graylightning

MicroPlace Lauches

EBay subsidiary MicroPlace has launched its website, where it seeks to create market linkages between lenders and borrowers of microfinance capital.

Here's a couple articles detailing the company and its acquisition by EBay, (BusinessWeek), (Auctionbytes), but basically the business, and it is in fact a business, is something like Kiva with a touch of Prosper...

That is, MicroPlace a lending market place that charges interest, like Prosper, but geared towards allowing people in developed countries to make loans to those in developing ones at a below market rates of interest, like Kiva. Unlike Prosper, it is not set up as a person-to-person marketplace, but rather Person-to-MFI/Country.

A quick skim through the site suggests that the rates of interest that lenders like you and me would receive is indeed quite low, 2% on loans to Nigeria, 3% on loans to Cambodia. However, also like Kiva, the end rate that the average client is paying is still in line with the rate being charged by the MFIs that MicroPlace partners with. Just like Kiva, MicroPlace will move additional capital into this market and thereby make it cheaper for MFIs to borrow, but whether and how that savings gets translated on to the end client in a lower priced loan is unclear.

Does it make good business sense? Well, at 2% and 3% rates of interest its not much of an improvement over Kiva in terms of a financially compelling investment from a lender's standpoint. But clearly MicroPlace is aiming to attract lenders on more social investment objectives, rather than commercial ones. The other  difficulty that the site doesn't mention is that in some countries, regulations on external commercial borrowings make it very difficult for MFIs in those places to receive external debt. India is one of those places, for example, not even Kiva, an avowed non-profit, has been able to overcome this burden and make loans on the sub-continent.

My only other criticism of MicroPlace is the tag ling it uses on its website, which again commits the sin of glossing over the complexities and mixed social development results that microfinance is actual capable of. It continues on the recent trend of over-stating the benefits of microcredit. "Invest wisely," it proclaims, "End Poverty."

Despite the claims of MicroPlace or Muhammad Yunus, micro-loans alone will not end poverty. Affordable and accessible savings products, more than credit alone, has consistently been shown to be a stronger tool for poverty reduction, and to make lasting impacts on families over generations, these financial services have to be combined with education and health care.

Nonetheless, its a good site and a good start - I hope it moves more and more money into these geographies and these MFIs. I'll follow up in a while and see how they are tracking against Kiva, which now has channeled over $13 mm in loans.

Hedging Your (Currency) Bets

As I listed out yesterday (and last Monday in my Op-Ed in MINT), there are lots of new entrants in the microfinance investment space - more commercial money than ever before, and in increasingly different forms.

I'm curious to learn more about the strategy being devised by Minlam Microfinance Offshore Fund, the new $40 mm microfinance hedge fund backed by CDC and John Muse, founder of Hicks, Muse, Tate & Furst. I gave the wrong link to that article yesterday - here is the right one.

It looks to be the second half of a two part strategy along with Minlam Asset Management LLC to provide debt funds or debt guarantees to MFIs while hedging against currency risk. 

My initial fear when I read the words "hedge fund" was the idea that someone would be making investment plays on volatility, or selling short,  the debt or equity securities of these new and emerging institutions which are still yet to develop a solid track record and achieve a reasonable amount of stability in operations and earnings. But I get the sense after reading the article that this would be more of a long-only fund, as 3/4ths of its funding is coming from UK Government-owned CDC and it looks to be a partner organization of the parent Minlam Asset Management. I'm not enough of an economist to speculate on how Minlam will make money by hedging currency risk unless they are in fact collecting fees for executing currency hedges for the holders or issuers of these microfinance term loans or bonds, but that could be one strategy.
Please chime in if you can correct me or know more.

Another fund, mentioned in my Sept. 18th Post, FMO's $300 mm TCX Fund, sounds as if it will be trying to engage in similar currency hedges for the debt or guarantee funds of microfinance institutions around the world, and specifically in sub-Saharan Africa.

Will keep reporting as I learn more.

