|
|
TINY INVESTMENTS, BIG CHANGES
When Pierre Omidyar started eBay 10 years ago,
he aimed to help individuals create online
businesses that could compete on a level playing
field with corporate giants. Today, some 750,000
people make a full- or part-time living by
selling on eBay.
On Nov. 4, the Omidyars announced that they're
donating $100 million to Tufts University to
create a new fund for microfinance lending
initiatives. Microfinance groups typically lend
what in the developed world are tiny amounts of
money -- as little as $40 -- typically to women
creating crafts, selling vegetables, and the
like. But often, that's enough to get the
businesses rolling. Microfinance initiatives now
serve some 80 million poor people worldwide,
with more than $7 billion in current loans.
But while a few microfinance lending
organizations are profitable enterprises, such
as the Grameen Bank in Bangladesh, most such
loans have been funded with philanthropic
donations. The problem with that, according to
Pierre Omidyar: "If you want to reach global
scale -- and we're talking about hundreds of
millions of people who need this -- you can't do
it with philanthropy capital. There's not enough
charity capital out there."
The Omidyar-Tufts Microfinance Fund will invest
in microfinance banks and possibly in related
lending initiatives, such as ratings agencies.
The Omidyars hope they can prove that the sector
can produce profits while it helps lift people
from poverty, thereby making microfinance
self-sustaining.
"By connecting with an institutional investor
like a university, we would like to increase the
level of professional investor involvement in
this sector to try to stimulate more
commercially viable investment products,"
Omidyar says.
The Omidyars' interest in microfinance isn't
new. Their philanthropic organization, the
Omidyar Network, had made some $15 million in
microfinance investments to date.
The network, which started investing its $400
million early in 2004 in for-profit enterprises
in addition to nonprofits, has put money into
such microfinance pioneers as Unitus, a Redmond
(Wash.)-based group that tries to accelerate
microfinance investment, and the Grameen
Foundation USA.
The fund won't directly lend directly to
borrowers in developing countries. Instead, it
will invest in lenders, so they can grow fast
enough to reach economies of scale. Tufts will
keep half the fund's income to invest in its own
programs, and half will be reinvested in more
microfinance initiatives.
Omidyar hopes the fund will spur at least $1
billion in loans as they're continually repaid
and recycled into more loans. It's all intended
to help spur the creation of new investment
products attractive to traditional investors.
Indeed, Tufts President Lawrence Bacow sees
microfinance potentially offering an entirely
new investment vehicle for investors. He thinks
the fund could help spur the creation of new
investment opportunities similar to the rise of
venture capital in the 1960s, mortgaged-backed
securities in the '70s, and emerging-markets
funds in the '80s and '90s. Says Bacow: "If
people can earn significant returns from
microfinance, investment will flow to it."
How significant? Tufts Chief Investment Office
Sally Dungan says a good target will be the same
average that Tufts has for its endowment
overall: 9%. "We hope this will be a proof
statement," she says.
Remarkably, the history of microfinance
indicates that doing well by doing good isn't
just a nice slogan. Typically, say microfinance
experts, repayment rates on microloans top 98%.
That's partly because interest rates are
relatively high -- often well over 20% annually.
Indeed, some microfinance veterans worry that a
profit-making motive could squeeze out some of
the truly needy by excluding people or charging
even higher interest rates.
Others say the evidence suggests otherwise.
Grameen, for instance, has gradually lowered
interest rates over time, as it has reached
economies of scale, notes Geoff Davis, chief
executive of Unitus. The entry of new investor
capital through initiatives such as the Omidyar-Tufts
fund, he says, should help accelerate that
process.
| |
| | | |
|
|
