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The State and Future of Impact Investing – Forbes

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Photo: Jai Catalano

In a recent interview with Antony Bugg-Levine, CEO of Nonprofit Finance Fund, we discussed his new book about the impact investing sector, emerging trends and ideas in this space, challenges and opportunities moving forward, what the world would look like if the potential of impact investing were to be realized, and advice to traditional investors interested in becoming an impact investor.

Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary dedicated to mobilizing and deploying capital effectively to build a just and vibrant society.  In this role, Mr. Bugg-Levine oversees more than $225 million of capital under management and a national consulting practice, and works with a range of philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change.  He is the co-author of the newly released Impact Investing: Transforming How We Make Money While Making a Difference (Wiley, 2011).

Most recently a Managing Director at the Rockefeller Foundation, Mr. Bugg-Levine designed and led the Rockefeller Foundation’s Impact Investing initiative. He convened the 2007 meeting that coined the phrase “impact investing” and is the Board chair of the Global Impact Investing Network. A former consultant with McKinsey & Co., he also teaches at Columbia Business School. A native of South Africa, he served in the late 1990s as the acting communications director at the South African Human Rights Commission.

Rahim Kanani: Describe a little bit about the motivation and inspiration behind writing your new book, Impact Investing: Transforming How We Make Money While Making a Difference.

Antony Bugg-Levine: In the book we describe the “bifurcated world” that most people inhabit, in which they assume that the only way to solve social challenges is through government and charity and that the only purpose of business and investing is to make money. Impact investors reject that worldview. We recognize that for-profit investment can be both a morally legitimate and economically effective way to address social and environmental challenges.

I certainly come from that bifurcated world. I began my career working in politics and human rights and assuming that investors had sold out their principles to get rich. But working for the South African Human Rights Commission in the late 1990s, I saw how economic power and business dominance allowed people to perpetuate oppressive practices even when official policies had changed. On the other side, working at McKinsey and with TechnoServe, a business-focused nonprofit in East Africa, I came to see that business can be a creative force for empowerment and upliftment.

So with the support of the Rockefeller Foundation, starting in 2007 I began helping to bring together people around the world who share an excitement about the positive role that investment can play in addressing social and environmental challenges. As interest in this concept exploded, my co-author Jed Emerson and I thought it timely to write a book that could both serve as an introduction to this concept and also identify the systemic challenges we must overcome to enable impact investing to reach its potential.

Rahim Kanani: As you assess the current landscape of impact investing, what are some of the recent trends we should be both mindful of, and be paying special attention to?

Antony Bugg-Levine: Many of the initiatives that were being planned when we were finalizing the book are now starting to bear fruit.  In the four months since the book came out, banks in the US and Europe have launched impact investing products for their clients. RBC, the biggest bank in Canada, has announced an impact investing fund, and Big Society Capital, the UK’s public-private partnership to form a major impact investing intermediary has secured more than $500 million in initial capital. Impact investing is also gaining traction among leading business schools. Some private foundations are also starting to be bolder in their embrace of impact investing and the idea that all their assets should contribute to the social mission they were set up to fulfill. And governments from the US to Australia are getting involved, most noticeably through strong interest in the social impact bond and other tools to harness private investors to fund organizations that can prove the positive social outcomes of their work.

Rahim Kanani: What are some of the critical challenges that lay ahead of this sector?

Antony Bugg-Levine: Our book makes the case that impact investing is transitioning from its initial phase of proving the concept through deals to a more mature phase in which we will have to muster a social movement to build new systems. These include new regulations and policies, new approaches to leadership that celebrate collaboration and execution— not just vision and charisma— new philanthropic leadership that puts all foundation assets to work for mission, and new capital markets products and services. We also have to overcome the stubbornness of the bifurcated mindset.

Beyond these systemic challenges, we also need to put impact investing in its rightful place. Impact investing is a tool, not an end in itself. If you approach the world asking “where can I make an impact investment?” you will end up doing far less interesting work then if you ask “what social challenges do I want to address, and how can impact investing be one of the tools I use to address them?”

This may sound like just semantics, but we have seen in our work at Nonprofit Finance Fund that this approach opens up great opportunities. In New York City in 2009, we set up a window to provide working capital loans to frontline agencies such as soup kitchens and homeless shelters. But we found them too financially shaky to take on debt. If we were only looking for places to invest, we would have moved on to find other less risky borrowers. But because preserving New York’s safety net is crucial, we have structured a new initiative, the Community Resilience Fund, to support 100 agencies seeking to transition to a more sustainable business model. This Fund would not be possible without impact investors offering millions of dollars of loans. But it also requires credit enhancement from the city government and substantial grant support from private donors. No one piece would work alone. Each is necessary.

I believe the most interesting impact investing in the next few years will involve similar collaboration, as impact investors work with governments and donors to tackle challenges that cannot be addressed with any one tool.

