Entrepreneurs
in California’s Silicon Valley and places
like Redmond, Washington, recognize the important
role of venture capital in getting significant
enterprises off to a good start.
Now some of those entrepreneurs are
applying the same principles to microfinance.
|
|
|
While
not a for-profit business, Redmond-based Unitus believes strongly that
commercial thinking is crucial to make microfinance institutions (MFIs) a
success. It wants to act as a venture capital firm for promising lower-tier MFIs
– providing funds and expertise to help them grow and fulfill their missions.
Unitus
was founded and is partly funded by Mike Murray, a former executive at Apple and
Microsoft. Murray is the organization’s chairman, and its CEO is Geoff Davis,
who previously formed a microfinance institution in Mexico and was the first
employee of Grameen Foundation USA.
The
non-profit currently has partnerships with MFIs in Mexico, India and Kenya, and
expects to announce several more in the coming months. Operating expenses and
the initial partnerships are funded by large donors, many of whom made money in
technology. But in January, Unitus plans to launch a commercial debt-only
microfinance investment fund that will be open to accredited individuals and
institutions. An equity fund is expected to follow.
Unitus
(pronounced as the combination of ‘unite’ and ‘us’) calls itself a
“global microfinance accelerator.” The strategy, says Davis, is to partner
with smaller MFIs with good growth potential in a promising market, and provide
both funding and consulting to help them grow. Strong growth not only allows the
partner MFIs to reach more clients, it also helps them become self-sufficient
and makes them attractive for further commercial funding.
Unitus
believes that for microfinance to do what it is capable of doing, hundreds of
MFIs will have to grow to the point where they are serving a client base of more
than 100,000 people each. They note that most of the world’s NGO-based MFIs
start small and stay small, serving fewer than 2,500 poor borrowers.
Part
of what makes Unitus different from many commercial microfinance funds or bank
lenders in the sector is the target market. Rather than reaching out to the top
100 or so largest MFIs that are already rated by outside agencies and have
commercial or quasi-commercial track records, Davis says the Unitus plan is to
“go down-market and help bring them up to the major leagues.”
“We
have a combination of tools we use to help the (MFI) partners accelerate”
their growth, Davis says, including grants for “capacity building,” equity
investments, loan guarantees and lines of credit. And, he adds, “It’s a
partnership, not just an investment … we become very involved.”
“Our
fundamental mission is for microfinance to reach its potential, and for that we
need to move away from the donor and government perspective to a commercial
perspective,” Davis says.
Davis
says he learned two major lessons running an MFI in partnership with a
non-profit in Mexico. First, “It really worked, it had a powerful impact on
lives.” And second, small local entrepreneurs “are incredibly smart about
what they are doing in terms of market, product and other business
principles.”
“This
doesn’t need to be a paternalistic approach,” he says of microfinance.
“This is just an opportunity.”
So
far, Unitus has major investments of both money and expertise in Pro Mujer
Mexico, SKS in India and Jamii Bora in Kenya. It provides funding in a
combination of grants, equity investments, loans and credit lines.
The monetary commitment to SKS, as an example, amounts to nearly $4.7
million.
The
microfinance accelerator model seems to be working. SKS has reported more than
200 percent growth in clients served in 2004. Unitus says its first three MFI
partners currently serve 160,000 borrowers.
A
crucial question for any venture capital investor is the exit strategy – and
Unitus has some interesting ideas there as well. It has a 5-7 year timeline for
individual MFI investments, and expects to exit investments through public
listing of the MFIs, acquisitions, enough improvements in growth and efficiency
to allow its investment to be bought out by the MFI, or a community buyout
through retirement or mutual fund-type accounts.
Some
of those exit strategies may sound far-fetched, but Davis believes that over the
next few years, MFIs will grow enough – especially in places like India – to
make it likely they can transform into publicly held microfinance companies.
Unitus is already working with an investment bank that specializes in emerging
markets to make this a reality.
“Things
are changing dramatically and very rapidly in the industry,” Davis says.
“That gives me great hope, and that pace I think is going to continue.”
Unitus – Global Microfinance
Accelerator
P.O.
Box 626
Redmond, Washington 98073 USA
1-425-881-2264
www.unitus.com
Dignity
Fund
(launching in
January 2005)
A program of Unitus
Administered by the Calvert Foundation
Open to accredited investors only
Initial expected fund size: $10 million
Projected portfolio: debt investments in MFIs
|
|