 

News of Sorrow, City of Joy

The weekend was filled with news from South Asia, unfortunately not all of it good.

Late Thursday night, just after I arrived in Kolkata, two explosions in in Karachi, Pakistan hit the convoy of former Pakistani Prime Minister Benazir Bhutto, recently returned from exile, in an assassination attempt which left Bhutto unharmed but killed over 150 people.

Pakistani politics continue to churn at a feverish pitch right now as various extremist, military and reformist factions are vying for control of the beleaguered Muslim nation before it heads into an important election this January.

In a rare and important gesture, the Indian government expressed its sorrow at the attack and its thankfulness that Bhutto was not hurt, signaling that India may be eager to engage with an empowered Bhutto, should she be successful in regaining a leadership post in the government.

In India, Manmohan Singh's fragile UPA Coalition government has spent the last two weeks trying to find a compromise between its center and left factions that will allow passage of the contentious "1-2-3" US Nuclear technology deal without causing the coalition to splinter and the government to fall.

But while the dangers and discord in Karachi and Delhi were brewing, respectively, I was off exploring Kolkata on the Eastern side of India, during the city's famed Durga Puja.

This was my first trip to the city, one of India's cultural and literary hubs, and it seemed to me to be one of the most different places I've been in India. While locals bemoan the stereotypes, that Kolkata  is "dirty, poor, hopeless" etc. - all reinforced by Domanique Lapierre's book "City of Joy" and the Western media's coverage of Mother Theresa's work in leper colonies - there are things you see during your first day in Kolkata which lend some credence to these views. Certain streets were among the poorest and dirtiest that I've seen in India.

And the old, Imperial British architecture rots and crumbles above your head, while below, thousands of poor, wretched rickshaw pullers still run around on bruised and burned feet each day, carting passengers from one petty trade stand to another, just to scrape together enough to eat and smoke.

I've included some pictures below but a brief summary of the weekend would be incomplete without the following highlights:

- I saw about a dozen of the large and intricate "Pandaals," huge temporary temples, like stationary floats, made out of plywood, cloth, bamboo, clay, and in some cases even peanuts.

- I ditched the touristy and rancid areas of Sudder and Lindsay Sts. after the first day in exchange for an exhilarating race through the Khali Ghat (Khali Temple) guided by a Brahman Priest (for a small fee), where I was almost swept up in a stampede before bearing witness to all sorts of frenetic worship including screaming, chanting, bell ringing and incense burning and a goat sacrifice on a mini-guillotine.

- I found an eerie 250-year old colonial British cemetery that contained the graves of both illustrious and unknown East India Company engineers, soldiers and sailors as well as one Debutante historically claimed to be Calcutta's "most eligible bachelorette"

- I visited the childhood home of one of my friends in Delhi who also went to my college, the University of Virginia, and...

- I fell victim (for the first time in my traveling career!!) - to a silent and stealthy pickpocket who managed to snag my cell phone during a busy night on Park Street.

Lots more microfinance news next: CDC has backed a microfinance hedge fund, there's new research on the current global flows of remittances, the IFC is again increasing its Microfinance focus with a doubling of earmarked funds over three years, ICICI is creating its own microfinance equity fund, and Mexico will see its second Microfinance IPO of the year - will this one be as controversial as Compartamos?

PE or VC? Pondering in Calcutta

I've just arrived in Calcutta for the first time, or Kolkata, as it is now called in India.

It's a bit drab, dirty and old but the streets below are all lit up with glowing bulbs and the arches and doorways of churches and temples are decked out in flowers, all for the festival season, and specifically, West Bengal's celebration of the "Durga Puja" this weekend.

I've already managed to make a local friend, a 20 year-old business school student who split a cab with me to Sudder Street, the divey, foreigner/hippy/culturalist refuge at the northern end of Chowringhee Street. The guy I met was fluent in English, Hindi, Bengali and Nepali (or so he said) and was thrilled to meet a foreigner who actually liked India. I guess they don't get many in this corner of the country.