Rahim Kanani: At the same time, what are some of the key opportunities?

Antony Bugg-Levine: The growing awareness that business-as-usual approaches are not working for our societies or our planet are a powerful prod for people to reexamine their assumptions. That’s crucial to level the playing field to make the case for impact investing. In the last few months, the sensibilities around the Occupy movement also spurred more people to reconsider their relationship with mainstream financial services institutions.

In the US, the “move your money” campaign led a reported 5.6 million people to open up accounts at community banks and cooperatives. We need to figure out how to harness this energy of critical reexamination to create space for impact investors. At the same time we need to fight the growing skepticism that any investment can be socially useful.

Rahim Kanani: If impact investing were to be fully realized, what would the world look like?

Antony Bugg-Levine: We would live in more just, vibrant and sustainable communities because we would organize integrated solutions to the problems we face. Impact investing would work alongside philanthropic and government support, with each part playing a more powerful role because of its complementarity. At Nonprofit Finance Fund, we call this approach Complete Capital. After decades of experimenting with the different components of this integrated approach we now know how to fit together financial capital (grants and impact investments), intellectual capital (the ideas about what we need to do and how to do it), human capital (the ability to support organizations to implement bold strategies) and social capital (that allows people and institutions unused to working together to collaborate). Most of the easy problems that can be solved with siloed approaches are already being tackled. The increasingly complex and accelerating challenges that remain are going to require Complete Capital approaches to solve them.

Rahim Kanani: And in that vein, what steps do we need to take as a society to place impact investing on precisely this path?

Antony Bugg-Levine: I worry that too many impact investing conversations are ahistorical and acontextual. Impact investing must become more than just a few investors dabbling in new ways to fund charismatic entrepreneurs. Instead we need to take stock of the times we live in: at least in the West, government retreat from their traditional role as the funders of social services is threatening the viability of many organizations that communities rely on.

How will impact investing help solve this crisis and create and preserve just and vibrant communities? If impact investors are not asking that question, and coming up with creative answers, then the whole impact investing movement could prove to be a bit of a sideshow.

If impact investors do take up this question, they will find themselves having to push beyond business-as-usual thinking. Instead of waiting for investment prospects to come across their desks that look and feel like the deals they’re used to, they will proactively go out to forge collaboration with donors and governments. And they will seek out partners who can put these types of coalitions together instead of trying to go it alone.

Rahim Kanani: What advice would you give traditional investors interested in making not only financial returns, but social and environmental returns as well. Where should he or she start?

Antony Bugg-Levine: First, don’t believe your bankers or advisors or trustees or professors when they tell you that impact investing is impossible or imprudent. Now that conservative, government-regulated pension funds and foundation endowment managers on one end and retail investors on the other have figured out how to become impact investors there’s really no reason you can’t as well.

Second, arm yourself with the facts. Take advantage of the rapidly expanding evidence about impact investing on the Global Impact Investing Network’s website’s Resources section. If you’re an investment advisor check out the resources available from ImpactAssets . If you’re interested in how impact investing can fund social service delivery go the Pay for Success learning hub(and send me other helpful resources you find—I’m always on the lookout!)

Third, don’t try and do it alone. Tap into existing expertise. You will need to be a prudent investor and make your own assessments of your investment options. But if you are a retail investor check out Calvert Foundation who has been offering impact investing products for years, or RSF Social Finance who are pioneering radical impact investing practices. Or contact an organization like Nonprofit Finance Fund that has existing investing capabilities and is eager to partner with new investors.

But as you do this, be realistic about what impact investing can achieve. There are many social challenges and organizations that require donations, not investment. Remember that impact investing is an exciting tool but not a silver bullet.

Rahim Kanani is a writer, advocate, strategist and entrepreneur for global social change. His articles, opinions, and interviews with global leaders can be found at www.rahimkanani.com. Follow him on Twitter @rahimkananiand on Facebook.

Have an idea for a great interview? Email rahim@rahimkanani.com.

IFC may lend $50 million to support Chinese microfinance market

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Microfinance Focus, February 28, 2012: International Finance Corporation (IFC) has proposed to lend $50 million to Fullerton Credit, China, to increases financial access for the underserved micro and small business enterprises and the self-employed mass market.

The loan will be extended in local currency RMB to Fullerton Credit, Sichuan, Fullerton Credit, Chongqing and Fullerton Credit, Hubei.

The three companies together with a total of 22 branches across three provinces, are each headquartered in Chengdu, Chongqing and Wuhan respectively.

They are all fully owned by AF Management Service which is incorporated in Singapore and further 100 percent owned by Fullerton Financial Holdings, a fully-owned subsidiary of the Government of Singapore’s Temasek Holdings.

IFC believes that the companies have potential to become model institutions in China in serving the MSEs with a novel business model.

