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To The Tech-Mecca and Back – Eko’s Trip to Silicon Valley

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SUNDAY, NOVEMBER 06, 2011

The Silicon Valley is undoubtedly the most important place as far as high technology is concerned. It has all the major technology companies that power the internet age – Apple, Google, Cisco, Intel et al. ALL of these concentrated within a relatively small geographical area south of San Francisco.

Eko was named as a laureate for this year’s The Tech Awards – a prestigious event and a great great honor. I thus got a chance to tag along Abhishek and Abhinav and spend a good week in the silicon valley – The Tech Mecca, (and then back to reality :).
It all started with an 18 hour Emirates flight from Delhi, via Dubai and over the North Pole to San Francisco International. On an airport shuttle, we traveled to San Jose, the uncrowned capital of the Silicon Valley.

The Tech Awards is a signature program held by The Tech Museum, San Jose, in association with the Santa Clara University. What stuck me was the grand global vision that the relatively small museum had (for a start, it calls itself ‘THE’ Tech Museum)! For the last 11 years, it has been seeking out, encouraging and supporting enterprises around the world that were trying to play meaningful and transformative roles in Environment, Economic Development, Equality, Education and Health. The program is sponsored by technology majors like Applied Materials, Intel, Flextronics (the sponsor for our award), Microsoft, Nokia and the Swanson Foundation.

There is another great signature program for the Tech Museum – its called the Grand Challenge. I hope someday soon, we will be able to have something similar for students in India!

Stanford University

We also got a chance to visit and Abhishek got a chance to speak to a class at the Stanford University. The campus itself is so picturesque and grand; with such a great legacy that just being on that campus inspires you to think big. Imagine what would happen if you’re tutored there ;)? Ans: You get to be Larry Page, Sargey Brin, Peter Thiel, Jerry Yang, Azim Premji, Ray Dolby or Vinton Cerf 🙂

Close to Stanford University is the Sand Hill Road– one street lined with all the major VCs. Guess why they have parked themselves right outside the university gates 🙂 ?

From what I could observe, the valley is what it is because of three main reasons:
1. Climate. Seems to be just right! I’d call it nice cold and nice sunny. No sweat.
2. All migrants. I think I read somewhere that it was a place which did not have incumbents. Its ‘history’ hardly stretches back a few centuries. It perhaps represents a very open and forward looking culture.
3. Infrastructure. Things were just in place. To someone coming from India, even simple things like the highway networks, buildings, traffic lights that work, reliable electricity and water seemed awesome. While it is true that the sheer volume of the needs in India are daunting, we seem to have stretched this excuse way too far.
Consider the presence of just the Stanford University and its contribution! Even access to capital could be considered an essential infrastructure and silicon valley seems to have a surfeit of it!

At the Golden Gate Bridge
We couldn’t get time to travel much, but we did travel to the Golden Gate bridge and gazed atAlcatraz from our vantage point. I also got to meet my college batch-mate Tapish and my brother Arun..

Jetlag (this thing is for real!) prevented any further ambitions of venturing out – something hit us so hard by the time the sun went down that we could hardly force an eye open.

Thursday, 20th October was the gala. That was a really grand gathering marked by meticulous planning and impeccable execution. It was encouraging to have Patrick from Creation Investments (the folks who have invested in us) with us at the gala. Silicon valley was well represented by top executives, VCs and well-wishers. It took some time for the realization to sink in that the net worth of that hall, that evening, should have been a pretty impressive $billions figure :)!

Also, each year, an individual is honored through the Global Humanitarian Award- this year’s recipient was Jeff Skoll (An active philanthropist and a maverick movie producer- An Inconvenient Truth, American Gun, The Kite Runner and the erstwhile employee number one for eBay). Previous recipients include Bill Gates, Gordon Moore, Dr. Mohammad Yunus and Al Gore.

There were over 600 nominees, 15 laureates (5 in each category) and 5 grand prize winners. The names of the grand prize winners of $50K were revealed only during the gala, when Abhishek and Abhinav were on-stage. The sense of joy and exhilaration when Eko was named as a winner was amazing. Equally awesome were all the other laureates and winners. My personal favorite was WeCareSolar represented by its founders Dr. Laura and her engineer husband Hal. Their innovation was a solar power unit that fits in a suitcase and provides the necessary power and lighting required for medical procedures, especially related to child-birth; in developing countries. There is nothing technologically earth-shattering about most of these innovations, its their simplicity and appropriate use in solving real world problems efficiently that makes them noteworthy. Their solar suitcases for instance have already saved a lot of lives!