I'll explore this old colonial capitol tomorrow...and will definitely check into a better hotel...

On Tuesday I linked to a story that suggested that Blackstone and Carlyle, two of the world's most renowned and powerful Private Equity firms, were interested in making an investment in the microfinance space.

I have a mixed feeling about this kind of news. Not because I have issues with capitalism, like many of the social activists who work in microfinance, nor because I have a thing against private equity funds, like a few politicians in Washington D.C., but rather because I don't think these investment opportunities, the SKS's, the Spandana's, SHARE's, Bandhan's and Ujjivan's of India, are really private equity deals.

These are venture deals, and they deserve venture money, and with that money a venture perspective - the freedom to explore different products and services, different business models and even a bit of social services work or livelihoods training if these activities actually strengthen microfinance clients' purchasing profile and borrowing capacity in the long-run.

I have a fear, as I mentioned in another Op-Ed in MINT on Monday, that private equity money will bring a myopic management focus on portfolio growth and short-term profitability, with investment horizons hovering in the 2-3 year range, instead of 4-6 years. This is the kind of pressure which prompts CEO's to start satisfying their investors first, and their clients only afterwards. I believe that would be the wrong recipe for real, long-term value creation.

A short-term view would probably entail stripping down any ancillary activities the MFI is involved in (i.e. cutting spend on product and service development) and unnecessarily focusing on maintaining the same rapid portfolio growth we have seen in the last 2 years, irrespective of whether the new regions being tackled by MFIs can support those levels of growth while maintaining portfolio quality (repayments).

I believe venture investors, broadly, have greater comfort with longer investment horizons and larger spend on research and development which allows product innovation. Ultimately, I think these things allow MFIs to end up with more satisfied, "sticky-er," and in the case of microfinance, potentially better-off client. Clients, employees, founders, and management have to come first. Only when those people have been well-served do the investors deserve their share. As Sequoia Capital suggests on its own website, that is the only way, there are no shortcuts.

Bewildered Between the Profound and the Perverse

I couldn't decide what was more compelling to write about today, the mesmerizing classical Indian dance performance called Kathak I watched at the Purana Quila Fort in Delhi on Saturday night, my new favorite comedy the NRI-mockumentry "Loins of Punjab Presents," or the perverse scene I watched in Delhi tonight on my way home from work as dozens of poor commuters held on fiercely with hands, feet and elbows to the exteriors of a few already overloaded buses as they lurched their way up and down overpasses, sagging under the stress of too much flesh.

The first sight was a result of the hard work of the performers and organizers of the Ananya Dance Festival 2007, a great collection of both classical and modern artists performing at one of Delhi's most impressive venues, the imposing Purana Quila fort, shown above.

The second, "Loins of Punjab Presents," is a hilarious independent comedy by Manish Acharya, starring Ajay Naidu of Office Space fame ("naga naga...nagana work here anymore..."). If you're Indian, or Indian American, or just plain American but in love with India - this movie is for you. The jokes are decidedly 'desi,' but easy enough for anyone who's spent a week or more in India to follow...Joshua Cohen, you're my new hero.

But unfortunately, the third and final memory of my weekend was the result of the haphazard transportation solution that stranded bus-goers found to their predicament following a strike by "Blue Line" bus drivers in Delhi today, that took roughly 1,000 buses off the road. The strike was in reaction to alleged harassment recently handed down to many Blue Line drivers by zealous police anxious to quell growing public outrage directed at the troubled bus company, whose drivers and vehicles have been responsible for mowing down over 96 people and injuring over 150 in accidents this year around the National Capitol Region.

I watched in shock (a rare thing for me after a year in India) as one bus after another passed by with people packed into, and clinging from, these massive, mobile cages of steel and glass.

I can only imagine what the death toll was today, when a quarter of the Blue Line buses were actually off the roads, with the remaining buses serving as even more dangerous moving contraptions...

Tomorrow, what do Blackstone and Carlyle want with Microfinance...?