IFC is providing another $15 million to Costa Rican financial cooperative COOPENAE for expanding its operations in the country. IFC’s contribution is a part of an initiative supported by the Spanish Fund for Latin America and the Caribbean that will provide advisory services to help COOPENAE identify areas for improvement in its current micro and small enterprise credit operations.

MFIs an attractive option for NBFCs looking at banking foray: Eric Savage

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Interview with Co-Founder & President Unitus Capital

Raghuvir Badrinath / Chennai Feb 20, 2012, 00:29 IST

The microfinance sector in India grew at an astonishing pace and so has been the climb down. The past 18-months have been one of the toughest time for microfinance institutions (MFI) as the access to capital has been scarce. The awaited Bill on microfinance is widely expected to bring solace to the sector. However, according to Unitus Capital, an established player in raising capital for MFIs, positive change is already happening in the country. Eric Savage, Co-Founder & President of Unitus Capital tells Raghuvir Badrinath that while there will be no sea change in how banks view the MFI sector, there will be at least one less hurdle to cross. Edited excerpts:

Everyone is waiting with baited breath about when and how the proposed Microfinance Bill will be passed. How do you think it will change the way how MFIs raise resources, which is the most critical aspect now?
While the funding from banks for MFIs has been much slower than normal during the past 15 months, it has recovered over the past six months as the regulatory situation improved. We are working with more than fifty different banks and most of them have made some loans to MFIs recently. There are a number of banks who are relatively negative and waiting for the Bill. MFIs are now perceived not to have that positive halo which was there two years ago and the pending regulation is another excuse for delaying. What the Bill will make obvious the current reality that there is already a proper governing body in place and that another Andhra Pradesh-like situation will not be tolerated. This will remove the last excuse for avoiding sanctioning credits to MFIs.

While that aspect relating to debt will be more or less addressed, what are the concerns for MFIs on the equity side?

It is not that bad, as many investors realise that the AP crisis has caused valuations reduce significantly. This has facilitated a very attractive buying opportunity… We continue to see equity investor interest albeit somewhat cautious.. During the past 12 months there have been a handful of notable equity deals. An aspect which is heartening is that many global funds are increasingly looking at India microfinance sector for investment. CVC, FMO from Denmark, Shorecap, IFC, Danish Microfinance Partners, Caspian, Elevar, Lok, Wolfensohn Capital Advisors and BlueOrchard are some of the investors who have taken advantage of the current opportunity to invest at this attractive time in high quality MFIs such as Janalakshmi, Satin, Arman, Bandhan, Utkarsh and Ujjivan. Over the next 12 months, I would expect there will be close to Rs 500 crore equity infusion into MFIs, in addition to the Rs 400 crore fund raise SKS Microfinance has announced. Certainly, it would be great if Indian HNIs also start to look at this sector actively to make an impact on poverty and take advantage of the present investment opportunity.

Given the context that both the engines – debt and equity – will start kicking in shortly, how do you think MFIs should build on this hope?
MFIs traditionally have been focusing on credit and its time they innovate further. Insurance, pension products, remittances and savings should be creatively worked on and more such initiatives should be prioritised. Some products as assistance for health and crop insurance, gold loans, education loans, livestock loans and housing loan as well can be made more popular instead of a plain vanilla group loan product.

Having built up the mass and scale, how do you think MFI sector will consolidate going further?
We expect that private equity investors will get their exits primarily through sales of their stakes to other PE funds or sales of the companies to other financial services companies. Mergers with other MFIs are likely to be muted in the near term as there are many strong personalities that make potential mergers challenging. The identity of the promoter is tied to the organisation. What we anticipate is that some of the MFIs are ideal targets for large NBFCs which are interested in banking licenses as RBI guidelines stress financial inclusion as one of the key parameters while granting the licences as and when that happens.

 

Impact Investing Creates Template for Responsible Capitalism

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Posted: 02/14/2012 10:13 am

 A microfinance lender in Tamil Nadu, a rice farm in Tanzania, a housing project in Chiapas and a rural development bank in Pakistan: all these projects are recipients of impact investment capital, committed to “doing good while doing well,” in one of the fastest growing investment trends of the past two decades.

Impact investing has developed out of traditional philanthropy in an effort to find solutions that allow investors to make profitable investments that can also address social and environmental challenges. Impact investors seek to combine the seemingly conflicting aims of investing for maximum risk-adjusted returns and contributing to social good. The level of return expectation varies according to the type of investor. Individuals or foundations tend to prioritize social impact over financial return and are willing to forgo the latter if the social goal is clearly advanced.

By contrast, institutional investors, especially those like pension funds which owe a fiduciary duty to their beneficiaries, usually look for a return that is at least competitive with traditional asset classes. As a result, investment risk appetite will also differ. Most impact investing takes place via private transactions with small businesses, often operating in emerging markets where poor governance and inadequate information flow may add greatly to the risk of the projects.