Check out Abhishek’s acceptance speech video:

That was an amazing week! One last thing…

The Trophy

The trophy that we received aptly summarized the spirit of the silicon valley. On the bottom is a solid ingot of silicon (The same thing that is sliced into neat wafers and each slice could give birth to a set of microchips). On top of it rests a crystalline globe. The modern world literally runs on silicon. The Silicon Valley therefore is closely intertwined with all of our lives.

Here’s a technologists salute to all the people who make the valley what it is.

To The Tech Museum, CSTS Santa Clara University, Leslie, Andy, Lee, Mike – and all the others who led us through the entire process- thank you!

[It took me quite a few sessions to finish this blog post- its been almost a fortnight now!]

That weekend, we returned home -recharged.
To newer heights!

How to Build Markets in Poor Countries

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The View from Harvard Business
By Sean Silverthorne | February 7, 2011

Undeveloped nations need products, too.

People living on a few dollars a day still require shelter, food and services. There are three ways to attack this problem: 1. Give them money and other aid, 2. Teach them to develop their own products and services, 3. Let capitalism and entrepreneurs create markets around solutions.

The third type would seem to be the hardest to fulfill — how do you sell products to people who can barely afford to survive? Turns out that disruptive innovation and innovative entrepreneurs are helping advance the lives of millions of people living in poverty.

Think back to Harvard Business School professor Clay Christensen’s pioneering work on disruptive technology. One of the underlying foundations of the theory is the idea of a product that is “just good enough” — it services a basic need through simplicity at a fraction of the cost of the feature-bloated incumbent. Think disposable camera. Compared to an ordinary camera, the disposable produced crummy pictures, but they were good enough to satisfy millions of users who needed photos to send to relatives and stuff in the shoebox. Likewise, the transistor radio made music sound like it was coming from a tin can, but you could take it to the beach, unlike its table-bound predecessors.

OK, you are a social entrepreneur, and you have a problem to solve. In Liberia, only 2,000 homes out of 4 million are hooked up to the electric grid, but a cell phone revolution has taken place. Nigerians who have moved from rural to urban centers invest in cell phones as a way to keep in touch with far away families. The average Nigerian spends 25 percent of his income, roughly $48, to keep it charged through expensive “electricity centers.”

So there’s the market need and a ceiling price people are willing to pay. What’s your just good enough solution?

Ask Richard Fahey, a 2010 fellow of Harvard’s Advanced Leadership Initiative. Although he’s not trying to make a profit, you can see the workings of “just good enough” at play in his idea.

Fahey is working with companies to produce solar powered lanterns that are also chargers, which sell for $45. These lanterns would not only save Nigerians considerable money, but they could replace health-damaging kerosene lamps now in use. Read Turning on the Lights in the Harvard Gazette for more details.

This is how a market-driven solution begins to grow, says Michael Chu, an HBS professor who studies social entrepreneurship. It’s not that one firm finds success in a market, but rather that its success draws other competitors who then build an industry. Case in point: At least three companies are competing to sell cheap eyeglasses to the developing world, self-customizable specs that sell for a few bucks.

So the lesson is that disruptive innovation and “just good enough” products can allow you to reach markets that previously never crossed your mind. And if you sell to the developing world, you’ll be helping market capitalism change the world for the better.

Creation Investment Social Ventures Fund I Announces a Final Fund Closing of $32 million in Committed Capital

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FOR IMMEDIATE RELEASE

Creation Investment Social Ventures Fund I Announces a Final Fund Closing of $32 million in Committed Capital

CHICAGO, IL – January 14, 2010 – Creation Investments Social Ventures Fund I, a global Microfinance private equity fund, completed its final closing on December 15, 2010 with total committed capital of $31.8 million USD. The Fund’s investor base is composed of 74 US and European institutional investors along with many family offices and high net worth individuals. The Fund is governed by an independent Board of Directors and managed by Creation Investments Capital Management, LLC, headquartered in Chicago, Illinois.

To date, the Fund has deployed over half of its committed capital, making equity investments in five Microfinance Institutions (MFIs) and Small-and-Medium Enterprise Lenders in Latin America and Central and Eastern Europe. Specifically, portfolio holdings include: Aspire, S.A.P.I. de C.V. SOFOM E.N.R. (Mexico); MicroCred Mexico, S.A.P.I. de C.V. SOFOM E.N.R. (Mexico); Opportunity Albania (Albania); Inicjatywa Mikro (Poland); and Forus Bank (Russia). The Fund Manager co-led the establishment of CEE Microfinance Holdings, N.V. which manages the Fund’s three holdings in Central and Eastern Europe.

