Bravo to the Globe for trying to cover the pitfalls of microfinance after all the recent excitement about the
Omidyar $100 million investment via the Tufts endowment. The article rightly points out the very mixed microfinance
record on poverty alleviation.
In July, we took Mr. Omidyar to task for not walking his talk, so we are now absolutely thrilled to report that he may well have triggered a watershed in microfinance investment.
His $100m donation to Tufts University will be managed as a for-profit fund dedicated to microfinance. This constitutes the largest single for-profit microfinance fund in existence. More importantly, it is done right.
First, the for-profit approach enforces market discipline on the microfinance institutions (MFIs) that receive the investment. What we call "microcapital". Second, Tufts will benefit from the returns on the microfinance fund. Third, Mr. Omidyar gets his tax write-off, thus keeping the money from government "investment" which has ruined microfinance decade after decade. Lastly, this represents a break through into endowments, the holy grail of investment capital.
Sir, we thank you for your inspired leadership.
You may have heard the hype about the eBay fortune being on its way to revolutionizing philanthropy through for-profit investing, but the numbers tell a different story.
Why so much attention to Pierre Omidyar? High stakes: he is estimated to be worth $10 billion, only 1% of which he plans to retain. The rest will be given away or invested with a social purpose. In June, he demonstrated his commitment to microfinance with a $4 million grant to the nonprofit Grameen Foundation USA (GFUSA).
(Omidyar.net extends the commitment to microfinance with an online discussion board with a microfinance focus.)
The Omidyar Foundation undertook a facelift when it was transformed into the newly christened Omidyar Network in 2003, now housing both a foundation and an arm that makes investments.
The news that the Network would revolutionize philanthropy by no longer purely donating to nonprofits "shocked the philanthropic community," as reported in Business Week and Newsweek. However, despite his belief that "for-profit companies can have a big impact on society," most of Mr. Omidyar’s activity is grant-making. In the second half of 2004, less than $5 million was invested in social-mission for-profits, while a prorated $91 million was granted to nonprofits. From these numbers, we have to wonder what’s stopping Mr. Omidyar from giving this revolutionary idea a chance to get off the ground.
That said, the Network reporting on its site is not clear. So, we are using some guess work here.Omidyar Network uses the terminology “non-profit investment” and “pro-profit investment” as its two super-categories when reporting on its website. What does this mean? For instance, the donation to the Grameen Foundation was a “non-profit investment.” How is this different than a grant? After our inquiries to Omidyar Network, we have guessed that there is no difference.
In the Omidyar Network’s defense, the language has indeed gotten quite muddy around the new field of ‘social enterprise,’ where organizations with a social mission can either be non-profit or for-profit.May we suggest a clear distinction: is a return on capital expected? If yes, then it is an investment. If no, it is a grant.
In other words, our critique may be misplaced if Mr. Omidyar’s group is making ‘program-related investments’ (PRIs) to non-profits instead of grants. A PRI is the legal term describing when a foundation expects a return on its grant-making capital from a nonprofit.
So, let’s hope we are wrong about Mr. Omidyar’s group. Let’s hope he really is expecting a return on his philanthropic dollars to in turn create more philanthropic dollars. But current giving patterns and opaque reporting make us doubt they are actually pursuing the sophisticated philanthropic strategy their press proclaims. Too bad. We could use some visionary leadership in microfinance to model market discipline for all the other players on the investment side.
More on PRIs in the next entry
Additional Resources
1) Omidyar Network: "On Microfinance" discussion forum
2) Omidyar Investments
3) "Grameen Foundation Receives $9 Million to Finance Micro-Loans."
4) Press Release: "eBay Founder to Create Organization to Fund Social Change."
5) Omidyar Network record of news coverage
SEWA Grih Lin, an Indian affordable housing finance company also known as Sitara, recently raised USD 20 million in equity, including USD 8 million from the Norway-based Nordic Microfinance Initiative (NMI). Sitara sourced the remainder in unspecified portions from
Lidya, a US-based financial technology (fintech) firm active in Nigeria, recently announced that it is beginning to lend to micro-, small and medium-sized enterprises (MSMEs) in the Czech Republic and Poland, particularly in the agricultural, pharmaceutical and retail sectors. The projected average loan size in these countries is
The Dual Return Vision Microfinance Fund, which is managed by C-Quadrat Asset Management (AM), recently invested an undisclosed amount of funds in Varthana, an India-based lender to “affordable” private schools, with the aim of improving educational access for children whose families have low incomes. C-Quadrat AM is a member of the Austria-based C-Quadrat Investment Group.
Varthana lends to primary and secondary schools for infrastructure, teacher training and working capital. It also offers management and educational consultancy to school owners. As of 2019, Varthana has secured and
Capria Ventures, a US-based provider of financial and non-financial support to funders of “small and mid-sized social ventures,” recently completed its second funding round, raising USD 100 million. Capria also recently invested in Mexico-based
CredRight, an online lender to individuals as well as micro-, small and medium-sized enterprises (MSMEs) in India, recently received equity investments totaling INR 90 million (USD 1.3 million) from Accion Venture Labs, a fund of US-based NGO Accion, and YourNest, a venture capital firm
The Pacific Financial Inclusion Program, a Fiji-based initiative of the UN that works to extend financial services to unbanked Pacific Islanders, recently granted USD 450,000 to the Solomon Islands’ Inland Revenue Division (IRD) with the goal of increasing the availability of electronic payment channels for taxes paid by “123,800 wage and salary employees, 200 corporate taxpayers and 3,684 small businesses.”
The government of the Solomon Islands recently announced it will attempt to shift to using “electronic payment channels for [80 percent of its] payments and receipts” by 2020.
“The Long-run Poverty and Gender Impacts of Mobile Money”; by Tavneet Suri and William Jack; published in Science; December 8, 2016, 4 pages; available at http://science.sciencemag.org/content/354/6317/1288.full/
This article reviews a study that assessed the impact of the M-Pesa mobile payment service in Kenya.
IntelleGrow Private Limited, an India-based nonbanking financial company specializing in venture debt that was founded by India’s Intellecap Capital Advisory Services, recently announced that it has raised INR 134 billion (approximately USD 20 million) in equity and debt.
Cignifi, a US-based provider of information technology, and Equifax, a US-based consumer credit reporting agency, recently announced a “multi-year partnership” to offer credit scores in Latin America.
MicroEnsure, a UK-based, for-profit microinsurance company founded by US-based NGO Opportunity International, recently announced that AXA Group, a French insurance and asset management company, will pay an undisclosed sum to increase its equity stake in the organization to 46 percent from an unspecified level.
Sa-Dhan, an India-based association of 214 microlenders and other financial institutions, and the Microfinance Institutions Network (MFIN), a trade association of 48 Indian microfinance lenders, recently launched a revised code of conduct.
The Microfinance Institutions Network (MFIN), a trade organization composed of 47 Indian microlenders, has advised its members to reduce their interest rates voluntarily by “at least 25 basis points” [1] by the end of September 2015.
IFMR Holdings, an arm of Indian nonprofit IFMR Trust, recently raised USD 25 million from Accion, a US-based nonprofit organization; LeapFrog Investments, a for-profit private equity fund based in Mauritius; and Lok Capital, an India-based microfinance investment vehicle.
The government of Papua New Guinea (PNG) recently committed to shifting all government payments, including government salaries and social protection payments, to electronic form, with the goal of increasing security, transparency, financial inclusion and convenience [1].