Investors in these companies will look for a commensurate financial return, as well as measurable social impact on the ground. While some prefer the terms venture philanthropy or social investment, impact investing represents a distinct style of responsible capitalism which has become particularly popular among foundations, endowments and high net worth individual investors.

Industry pioneers, such as the $3 billion Rockefeller Foundation in New York, see impact investing as a way to find solutions to poverty reduction and other social problems; but more importantly to access the private sector capital markets that ultimately hold the wealth required to scale up these solutions globally. While charitable donations by high net worth individuals were down 35 per cent in 2010, according to Bank of America Merrill Lynch and Indiana University, the impact investing sector is expecting steady growth.

In 2010, JP Morgan forecast potential impact investment capital of $400 billion to $1 trillion globally over the next ten years. Much recent activity in impact investing has been effectively direct investing, with the typical venture capital approach sometimes supplemented by grants and capacity building. The Omidyar Network, for example, launched in 2004 by eBay founder Pierre Omidyar, “has invested $450 million in equity and grants to promote microfinance, entrepreneurship, technology and government transparency, mostly in developing countries.”

Investment managers such as the Acumen Fund and the Capricorn Investment Group, which manages the Skoll Foundation’s multi-billion dollar portfolio, are active in emerging markets across Asia, Africa and Latin America.

Impact investing does present significant challenges to investors. It can be difficult to obtain basic investment information in emerging markets, and equally hard to monitor and track the performance of small companies and projects. This is compounded by the complexity of trying to quantify the non-financial “impact” of investments: it is not that simple to compare the social benefits of investing in, for example, vaccinations in Ghana versus cleaner burning cooking stoves in India.To help donors and investors tackle this issue, the Global Impact Investing Network (GIIN), a non-profit company supported by the Rockefeller Foundation, has worked with B Lab to develop industry infrastructure aimed at improving information flow and creating a more efficient marketplace.

GIIN’s Impact Reporting and Investment Standards provides a standardized language and framework for measuring the social and environmental performance of impact investments, including a list of nearly 400 metrics, such as customer poverty level and access to education. B Lab has created a similar tool for institutional investors, with support from ratings agency Moody’s and several financial companies.

Improved transparency, the creation of analytical tools for investors and the beginnings of a clear market structure are encouraging mainstream institutional investors, such as pension funds, to look at impact investing as a credible asset class. For example, TIAA-CREF, a huge US pension fund, has committed approximately $650 million to impact investing, mostly to low income housing; and American insurance company Prudential is another significant player, with about $400 million in impact investments.

As more funds are allocated to this sector, the impact investing industry is evolving rapidly to meet the demands of a wide variety of investors. Traditional debt and equity are being supplemented by more innovative structures, such as the Social Impact Bond issued in the UK, where return is linked to measures of social performance such as reduction in prisoner reoffending rates.

Alexandra Tracy is chairman of ASrIA, the Association for Responsible Investment in Asia

This article was originally featured in a special report on Sustainable Investments, produced by Raconteur Media and distributed in The Times (UK)

EBay founder a philanthropic powerhouse – USAToday

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By Jon Swartz, USA TODAY

  • WASHINGTON – Somewhere between his treatise on government transparency and soliloquy on human rights, Pierre Omidyar paused.
  • EBay founder Pierre Omidyar.H. Darr Beiser, USA TODAY

    EBay founder Pierre Omidyar.

EBay’s billionaire founder and proponent of good works was addressing a roomful of White House Fellows in a closed-door question-and-answer session last month, hours before President Obama’s State of the Union address, when a query stumped him: What do you hope to accomplish the rest of your life?

Omidyar, 44, looked down, contemplatively, then fixed his eyes on the questioner. “We live a comfortable life, but relationships are what make a life rich,” he said. Omidyar, a member of the president’s Commission on White House Fellowships, touched on a mix of causes that include media democracy, education and the difference between charity (“a quick solution”) and philanthropy (“systemic changes to long-term problems”).

The group of White House Fellows, younger men and women picked to work at the highest levels of the federal government, seemed mesmerized.

To date, Pierre and wife Pam have committed more than $1 billion to hundreds of causes through individual gifts and four organizations they created —Omidyar Network, Humanity United, HopeLab and Ulupono (Hawaiian for “doing the right thing”) Initiative. Pam Omidyar is from Hawaii.

About Pierre Omidyar

Age: 44

Title: eBay founder and philanthropist

Education: Bachelor’s in computer science, Tufts University

Family: Wife Pam and three children

Estimated personal fortune: $6.2 billion

Hometown: Honolulu

Hobbies: Thinking and reading. “You get a lot of great insight from unexpected sources in the world,” says Omidyar, who often hangs out among the staff at the Civil Beat office in Honolulu, absorbing the ideas and opinions of everyone.

Early tech love: As a kid, he was fascinated by calculators. At the Potomac School in Maryland, he taught himself how to program in Basic and during school hours often snuck into the closet to play with computer programs.