Each of these institutions is committed to providing financial services to under-banked individuals and businesses in its respective geography, helping to facilitate economic development and poverty alleviation. Beyond enterprise lending, several of the Fund’s portfolio companies offer micro-insurance, micro-savings, and other remittance services. As of November 30, 2010, the total aggregate loan portfolio is $95 million USD with over 30,000 active borrowers.

Creation Investment Social Ventures Fund I targets growth equity investments in early stage, high potential MFIs, as well as buyout equity investments in more mature MFIs transitioning out of NGO ownership. The Fund Manager seeks to add value and achieve greater scale through active management, in-market consolidation, and expansion of the financial product offering. The Fund aims to hold significant equity investments in three major geographic regions – Latin America, Asia, and Eastern Europe – resulting in a diverse, global portfolio in core emerging markets.

The Creation Investment’s team, led by Patrick Fisher and Ken Vander Weele, has proven their ability to originate unique impact investment transactions, recruit seasoned management for portfolio companies, access debt capital to fund growth, deliver technical assistance and technology to enhance systems, maintain a focus on client protection principles as a Smart Campaign member, and add value through active involvement in all levels of the business.

“We are excited to have brought sophisticated, private sector investors to a new asset class providing them with the opportunity to maximize their financial and social returns through robust impact investments” said Patrick Fisher, CEO and Co-Founder of the Fund Manager.

About Creation Investments Capital Management, LLC:
Creation Investments is an alternative investment management company committed to fighting global poverty through direct, for-profit investments in businesses which promote economic development. Creation Investments Capital Management, LLC manages and sponsors impact investment funds and one-off investments in social ventures, seeking to maximize financial and social returns on investment. For more information, go to: http://creationinvestments.com/

http://www.prlog.org/11221631-creation-investment-social-ventures-fund-announces-final-fund-closing-of-32-million.html

dfe Partners and Creation Investments Establish CEE Microfinance Holdings, as a Regional Holding Company and Complete 3 Acquisitions

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Combined Talent from Financial Services and Microfinance Join to Expand Microfinance Services Throughout Central and Eastern Europe

DATELINE, September 23rd, 2010 – CEE Microfinance Holdings, N.V., a new, private equity backed, Dutch holding company owned by the Balkan Financial Sector Equity Fund, managed by the Swiss based dfe partners, and Creation Investments Social Ventures Fund I, managed by US based Creation Investments Capital Management, announced today it purchased three microfinance institutions located in Central and Eastern Europe. CEE Microfinance Holdings has a newly recruited management team which combines talent from the financial services industry both inside and outside the microfinance sector.

The three microfinance institutions involved in the transaction are located in Albania, Poland, and Russia and purchased from, U.S. based Opportunity Transformation Investments Inc., UK based Opportunity Microfinance Investments Ltd and FORA Fund (Russia).    The first institution, Opportunity Albania is a non-bank financial institution currently serving more than 16,000 clients from its 23 branches, with its headquarters in Tirana, Albania.  The second, Inicjatywa Mikro is a non-bank financial institution currently serving more than 2,000 customers, with its headquarters in Krakow, Poland. The third, FORUS is a registered bank in Russia currently serving more than 10,000 customers, with its headquarters in Nizhniy Novgorod, Russia and a 42 branch network.

“The successful completion of this transaction opens a new chapter for our customers, our employees, our businesses, and our investors and lenders.” said Pieter van Groos, the chief executive officer of the newly established CEE Microfinance.  “We are convinced that these businesses have tremendous potential to expand accessible and affordable financial services to both current and new customers that are underserved by traditional commercial banks and finance institutions. These acquisitions also provide a starting point for further acquisitions and create scale in the region.” Pieter van Groos was previously CEO of GE Money Bank in the Czech & Slovak Republics, and prior to this worked for McKinsey and Exxon. In addition, Koen Wasmus joins as COO of CEE Microfinance. Wasmus was previously CEO of ProCredit in Kosovo and held other management positions within ProCredit. Further appointments to the CEE Microfinance team will be announced.

Clive Moody, Managing Partner of dfe partners, who negotiated and led the transaction said, “The challenges for success in the maturing microfinance sector in Central and Eastern Europe have and will continue to change. What we see as critical to the future of CEE Microfinance is fresh vision combining the capabilities of experienced management with active shareholders who promote strong corporate governance and provide much needed access to capital. We believe there is much to be gained through developing a common business model across the three institutions that will then serve as a template for further country acquisitions.”

