200 million was focused on impact investing. But for the few clients who are interested in this, it is important.
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One of the main reasons for the slow growth is the lack of basic investing information. The Global Impact Investing Network is trying to remedy this. It has created standards to measure what a recipient says it is doing. “If an investor is trying to create jobs, the question is, ‘How do I create more jobs?’ ” Ms. Seth said. “Everyone was measuring it in a different way. We want a job to be a job to be a job.” She said the network had also built a reporting platform to track how investments were accomplishing their goals.
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Growth has also been slowed because making a meaningful impact investment is more difficult than putting together a traditional socially responsible investment. “Years ago, it was just easy,” said Steven Soja, a director at Credit Suisse Private Bank in San Francisco. “You took out the sin stocks, the tobacco, the pornography and other things you didn’t like.”
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Most investors need to have a net worth of at least $10 million to participate in a meaningful way in impact investing. And then they expect sizable returns for their commitment. Mr. Soja said many of his clients have shown more interest in investing in renewable energy and biofuel funds as a way to bring about change.
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For Mr. Redlich, though, the goal is different. “I think investment improves the quality of life around the world,” he said. “At the end of the day, I already have enough money. I’m not chasing yield to be wealthier. I’m chasing yield to improve society in a more capitalistic way.”
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Elisabeth Rhyne: Why are microfinance interest rates so high?

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Elisabeth Rhyne: Why are microfinance interest rates so high?

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May 28, 2010
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Americans often suffer sticker shock when they hear about interest rates charged in international microfinance. At annualized rates above 20 percent, most Americans start getting uncomfortable, and when they hear that in some places annual rates rise as high as 100 percent or even more, their moral outrage beepers start to malfunction. This is unfortunate, because when we are in a state of high outrage, it’s hard to listen.
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When asking “how much is too much?” it is important to reserve judgment long enough to examine the conditions that determine international microfinance interest rates. Here are three factors that international microfinance providers have to consider as they face the hard task of determining what constitutes responsible pricing.
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The arithmetic of tiny loans. Interest rates face an uncompromising arithmetic of three main cost elements, all context-specific. How big are the loans? What is the maximum loan officer caseload? How much are loan officers paid? A lender making $1,000 loans in a dense city market with a labor market that allows modest loan officer salaries can charge a much lower interest rate (think Bolivia, with rates in the 20s) than a lender making $100 loans in the rural parts of a middle income country where loan officers earn a lot (think Mexico with rates in the 60s).
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The need for sustainability to ensure coverage and permanence. Should prices support lender sustainability? Microfinance grew to reach 150 million clients worldwide by pursuing financial sustainability – and profitability — as the ticket to reaching more people permanently without heavy donor dependence. Most of today’s international microfinance providers believe the poor should be treated as clients, not recipients of charity.
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This point does involve moral judgment. Is it more moral to help (a few of) the poor through subsidies or to provide (many of) them with services on a business basis? Answers may differ in different places. The wealthier United States may be able to afford to subsidize the less fortunate, while in the resource-strapped developing world, subsidies are a luxury not available to the masses of the excluded.
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The needs and the existing options of the poor. Many people are surprised to learn that the poor in the developing world lead complex financial lives as they struggle to make their small, often intermittent incomes cover basic needs as well as unusual expenses and opportunities. Poor families are often both savers and borrowers, setting aside money in informal savings clubs, and borrowing from relatives, employers, and local grandees as well as professional moneylenders. While not all moneylenders by any means are the evil loan sharks of legend, they do generally charge rates far in excess of those charged by microlenders.
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Still, it’s fair to ask: can a microloan that tops out at a compound annual rate of say 80 percent inclusive of fees and taxes be a boon to poor borrowers? Client returns to investment are not well documented, but we do know that for short term loans, especially for the kinds of retail and restaurant businesses found in urban microfinance markets, opportunities to leverage an immediate lump sum of cash are often available. At an 80 percent APR, a microfinance client borrowing $500 for three months will pay back $600 – which many clients find to be an acceptable opportunity cost for equipment or stock that will boost a microenterprise’s earning ability or for consumption needs such as school fees or home improvements.
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That said, as interest rates come down and loan terms lengthen, microfinance loans become economically attractive to a wider range of businesses, and support longer term investments.
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In countries such as Mexico where rates are high, market entrants and regulators need to do everything they can to bring rates down. Ultimately, the best means of doing so is to promote competition, which spurs the innovation that brings better products at lower prices.
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The microfinance market in Bolivia provides a good example. In 1992 BancoSol, one of a few small microfinance loan providers at the time, charged an annual rate of 65 percent. Today, in a much more competitive environment, BancoSol and its direct competitors charge much lower rates, in the range of 18 to 22 percent. Worldwide, as microfinance has grown and many more providers have entered the market, a CGAP study found that average interest rates dropped by 2.3 percent per year from 2003 to 2006, with a median rate for profitable MFIs of about 26 percent.
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Ultimately, responsible pricing makes good business sense. With the relatively high cost of acquiring new clients in microfinance, financial service providers survive based on long term customer relationships. Setting a price that allows the client’s business to thrive helps to generate more future business for the financial institution.
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