On risk-taking: “You have to have inner strength, you have to believe that you will be successful, take willful denial.”

Omidyar founded eBay in September 1995. He has been a director and chairman of the board since eBay’s incorporation in May 1996. He has also served as eBay’s CEO, chief financial officer and president.

The couple has found time to fashion Civil Beat, an investigative online news organization started in Hawaii fixed on local issues, and the forthcoming emerging leaders program in Hawaii patterned after the White House Fellows.

“He is the new face of philanthropy,” says former president Bill Clinton, who has known the Omidyars for more than a decade. “He and Pam live and give to their core values.” Adds eBay CEO John Donahoe: “In his quiet way, he has enormous impact on the world.”

But for Omidyar, Silicon Valley legend-turned-philanthropist, life can be sublime amid the charitable endeavors and good works. He’s been largely quiet for a decade, giving an occasional interview while living in relative seclusion in Hawaii. He dropped out of sight to oversee charity after charity. Why talk now? To fill the world in on how his organization has learned to create philanthropic teams that bring long-term change. He also weighed in on the toxic political discourse: “It has declined dramatically, a complete failure of leadership,” he said over a vegetarian dinner the night before the Q&A session.

Dario Cantatore, Getty Images

EBay founder Pierre Omidyar, 44, and his wife, Pam, have committed more than $1 billion to hundreds of different causes.

Despite pleas from candidates, Omidyar (pronounced O-mid-e-are) stopped making political donations in 2008. Instead, he works with elected Democrats and Republicans to effect change, including a project with the Obama administration to reduce human trafficking. “I work with officeholders, not candidates,” he says.

“I’m worried about the American Dream,” says Omidyar, who immigrated to the U.S. from France in the 1970s. “Think of the best and brightest who came here,” he says, listing founders of Google (Sergey Brin, Russia) and Yahoo (Jerry Yang, Taiwan).

A self-confessed data junkie who dives into numbers and analyzes them, Omidyar remains vigilantly engaged at eBay. As its chairman and largest shareholder, he attends four board meetings a year. He also chimes in when change is necessary. Omidyar, a trained engineer, inspired a major move to technology in the post-Meg Whitman era, with the appointment of Donahoe as CEO to replace her and the additions of Chief Technology Officer Mark Carges and board member Marc Andreessen. (Whitman, now CEO of Hewlett-Packard, declined to be interviewed for this story.)

“He has real clarity of purpose,” says Donahoe, who met Omidyar seven years ago when he joined eBay. “He believes people are basically good, and (in) the power of the individual, the little guy, to have impact on a global scale.”

Charity nomenclature

The Omidyars’ brand of philanthropy, based loosely on a venture-capital firm’s approach, has been a powerful agent for social change, as eBay was for commerce.

The Omidyars’ financial gifts often go to charities that follow solid business plans and produce earnings streams that sustain the non-profit work. “Think of it as a portfolio approach to doing social good,” says Mike Mohr, who has been with the Omidyars since eBay went public in 1998, and who serves as strategic adviser to their philanthropic endeavors.

Microsoft co-founder Bill Gates and others consider the reclusive Omidyar a seminal figure in the intersection of philanthropy and technology. “Pierre approaches his philanthropy with an innovative and entrepreneurial spirit that we can all learn from,” Gates said in an e-mail. “Pam and Pierre have had incredible impact in financial services and provided much needed investment in global health.”

Says Virgin founder Richard Branson: “Pierre is not just providing access to finance, he is also helping to create the right environment for social enterprises and new businesses to thrive.” During research on his latest book, Screw Business as Usual, it became “inspiringly clear” that Omidyar “has been screwing business as usual for years.”

“Pierre has been solving issues by supporting entrepreneurial organizations that are building businesses to solve problems,” Branson says, citing Ushahidi, which developed crowd-sourcing technology. It’s one of about a dozen fields that fall under the Omidyars’ umbrella of good works. “Philanthropy is not just about money,” Omidyar says. “Money matters, but impact matters more.”

It was no surprise, then, that when Warren Buffett, Bill and Melinda Gates, and others asked some of the nation’s wealthiest individuals in mid-2010 to give at least half their fortunes to charity, Omidyar was among the first to say yes. Buffett also got OKs from Oracle CEO Larry Ellison, Microsoft co-founder Paul Allen and Silicon Valley venture-capital titan John Doerr.

An instant billionaire

Omidyar was 31 when he became a billionaire overnight on Labor Day 1998, three years after writing the code for what would become eBay. The company went public and he became in his words, “ridiculous rich.” By mid-1999, he was worth $7.8 billion. (His estimated personal worth is $6.2 billion, ranking him the 145th-richest person in the world, as of September 2011, according to Forbes.)