“The formation of CEE Microfinance with presence across three territories, including the banking license in Russia, allowed us to recruit a level of expertise to manage these operations that combines the best practices not only from the microfinance world, but also from the wider financial services environment,” said Patrick Fisher, CEO of Creation Investments. “Pieter and Koen individually have extensive experience, that combined provides a management strength that is the essential ingredient of a successful microfinance business in Central and Eastern Europe for the next decade”.

About CEE Microfinance Holdings, N.V.

CEE Microfinance Holdings, N.V. is a Dutch public limited liability company.  CEE Microfinance is involved in the business of owning microfinance and small and medium enterprise lending institutions in unbanked and underbanked markets and client segments in Central and Eastern Europe.  CEE Microfinance is owned by a Dutch Coöperatief formed by the Balkan Financial Sector Equity Fund CV and Creation Investments Social Ventures Fund I.  The Balkan Fund is a Netherlands investment fund, managed by Development Finance Equity Partners AG, Switzerland.  The Creation Social Ventures Fund is a U.S. investment fund, managed by Creation Investments Capital Management, LLC.

For more information, visit http://www.dfe-partners.com/ or http://www.creationinvestments.com/.

Or contact:

Clive Moody, Managing Partner, dfe partners AG
Phone:   +44 1962 850736
Mobile:  +44 7866 565588
cmoody@dfe-partners.com

Patrick Fisher, Chief Executive Officer, Creation Investments Capital Management, LLC

Phone: +1.312.784.3980
Mobile: +1.773.960.8520
patrick.fisher@creationinvestments.com

Money For Good: $120 Billion Impact Investing Market Opportunity

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By Hope Neighbor

HopeOn Friday, I talked about principles to guide efforts to improve the quality of charitable giving. Today, I’ll talk about another opportunity to achieve social impact – by addressing the $120 billion market opportunity for impact investments for individuals. Today, these dollars are “hiding in plain sight,” in individuals’ investment accounts.

In addition to charitable giving, the Money for Good research analyzed Americans’ demand for impact investments, and what was required to meet that demand. In other words, what do American investors need to make more impact investments? To get at the answer to this question, we surveyed 4,000 Americans with household incomes of $80,000 and above. Here’s what we found:

To start, there’s a strong, untapped appetite for impact investments. Almost 90 percent of the individuals surveyed expressed openness to impact investing. We calculated a market opportunity of $120 billion for these investments, with half of that opportunity in investments of under $25,000. What’s more, even the very affluent are interested in smaller investments: over half those with household income of over $1 million a year still want to make impact investments of $10,000 or less. Long story short – there is a very large market for small impact investments that is largely unmet in the market today.

In addition, we found that Americans won’t cannibalize their charitable giving in order to make impact investments. When asked where they would draw the funds to purchase impact investments from, only 10% said that they would pull the money from their charitable giving.

Finally, we found that individuals were more receptive to impact investments if they are positioned as investments, not alternatives to charity. Americans are 1.8 times more likely to make an impact investment if they’re placed in an investment mindset rather than a charitable one.

The Money for Good research yielded several findings that point to how to best open up the retail impact investing opportunity. First, Americans want to receive information from and transact through their standard financial services provider; financial advisors were by far the top place investors would turn to learn about impact investment opportunities.

Second, Americans break out into six specific investor segments. The segments include Safety First, Socially Focused, Quality Organization, Hassle Free, Personally Recommended, and Skeptics. The first three – Safety First, Socially Focused, and Quality Organization – represent over 80% of the impact investing market opportunity we identified. Each of these segments has different core motivations for making impact investments – Safety First prioritizes downside risk protection, Socially Focused prioritizes the cause the investment is addressing, and Quality Organization investors want to invest with a reputable organization that has a strong track record and business plan.

Third, we found that there are five barriers to investment that are common across all those open to impact investing. Interestingly, the five barriers are all related to the immaturity of the market, not the social or environmental impact investments are having.

Building on these findings, there are seven steps that we believe will help to open up the retail impact investing market:

  1. Clarify what impact investing means for individuals and professionals
  2. Structure products with small initial investments (<$25,000)
  3. Tailor products and messages by segment, to appeal to different motivations
  4. Make opportunities accessible to retail investors, as many existing impact investment opportunities are open only to accredited investors
  5. Position these as investments, not as alternatives to charity
  6. Address market immaturity barriers, to provide confidence to investors
  7. Build awareness of impact investing overall and the specific opportunities available today with investors and their advisors

We’ve heard many times that opening the retail market will be too hard – too hard even to try. In conversations in the past six weeks, that’s not what we’ve heard from those with deep retail investing or banking experience. Instead, we’ve heard that there are gaps in knowledge that make it difficult to know how to address the retail impact investing opportunity today. More must be understood about financial advisors’ incentives, retail distribution networks, and how impact investments can be structured and sold to accommodate those incentives instead of being defeated by them. We also need to understand the economics and expected social impact of different retail impact investing alternatives. But once the sector is armed with this knowledge, we believe that it will have the insights that it needs to attack this $120B market opportunity “hiding in plain sight.”