Activity in the Market, And Other News of Note

Legatum has announced another move in the microfinance-related space in India, this time with an $8.4 mm investment in Intellecap, a Indian startup looking to provide consulting and investment advisory services to double-bottom line companies in India and beyond.

Catalyst, a European private equity fund investing in microfinance companies in Asia and Africa has announced a second equity fund with a corpus of $50 mm.

And there is another technology development in the area of mobile payments, Philips and A Little World joint venture NXP, has crafted a mobile device that encloses a radio-frequency identification (RFID) card, which when placed inside a mobile phone, allows it to act like a mobile database and enables field officers to efficiently store and access lots of different borrowers' information on their phones, and transfer that information through a short-range, wireless radio frequency to another phone or other device, such as a bank ATM, in a contact-less manner.
Cool stuff.

Microfinance India 2007: The View from the Street

:

I spent day two of the Microfinance Conference here in Delhi meeting with almost a dozen MFIs and financial services companies actively looking for equity investment, and in some cases, strategic guidance and technical or operational support.

And despite my lingering fear (shared by more than a few investors) that there is a lot of capital in this market chasing too few deals, I met a lot of interesting entrepreneurs today, not all of which are ready for equity, but many that will soon be.

Most of my day was spent hearing directly from these entrepreneurs about their products, their growth strategies, their borrower clients, their social development activities, their interest in or concerns over equity investment, and their long term visions for the organizations they have built. In response to the high brow session that had taken place yesterday on how to balance social and financial returns, one MFI manager smiled and said that while he had enjoyed the theoretical discussion, things "looked a little different at the street level." I think his comment echoed a very real sentiment that while many MFI managers want to do well by their clients and spend time developing capital structures to maximize benefits for their clients, the demands of building and running a sustainable microfinance organization require a great deal of management time and effort and many microfinance CEOs have little bandwidth or exposure to this type of big picture planning and structuring.

Nontheless, my conversations with a lot of grassroots MFIs and microfinance professionals active at "the street level" also led me to start thinking with a broader, longer-term view of the investment opportunities here in India. I'm beginning to formulate a more coherent view on how the development and incubation processes should happen for those MFIs that are at an earlier stage, or whose managment comes primarily from social development roots.

India's microfinance-focused equity funds are well positioned to take a bit of the risk involved in these double bottom line or early stage MFIs, and to do some of the education and preparation required to get these MFIs ready for later stage, traditional commercial equity, if they choose to go that route.

That being said, after my meetings today and yesterday I think there are indeed more compelling and worthwhile deals that are fully baked and ready to go than I had anticipated as of Monday night. There are also a handful of NGOs (some of whom are transforming into, or have part of their structure as an NBFC) that have built up a unique body of social development activities, from teaching clients more productive livelyhoods or farming methods, to creating fair trade market linkages between craftsmen and their end buyers.

Vijay Mahajan, Chairman of BASIX, made an interesting comment about these activities today, likening the non-profit NGOs who pioneer them to the research and development labs of companies. He pointed out that their non-profit status in fact allows them greater flexibility to experiment with new products or social development activities without being pre-occupied by a myopic focus on portfolio growth, operational efficiency, and the profitability of their core loan product.

I couldn't agree more, and today I got to meet a number of socially-rooted but increasingly professionally-run organizations whom I am warming up to as an equity investor, because they seem to be doing some of the really innovative stuff which ironically can be more valuable to a client in real rupee terms, than pure stand-alone credit. Eventually clients will be willing to pay for these services and there will be markets for them, be they education products, agricultural methods, or supply aggregation and distribution related services. Cutting edge Indian MFIs, many of whom are at least partially socially motivated, will be the innovators and service providers in these markets as well as the gateways for outside investors and companies who are looking to access them.