Yet, he’s remained an unlikely billionaire, avoiding the trappings usually associated with the ultra-rich. “It reached a point where I could not only buy any car, but literally every car,” Omidyar says. “In the end, I didn’t want any cars.” Pam drives a minivan; Pierre, a Prius. They and their children live in a modest home in Honolulu.

Omidyar had a gnawing unease about accumulating so much money so quickly and easily. While he mulled what to do, he considered how eBay gave people a platform to become successful entrepreneurs. Why not, he concluded, take his business concept and apply it to charitable giving?

The eBay Foundation started in June 1998 after Yahoo co-founder Yang held an outdoor event where he beseeched the importance of giving. “Back then, there were no examples of young entrepreneurs (in philanthropy),” Omidyar says.

Friends and colleagues marvel at the Omidyars’ humility, generosity and intellect.

“Two of the most grounded, down-to-earth people you will ever meet,” says Larry Bacow, president emeritus of Tufts. “There is no way you can imagine the achievement and wealth they have accumulated. For them, it’s about addressing problems at their root cause, creating an engaged population.”

One of the biggest beneficiaries has been Tufts, the Boston-based college where Pam, who declined to be interviewed, and Pierre met. It has received upwards of $160 million from them. But only an endowed chair bears the Omidyar name.

“They are incredibly low-key, nice, quiet people,” says Cheryl Dorsey, vice chair of the President’s Commission on White House Fellowships and president of Echoing Green, a social-entrepreneurship organization. “They are very approachable despite the trappings of incredible success.”

The soft-spoken billionaire is making plenty of noise globally, says a business and philanthropy contemporary.

“As a philanthropist, Pierre is tackling the biggest problems in the world, and … his efforts may take many years to show their full results,” says former eBay president Jeff Skoll, an Oscar-nominated producer (The Help). The Skoll Foundation, which has given more than $300 million in grants, has worked with the Omidyar Network on, among other things, Landesa, which helps small rural farmers secure land rights. “But make no mistake, Pierre is dedicated to social change and he will, deservedly, someday be acknowledged as the Rockefeller or Carnegie of our times.”

“They don’t care if they get the credit,” Clinton says of the Omidyars. “In the end, it is all about results.”

Sequoia Capital bets on another microfinance player

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Bangalore Feb 02, 2012

After backing SKS Microfinance, Sequoia Capital is now betting on another microfinance player, Bangalore-based urban poor-focused Ujjivan Financial Services, a member of the Grameen Network, Bangladesh. Sequoia Capital on Wednesday said it had participated in the fifth round of equity financing by Ujjivan, and was now the single-largest shareholder, with a stake of around 15.7 per cent.

It added it had raised Rs 127.9 crore ($25.5 million). Two new foreign institutional investors (FIIs), FMO (Netherlands Development Finance Company) and WCP Mauritius Holdings III (Wolfensohn Capital Partners), along with current investors, participated in this round. The existing investors are Lok Capital, Unitus Corporation, Elevar Equity, Caspian Advisors, besides Sequoia. With the latest round of fund raising, private equity funds have invested a total of Rs 230 crore and hold 83 per cent in the company. The promoters group, led by Samit Ghosh, managing director, Ujjivan, hold around four per cent and has so far disbursed Rs 2,800 crore.

Mohit Bhatnagar, managing director, Sequoia Capital, said India continued to be a preferred investment destination for FIIs and it was heartening to see fundamentally strong organisations in the microfinance sector were a key focus. Samit Ghosh said, “We thank our existing investors who continue to reiterate their commitment to us and welcome our two new investors. This round of equity funding will make Ujjivan one of the best capitalised MFIs in the country”. With this round of equity funding, the last being in 2009, Ujjivan’s capitalisation has more than doubled to Rs 230 crore. Kotak Investment Banking was the advisor and arranger of the transaction.

 

Sanjiv Kapur, managing director, Wolfensohn India Advisors Pvt Ltd, said, “This is the first investment for Wolfensohn in the Indian microfinance sector, endorsing our faith in the sector and in Ujjivan’s financial inclusion model.” Sudha Suresh, Ujjivan’s chief financial officer said the additional capital would help increase the loan book from the current Rs 600 crore to around Rs 1,600 crore, given the Reserve Bank of India’s 15 per cent capital adequacy requirement for MFIs that are non-banking financial companies.

“We are very happy to work with Ujjivan, which is constantly searching for ways to better serve the urban poor. Their firm focus on their mission to alleviate poverty and strong business credentials make Ujjivan a very interesting partner for FMO” said Keesjan de Kruijf, senior investment officer, FMO.

“When we look for large MFIs which are truly client centric, transparent, have good systems, great leadership, and are sincere in its social objectives, Ujjivan is the only MFI which comes to our minda. Our investment is built around making it the borrower of choice for the base of the pyramid, across the country”, said Venky Natarajan, managing partner, Lok Capital.

Ujjivan serves over a million clients in 20 states and 49 under-banked districts across the country.