Impact Investing

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Impact Investing

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Capitalism is tackling the world’s biggest social and environmental problems-and giving investors a new way to do well by doing good.

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By Ron Cordes
May 1, 2010
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Pretend it’s 2007 again, and you must choose between two investment opportunities. One is a pool of U.S.-based mortgage-backed securities packaged by a huge Wall Street firm. The other is a fund with stakes in small, obscure, mostly privately held lending institutions around the world. These so-called microbanks make unsecured loans to people who earn less than $2 a day and lack anything resembling collateral.
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I can guess which one most of you would have picked. And while we all know what happened to mortgage-backed securities since then, the microbank investment has returned a consistent 6% annually over the past three years. What’s more, the loans those obscure little banks made (loans as small as $50 in some cases) have enabled entrepreneurs living in some of the world’s least developed countries to start or expand small businesses and begin to pull themselves and their families out of pervasive poverty.
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I know this because I invest in those microbanks, as do a growing number of pension funds, foundations and high-net-worth individuals. I am also an active participant in an emerging investment category called impact investing. Although it’s barely on most investors’ radar screens today-and despite the fact that some microbanks have been in the news recently for doing more harm than good in these developing countries-I still firmly believe that in the coming decade impact investing could fundamentally reshape how your clients “do well by doing good,” how the planet’s biggest problems get solved and how you bring value to wealthy investors.
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MAKING AN IMPACT

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Impact investing combines the often-opposed forces of capitalism and social justice to achieve two main goals:

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* Solve the major social problems of our time, including global poverty, infant mortality, a lack of clean water, homelessness, substandard education and global warming; and

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* Generate reasonable financial returns for the companies, organizations and investors addressing those issues.

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Impact investors pursue these twin goals by making debt or equity investments in social enterprises-companies and groups that use market-based solutions, such as sustainable business models and profit motives, to address social and environmental issues. Social enterprises are nothing new, of course. Thousands of these small, privately held firms have sprouted up around the world. The most famous is Grameen Bank, a microlender whose founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006.

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Here’s what is new: As more of these firms have achieved their initial social goals, they’re looking to expand their operations and do more good for more people in more countries. Much like traditional small companies, they’re looking to the capital markets to help fuel their growth. This could significantly affect traditional charity and philanthropy as well as socially conscious investors (and the advisors who serve them).
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A BETTER WAY

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Impact investing is a response to some of the shortcomings in existing methods for enacting positive social change. Take government aid. For decades, it has largely failed to create meaningful and lasting social good due to an often ineffective use of resources and endemic government corruption in many of the world’s poorest nations.

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And traditional charity, while important, doesn’t have the scale to address the world’s biggest social issues by itself. The scope of problems like the lack of clean drinking water (which affects 960 million people) and proper sanitation (2.5 billion people) is enormous, especially for organizations that must rely solely on donations and the goodwill of others to make a difference.

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Within the investment arena, traditional socially responsible investment options, such as SRI funds, tend to focus on identifying and avoiding big companies with perceived negative business practices or products. More recently, ESG funds have sought to identify and invest in large companies demonstrating strong environmental, social or corporate governance characteristics. Both funds serve important missions. But they aren’t designed to provide targeted support to the types of privately held firms developing innovative solutions to the world’s social problems.

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By contrast, the new breed of social enterprises circumvents the limitations of government aid and traditional philanthropy by allocating financial and intellectual capital directly to entrepreneurs motivated to solve their own problems. This model is rapidly gaining acceptance in the marketplace as more of the developed world sees the world’s poor as deserving of our investment, not just our charity.

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Affluent baby boomers are a key driver of change here. Boomers are regaining their sense of social activism now that they’re older and have more time and financial resources. As they start to define their success beyond their bottom line, they’re looking for new ways to use their resources to create sustainable good. In addition, mid-career professionals in their thirties, forties and fifties are getting off the corporate treadmill and using their experience to support socially driven for-profit businesses.