A final note. I found it pretty humorus that a phrase from my post late last night, my tongue-in-cheek, mention of some "hard core, bare knuckle private equity investors" at the conference generated a bit of a stir. Of course as regular readers of my blog know, I too have the distinction of having been "hard core and bare knuckle," in my former life as an investment banking analyst in San Francisco. Although my knuckles were generally white from pulling all-nighters and not negotiating term sheets, indeed, they were bare and often hard-pressed to deliver valuation work for our clients. I hope my readership gets a boost from the 'chuckles over knuckles.'

See you next year at the conference in Delhi, if not before before then somewhere on the streets or in the field...

Microfinance India 2007: Great Expectations

It's Microfinance Day in India.

The annual Care Microfinance India Conference is in full swing in Delhi, and what a conference it is. My colleagues joked with me today that there were a lot more suits (and "gauras") in attendance this year than last. There's also a lot more people in general, 600 paying attendees as opposed to a couple hundred last year. And this year the organizers have built a separate investment conference with booths full of investors and microfinance organizations, of varying levels of professional background, social and commercial orientation, operational size and product scope.

And I've had a great time meeting entrepreneurs of all shades and stripes. This is honestly one of the most interesting collections of people I've ever been part of in my life. I split my time today between social activists who've built womens' empowerment co-operatives in rural India, and hard core, bare knuckle private equity investors from Dubai, Bombay and New York. I've also met a few unique microfinance institutions who are doing a wonderful job of balancing social and commercial objectives in this increasingly crowded, noisy and confrontational environment, where social entrepreneurs are besieged on all sides by commercial investors, consulting organizations, grant and donor agencies, and slow-starting Indian state banks hungry for a late stage piece of the pie after having underestimating these social microfinance entrepreneurs for the last 20 years.

The Indian Finance Minister, Mr. P. Chidambaram (pictured above) started things off this morning with a brief and diplomatic address, addressing some concerns about the industry's increasingly commercial direction, and encouraging the expansion of non-profit and NGO microfinance efforts.

But the rest of the day belonged to India's Microfinance practitioners. Vijay Mahajin, Vikram Akula, Chandra Shekar Ghosh, and dozens of others -- socially motivated individuals who've built (or are building) organizations to provide the last mile of financial services to India's poor, lower income, and generally underserved clients of financial services.

I'm looking forward to seeing this conference in another year. My enthusiasm for the sector continues to grow, particularly for those entrepreneurs who have a long term view on their clients, their organizations, and their investors and capital structures.

This is a dynamic and fascinating place to be and I'm very optimistic about the future. Looking forward to day two of the conference tomorrow.

Call me if you're in town and want to catch up on what's going down. 99 1070 4504

If so, see you on the 3rd floor of the Ashok Hotel... I'll be at the Lok Capital booth.

Back Online in the Valley of the Kingmakers

 

I was in the San Francisco Bay Area for most of last week, visiting friends and family, meeting some companies and investors and getting in touch again with a bit of the American West Coast technology scene.

There were cocktail parties full of twenty-something entrepreneurs chatting up silver-haired VC Gurus. And a long drive speeding down a California highway takes you past green landscapes dotted with shiny, expensive sports cars and white-washed million dollar houses tucked into hanging gardens, down into the Valley that spawned Google, Apple, Facebook, YouTube, EBay, Yahoo and thousands of other wildly successful, world-changing startups.

Its a different world out here than from where I've spent the last year.

The moon was full last Wednesday as I walked down a San Francisco street on the way to my favorite Chinese restaurant. It made me think about the last time I'd looked up at the sky looking for a clue as to where I was and what was happening around me.

That was Eid, the Muslim festival celebrating the end of Ramadan (which is coming the second week of October this year) and it was heralded not by a full moon, but instead by a slim, sliver of a crescent, a symbol instantly recognizable as Muslim and often found sprouting from the tops of minarets across Asia and the Middle East.

But the streets here are not bustling with oxen carts and vegetable vendors, worshipers and wandering holy men. Instead it's yuppies and techies, bankers and lawyers, and beautiful Californians drinking really, really good wine.

Back in Bombay by Friday...