Recently, Ujjivan received the ‘Microfinance Organisation of the Year’ award and was ranked No1 in the microfinance industry as the best company to work for in India.

MFIs still seeing significant growth

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May Kunmakara 
Thursday, 02 February 2012
Outstanding loans and deposits in 28 of Cambodia’s microfinance institutions rose between 30 and 40 per cent year-on-year in 2011, official data from the Cambodian Microfinance Association indicated.

The CMA’s data showed outstanding loans rose 41.5 per cent from US$916.3 million with 1.3 million borrowers in 2011, compared to $647.8 million with 1.22 million borrowers a year earlier.

Deposits grew by 32 per cent to $1.26 billion with 1.1 million depositors, compared to $952.2 million with 36,776 borrowers in 2010. MFIs in the Kingdom first began to take deposits in early 2010.

Non-performing loans (NPL) declined from 1.3 per cent of the loan total to 0.4 per cent. Officials and insiders said a strong macro-economy performance and clear regulations were responsible for the shift.

National Bank of Cambodia director general and spokeswoman Ngoun Sokha recognised the favourable direction the economy was heading, especially in the agricultural sector, which she believed was responsible for the rising demand for loans.

“The government supports the agricultural sector, especially the export of milled rice. So we promoted the adoption of MFI loans for agriculture and actually received a lot of growth in that area, adding up to more than 50 per cent of all loans,” she said.

Bun Mony, director of CMA and chairman of Sathapana Microfinance, told the Post that loan portfolios at Sathapana rose about 65 per cent to $94.6 million compared to $57 million in 2010. The number of borrowers grew from from 43,565 to 55,001.

“There was a high demand for loans as business activities continue to grow, and we don’t even seem to have any problems with repayment,” he said, adding that the NPL rate declined to from 0.93 per cent to 0.22 last year.

Sathapana provides loans to all sectors, with 40 per cent going to retail and small businesses, and more than 20 per cent to the agricultural sector.

The country’s biggest MFI, Prassac Microfinance, reported that by December 2011 its gross loan portfolio was $151 million, an increase of 43.6 per cent, with active borrowers increasing 10.9 per cent to 125,127.

“In general, I think that the industry performed well last year because all MFIs grew their portfolios while the NPL rate decreased,” Sim Senacheert, president and CEO of Prassac, said.

Prassac loans to the agricultural sector accounted for 33 per cent of its total portfolio, with trading and service making up 47 per cent.

Hout Ieng Tong, general director of Hattha Kaksekar Microfinance, reported that loan portfolios rose 70 per cent to $75 million with 62,703 borrowers, from $44 million with 47,952 borrowers the year pior.

He added that NPL declined from 0.9 to 0.07 per cent, and that agricultural loans accounted for 35 per cent of total stocks at his compay. Sathapana Microfinance’s total deposits rose 129.4 per cent from $39 million to $17 million, while Hattha Kaksekar’s total deposits grew more than 160 percent to reach $15.78 million compared with only $5 million the year before. Prassac reported smaller increases, as its operations just began in mid-2011.

The successes are tempered, however, by the uncertain economical fates of the EU and US, where much of the industry gets its primary funding. “We are a bit worried,” said Bun Mony.

“We see the EU in a crisis, and think there could be some slight impact on us, specifically regarding investments.”

Ngoun Sokha suggested a solution, saying, “We try to teach MFIs good governance, and to strengthen their internal capacity for infrastructure, so that they will be able to easily seek a source of funds domestically rather than just looking abroad.”

Microfinance Today – a Social Investment

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Laura Hemrika, Corporate Citizenship

31.01.2012
As microfinance continues to grow and the broader field of social entrepreneurship gains increased attention at Credit Suisse and beyond, Rupert Scofield, CEO of microfinance partner FINCA International and experienced social entrepreneur, talks to us about future trends and opportunities in both.

 

One of the earlier and best known examples of social entrepreneurship, microfinance today ensures that millions of people have access to financial services and products. With billions still to reach, this perceived “mature” social investment continues to grow and to adapt its models, its approach and funding to maintain that careful balance of social goals and financial sustainability, in ever-changing environments. Rupert Scofield, cofounder and CEO of microfinance organization FINCA International and an experienced social entrepreneur, gives us insight into how, despite its longer history, a social enterprise like FINCA, and the industry as a whole, continues to meet that challenge. He shares with us the future trends and opportunities in microfinance and social entrepreneurship, and the important roles all stakeholders can play in their successful development.

Laura Hemrika: Microfinance has become a well-known concept, no longer just the realm of development experts. Does this mean your work is done? What lies ahead for microfinance?

Rupert Scofield: While microfinance reaches millions of people, our work is by no means done. We must continue to innovate and broaden client offerings through savings, money transfer and insurance products. We also have work to do to improve transparency and client protection. Partnerships like FINCA’s with Credit Suisse – which is helping us improve market intelligence to better inform decisions about product design – as well as industry-wide initiatives like the Smart Campaign, which is focused on integrating client protection and client-centered services into the core of microfinance operations, are key next steps.