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Social enterprise is also becoming popular among Gen Yers. As with the boomers before them, these students are highly socially conscious. Unlike their elders, they’re looking to integrate their drive to create change into an entrepreneurial career track right now.

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GETTING STARTED

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This momentum means you should start raising the issue of impact investing with your clients now-both to spark interest and position yourself as a pioneer. Your powerful message: You are driven to help your clients connect their investment capital with the social values and concerns that are important to them as human beings and to infuse their portfolios with a deeper sense of meaning and purpose.

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Chances are, impact investing will resonate most among affluent investors with $2 million or more in investable assets. These investors have less concern about outliving their savings-they’re at a level of affluence that enables them to explore the type of impact their wealth can have on the world around them. And most impact investments today are structured as private debt or equity funds, which are available only to accredited high-net-worth investors.

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Within that group, target your initial conversations to clients who have indicated an interest in leaving a legacy that demonstrates their passions and values-clients for whom a meaningful connection resonates. When these clients hear they can achieve social good while retaining the assets in their portfolios and use impact investing to leverage their traditional philanthropy, they will recognize an exciting new conversation.

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Your initial conversations should answer three questions:

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* What broad-based issues are of greatest concern-poverty, education, healthcare, housing, the environment or some combination?

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* Is there any particular geographic focus (country or region)? Is there a preference for domestic issues versus problems in foreign markets?

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* How much of the portfolio should be allocated to impact investments? Given the embryonic nature of the industry and the lack of products, begin with a modest allocation-2% to 4% of the portfolio-and build from there as the industry grows.

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Next, identify specific investments and discuss their appropriateness based on the client’s goals, assets and risk tolerance. As noted above, options include private equity and debt funds (and funds-of-funds), which can carry minimums of $50,000 or more and can be highly illiquid, requiring holding periods of several years before investors can realize any gains.

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It’s also important to be realistic about the current state of impact investing. It’s still early in the game. Lack of an organized infrastructure and intermediation capabilities makes it difficult to find social enterprise projects. In addition, there’s no universal criteria for how to measure the social or environmental results of these investments, making apples-to-apples comparisons of various investments challenging.
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ADVISOR OPPORTUNITY

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Despite the complexity, advisors who begin these conversations soon will have a distinct competitive advantage. This advantage has three parts. First, there’s an opportunity to appeal to affluent boomer clients yearning to live lives of significance as they age and reconnect with the desire to create social good they felt when they were younger. They’ve achieved financial success and are now starting to think about their “life footprint”-the lessons, values and legacies they want to pass along to their heirs and to society. Introducing impact investing lets you talk to these clients about their core interests and values-a topic their other advisors likely aren’t addressing.

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Second, from an overall prospecting and referral standpoint, impact investing is new and interesting to many ideal client segments. It’s a fresh conversation to have with investors who are tired of hearing the same old stuff.

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But the biggest impact is in client retention and multigenerational opportunities among affluent families. Currently, less than 10% of the next generation retains their parents’ advisors. Advisors can use impact investing as a multigenerational glue to engage not just their wealthy older clients, but also those clients’ children and grandchildren as families work together to define their social impact beliefs and strategies. Use the social enterprise movement to talk to younger generations about issues they care about deeply-more deeply than beating the S&P 500.

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Early adopters are already embracing impact investing (see “Veteran Advice,” above), and the infrastructure is being put into place. While it’s not for everyone, impact investing could resonate with baby boomers, affluent clients and multigenerational families-and be crucial to the growth of your practice in the decades to come.

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Ron Cordes is co-chairman of Genworth Financial Wealth Management and president of the Cordes Foundation.

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Investing into Microfinance Investment Funds

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Investing into Microfinance Investment Funds

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This paper aims to measure the performance of microfinance investment vehicles (MIVs) in terms of risk and returns to investors. The study included 11 MIVs (in the form of mutual funds) and their sub-funds that publish data monthly. The authors describe the funds as “commercial MIVs that focus mainly on financial objectives while their social and development contribution is a sort of value added that sets these funds apart of traditional mutual funds.” The funds primarily invest in debt instruments with maturities of no more than five years and have more than half of their investments in the microfinance sector.
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The period for the study is January 2006 to March 2009, which notably includes a major portion of the global financial downturn. The mean monthly return on assets (based on net asset values per share) for the MIVs was modest but positive throughout the study period. The average monthly return for the MIVs was 0.36 percent. This compares favorably to the Morgan Stanley Capital International (MSCI) World Index, which measures the performance of developed country equity markets (-0.99 percent), and the MSCI Emerging Markets Diversified Financials Index, which measures equity performance in emerging markets (-0.40 percent). It also compares favorably to the JP Morgan Emerging Bond Index (EMBI+, 0.27 percent) and the four-week US Treasury Bill, an asset that is considered to be virtually riskfree (0.26 percent). The MIVs, however, did not perform as well as the Markit iBoxx USD Overall Index, which consists of corporate bond issues and bonds issued by the US government and government-sponsored agencies (0.41 percent).
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Though MIVs in this study saw increased annual returns each year from 2006 to 2008, the authors point out that these MIVs could suffer from the downturn further into 2009 and 2010. The MIVs also compared favorably to the above-mentioned benchmarks in terms of risk. In terms of total risk, measured by standard deviation in monthly returns, the MIVs had a lower mean (0.32 percent) than all other indices except for the “risk-free” Treasury Bills
(0.15 percent). There was increased volatility for the benchmarks in monthly returns starting in 2008 due to the financial downturn, but this is not seen in the MIVs data, though the earlier warning about possible repercussions after March 2009 again applies.
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Additionally, the authors find that there is no positive correlation between mean MIV returns and either equity market index, indicating that MIV investments may serve well in portfolio diversification. The same cannot necessarily be said for the correlation with fixed-income indices, as there were not enough statistically significant results to make a conclusion in this regard.
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Lastly, the authors compare MIV performance to the same indices using a risk-adjusted monthly return measurement. Including only statistically significant results, MIVs outperformed the other indices by 14 to 16 basis points. However, during times of positive global market sentiment (pre-financial downturn), MIVs lagged behind the MSCI World Index (other indices were not included in this regression).
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By Karel Janda and Barbora Svárovská, published by the Institute of Economic Studies, Faculty of Social Sciences Charles University in Prague, 2009, 35 pages, available at: http://www.microfinancegateway.org/gm/document-1.9.41460/Investing%20into%20Microfinance%20Investment%20Funds.pdf
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The rich get richer, the poor get richer, the New York Times gets outraged

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A great article below in response to the NYT article from last week. One thing not mentioned is that not-for-profit MFIs charge similar, if not higher, rates of interest as do for-profits. Thus, the “complaints” lobbied against the for-profits should be brought against the not-for-profits, if not more so. However, all players are significantly better for clients than local moneylenders!

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The rich get richer, the poor get richer, the New York Times gets outraged

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by Don Watkins on 4/23/10
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Look out world: the rich are getting richer by helping the poor get richer. The New York Times warns us that “Big Banks Draw Profits From Microloans to Poor.”
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According to the Times, “Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.” Now critics of these companies are complaining that the reputation of microloans will be “tarnished by new investors seeking profits on the backs of the poor…”
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But profits aren’t made on anyone’s backs. They are made by creating value and are a sign of mutual gain. Nike profits by making great shoes. Amazon.com profits by running a quality online bookstore. McDonald’s profits by serving delicious food to anyone willing to spend a few bucks. They all profit by making us better off (otherwise we would patronize their competitors). Well, microloan companies profit by providing the poor with a service they desperately need at prices they willingly pay.
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No, suggests the Times, those prices aren’t paid willingly: the poor are taking those loans because they are “too inexperienced and too harried to understand what they are being charged.” But the only example the Times can dredge up to illustrate this point is a Mexican entrepreneur who used microloans to successfully expand her t-shirt factory five times over, and who can now pick up the phone and get a fresh infusion of cash for her business within the span of a day. That’s not a scandal–that’s inspiring.
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Microloan companies deserve their profits and have a moral right to every penny they can earn through voluntary trade. To succeed, they have to be willing to accept the risks inherent in making small loans to incredibly poor people in incredibly poor countries that don’t exactly regard property rights as sacrosanct. Indeed, the Times article itself grudgingly admits that these facts probably account for the relatively high interest rates microloans often carry.
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While the Times treats news of industry profits as a shocking revelation, the only thing shocking is its shock. Why else would companies be willing to brave the vicissitudes of shyster governments and deliver capital to tiny businesses at a moment’s notice but for the profit motive?
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Opponents of microloan companies have an answer to that. The Times quotes economist Muhammad Yunus: “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.” Read that sentence again, because what it denounces is viewing the poor as traders rather than charity cases.
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Profit is a benevolent force that creates a harmony of interests among all producers, rich or poor–and any attempt to reduce industry profits can accomplish only one thing: to reduce the poor’s access to capital and prevent microloan companies from reaping the rewards they’ve earned.
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How to Tell Good MFIs from Bad MFIs

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An excellent article below which enumerates the difficulty of using an interest rate only to determine “good” vs “bad”. This article also illustrates well the value of the for-profit model, driving higher financial and social returns. This seems like a contradiction in terms, but the empirical evidence begs the question of superior social impact for not-for-profits in the sector. … PLEASE READ THE ENTIRE ARTICLE …

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How to Tell Good MFIs from Bad MFIs

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by Richard Rosenberg: Tuesday, March 16, 2010

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Most of us working in microfinance want microloan clients to be paying interest rates that are as low as possible. While we have the same vision, there is disagreement about how to determine whether an interest rate is an appropriate one.