What are some of the challenges in the microfinance industry today and looking forward?

In my opinion, there are a core set of challenges facing the industry – scaling microfinance to reach the three billion people living in poverty; transitioning into and operating regulated deposit-taking financial institutions; remaining sustainable in the face of increasing regulation and government involvement; and the unethical behavior of some Microfinance Institutes (MFIs). With the help of Credit Suisse, we’re addressing the first three of these issues through the FINCA Development Academy, an in-house training institution that will professionalize our workforce in the coming years ensuring that we have the human capacity to surmount the challenges we face.

How do you make sure you are having the desired impact with your work?

I believe that measurement is the key. FINCA was the first international microfinance network to develop a rigorous client assessment tool to evaluate improvements in our clients’ standard of living, and provide information about the need for new products and satisfaction with existing ones. Our Social Performance Audit Committee mandates the measurement of social performance on a regular basis, ensuring that we monitor social performance with the same zeal and precision that we monitor financial performance.

What is the role of commercial capital in microfinance?

Commercial capital must play a significant role in the sector because donor funding alone is insufficient to meet client demand for products and services. To best serve our clients, FINCA – like other microfinance institutions – started by accessing debt from capital markets, developing more and better products over time including the local currency note that Credit Suisse put together for us in 2011. When the mix of grants and debt no longer proved sufficient, we sourced equity capital from socially responsible investors.

We are hearing more and more about “social business” or social entrepreneurship and you’ve just published a book on it. What is it and why is it important?

For me, social entrepreneurship applies effective business practices, emphasizing sustainability and scalability, to address social issues and achieve social change. Social enterprises target market failures that, if not addressed, lead to severe long-term consequences. Social entrepreneurship can create positive social and/or environmental impact through a “double or triple bottom line” approach.

My book, The Social Entrepreneur’s Handbook, constitutes a “call to action” on the part of existing and would-be social entrepreneurs, and tells the inspiring story of FINCA’s transformation from an idea to a global financial services network.

What is the link between microfinance and social entrepreneurship?

Microfinance was the response to a major market failure: the inability of low-income entrepreneurs in developing countries to obtain loans to finance their businesses. Microfinance is a classic example of traditional business practices addressing social issues in a way that is both scalable and sustainable. At FINCA, we now have $500 million in loans-outstanding to over 900,000 low-income micro-entrepreneurs on five continents, and we’ve created over 8,000 jobs.

What are the trends to keep an eye on in social entrepreneurship?

Awareness of, and support for, social entrepreneurship has increased dramatically. More and more universities have academic programs for aspiring social entrepreneurs. In the corporate world, employees and shareholders are demanding accountability for more than financial profits. Social enterprises are cropping up in response to market failures across a wide array of industries and sectors including education, health and the environment.

What sort of challenges is the social business industry facing today and how can we respond? Is there anything that Credit Suisse or Credit Suisse clients could do to help?

From my perspective, social entrepreneurs face several significant challenges. First, a lack of start-up capital; funding is critical for any social enterprise, making the availability of willing investors a necessity. Second, many social entrepreneurs lack business management training which can undermine an otherwise promising idea. Third, the lack of social capital; social enterprises tend to be far more successful when they are part of a larger network. Credit Suisse can continue to play an important role in the investment process and with technical and management training for social entrepreneurs.

How do you see the future of the social business industry?

I am thrilled with how the momentum for transformative social enterprises has increased over the last decade, as organizations create tools and technology to solve social and environmental problems. The issue for the future is that of scale – as the industry grows, social enterprises must create scalable models in order to sustain this momentum. Social enterprise networks will be key for facilitating growth, best practice exchange and resource-sharing.

What roles can banks play in social entrepreneurship?

I think banks can play a key role by providing the tools necessary for success: start-up capital, mobilizing investors, training, technology, and physical capital sharing. By enabling access to capital and sharing knowledge and technology, banks will be making an important investment in the betterment of society, with potential for both social and financial returns.

Credit Suisse and Microfinance
In 2012, Credit Suisse celebrates ten years of engagement in microfinance and continues its mission to provide leadership and develop innovative solutions to link the top with the base of the income pyramid and promote financial inclusion. Today Credit Suisse enjoys an industry-leading franchise in microfinance across the bank.Within the Microfinance Capacity Building Initiative (MCBI), the bank works directly with microfinance networks and MFIs in the field to strengthen management training and development and to drive product and process innovation – enabling the organizations to meet their social and financial goals in an efficient and responsible manner. FINCA has been a partner of the MCBI since 2008 to develop its staff and training academy.

In addition to microfinance, in 2011 Credit Suisse started a number of initiatives focusing on social entrepreneurship in close partnership with the Schwab Foundation for Social Entrepreneurship.