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Some people, including Mohammed Yunus, are worried about the growing commercialization of microfinance, including the entry of profit-motivated owners and managers.  They are concerned, reasonably enough, about possible “mission drift,” especially in the form of interest rates rising to (or staying at) excessive levels. In his book and in many presentations, Professor Yunus offers a straightforward formula for judging MFIs and their objectives:

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• If you’re a real microlender who cares about the poor, then your interest margin (the difference between the rate you charge when lending to your clients and the rate you have to pay when you borrow from your funding sources) should be no more than 10%. That’s the “green zone” where true microlenders operate.
• If your interest margin is 10-15%, a big warning sign is flashing because you’re in the yellow zone.
• Anything above 15% is the red zone, where you’ve left true microcredit behind and joined the loan sharks.

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Unfortunately, when you look at the evidence, this appealingly direct formula turns out to be pretty far off the mark.

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To begin with the conceptual problem, the formula doesn’t allow enough room for legitimate differences in administrative costs among MFIs. For an MFI that makes especially small loans or serves a sparse rural clientele, administrative costs will inevitably be a higher percentage of loan portfolio, and the lion’s share of the interest rate spread goes to cover those costs. Application of the proposed formula could actually discourage outreach by such MFIs to poorer clients.

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But concepts aside, how does the formula match up against actual MFI experience? It turns out that this formula would place most of the world’s MFIs in the red zone—the average interest rate spread for MIX MFIs in 2008 was over 20%.  But to be fair to Prof. Yunus, that shouldn’t end the discussion.  After all, maybe plenty of the MFIs in the MIX are charging their borrowers rates that are way too high.

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Now let’s test the green-yellow-red formula against a group of Grameen-approved MFIs. Christoph Kneiding and I analyzed MIX data on Grameen along with several dozen MFIs that received support from the Grameen Foundation and reported to MIX. In 2007, for instance, 33 MFIs (representing about two-thirds of the Grameen Foundation recipients) reported to the MIX.  The only one in the green zone that year (interest spread below 10%) was Grameen Bank itself. Seven were in the yellow warning zone (10-15%). All the other 25 were up in the red zone (above 15%) and most of them way up in the red zone (between 30 and 55%). The three preceding years looked pretty much the same.

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The proportion of Grameen affiliates in the red zone was about the same as the worldwide proportion: for instance, 75% of all MIX MFIs were in the red zone in 2008, according to a new study by Adrian Gonzalez of MIX. NGOs were more likely to be in the red zone than for-profit MFIs, suggesting that interest spreads may be driven more by the higher costs of smaller loans than by profit maximization objectives. (Average loan size in NGOs is about a third of what it is in for-profit MFIs.)

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Has the Grameen Foundation has been fooled into working with a bunch of red-zone partner MFIs that are wolves in sheep’s clothing? Far from it. The Grameen partner MFIs that look so terrible on the green-yellow-red test actually appear quite strong—in fact, well above average—on indicators normally thought to be associated with commitment to the poor, such as average loan size.  Nor do they appear to be inefficient: they average considerably lower on cost per borrower than the other MFIs in their countries.

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It’s disappointing that simple formulas can’t help much when it comes to appraising things like mission drift or fairness of interest rates. It takes a more complex analysis (see, for example, the CGAP papers on microcredit interest rates and Banco Compartamos).  I hope we see a lot more MFI-by-MFI analysis, in which the reasonableness of interest rates is judged by the reasonableness of the costs and profits that produce those interest rates. We all want to see MFIs charging clients rates that are as low as possible, so we need analytic tools that can do a credible job of separating the sheep from the goats in that regard.

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The Girl Effect & The Nike Foundation

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The Girl Effect: The powerful social and economic change brought about when girls have the opportunity to participate in their society.
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WHY GIRLS?
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Because when adolescent girls in the developing world have a chance, they can be the most powerful force of change for themselves, their families, communities and nations.
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But while those 600 million girls are the most likely agents of change, they are invisible to their societies and the world.
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From the Nike Foundation
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