Puget Sound Investors Realize Social And Financial Returns From Microfinance Investment Fund

Global Partnerships’ first fund provided five years of double-bottom-line returns

Seattle – Today, Global Partnerships (GP), a Seattle-based nonprofit that invests in high-performing, socially focused microfinance institutions in Latin America, announced that the cycle of its first $2 million microfinance investment fund has been completed, less than five years after the fund was closed. As of last week, Global Partnerships had repaid all investors to Microfinance Fund 2005, either on time or early, with interest.

“This is a watershed moment,” said Rick Beckett, president and CEO of Global Partnerships. “When GP closed our first fund, we were testing the idea that an investment fund strategy could help us reach more people living in poverty and provide social and financial returns for investors. Five years later, we have launched three funds and have $39 million invested in microfinance institutions serving more than 800,000 people with affordable microcredit and other innovative solutions.”

Global Partnerships, founded in 1994, created its first fund, Microfinance Fund 2005 (MFF05), after realizing that philanthropic capital alone would not be sufficient to meet the demand for affordable microfinance capital. Like GP’s two subsequent funds, MFF05 was a five-year debt fund that leveraged philanthropic dollars to raise resources from qualified individual and institutional investors, and then loaned that capital to select microfinance institutions (MFIs) in Latin America.

Investors in MFF05 included two institutional investors as well as 22 individual investors, most of who are from the Puget Sound area. Those investors received an annual fixed-income return over the life of the fund. The capital was loaned to eight microfinance institutions in Central America, which together reached more than 150,000 borrowers when the fund was fully invested.

“GP’s microfinance funds are demonstrating that doing well and doing good are not mutually exclusive,” said Jeff Keenan, a Puget Sound investor who has invested in all three of GP’s funds to date. “Investing in GP funds has allowed me to earn a reasonable rate of financial return and positive social returns.”

Stuart Rolfe, another Seattle investor in MFF05, said: “My wife and I were thrilled that there was an opportunity to invest in a fund that provided resources for Latin American families in need while receiving a fixed-income return. We’ve traveled to some of the areas where Global Partnerships works and have seen firsthand the professionalism and thoroughness of GP’s due diligence and the impact on families who have benefited from their programs.”

GP’s Rick Beckett noted that socially motivated capital from Global Partnerships funds serves a key need in the microfinance industry, which has seen an influx of commercial capital in recent years. “Commercial capital has expanded access to microfinance, but tends to flow to the most profitable microfinance institutions that don’t reach the most vulnerable people with the highest-impact solution,” he said. “In contrast, Global Partnerships invests in microfinance institutions that reach underserved markets and combine microcredit with other services that help people improve not just their livelihoods, but their lives.”

The 2005 fund invested in microfinance partners such as El Salvador’s Enlace, which serves the poorest segments of the population with small loans at low interest rates; and Honduras’ ODEF, which combines microcredit with training, technical assistance and access to basic health services.

Founded in 1994, Global Partnerships (GP) is a Seattle-based nonprofit organization that expands opportunity for people living in poverty by investing capital and management expertise in socially motivated microfinance institutions. GP currently invests in a portfolio of 27 MFIs in seven countries that are selected against a set of stringent financial and social criteria. Since launching its first fund, GP has increased the amount of capital invested in microfinance institutions to just under $39 million, as of March 31, 2010. GP expects to close a fourth social investment fund in the next two months. Find out more at www.globalpartnerships.org.

by Danielle Ellingston and Linda Martin, Global Washington Volunteer

On June 11, Global Washington hosted one of 2 U.S. based consultations, as part of The Open Forum, an initiative driven by a global coalition of CSO’s, whose goal is “to define and promote the roles and effectiveness of the CSO sector in development, based on a shared framework of principles”.  The Seattle based consultation was one of hundreds of consultations occurring in over 50 countries by the end of 2010.   

Sixteen people attended the consultation, and provided insight and recommendations in three areas:  

1) Global Principles of CSO Development Effectiveness.
2) Best Practices and Methods for Implementing Principles.
3) The Enabling Environment for CSO Success.

What Defines a CSO?

The consultation kicked off with a discussion on the term, “CSO” which can be somewhat nebulous. The general consensus is that CSO is a broad umbrella term for organizations outside the government seeking to affect change in their society. Open Forum builds on this definition,”CSOs represent the engagement of people who have organized to promote human dignity and accompany people around the world in efforts to realize human rights and fundamental freedoms.”

Two recommendations which surfaced during this discussion include ensuring inclusion of the voices of local CSOs throughout the Open Forum process, whether they are formally recognized or informally constituted; and to more clearly delineate the roles of the Global North and Global South CSOs.

Principles of CSO Development Effectiveness.

Participants first reviewed a set of draft principles offered by InterAction, the organization coordinating the U.S. CSO response, before opening up the meeting to additional ideas for common principles. A lively dialogue followed, reflecting the group’s passion for inclusion, relationship building, and locally based leadership as keystones for successful CSO development efforts.

We offer the following 4 principles for consideration:

1.       Include local grassroots voices.
Allow local CSOs in developing countries a greater voice in the Open Forum, and in the design and application of development policies. These measures can help ensure long term, sustainable development solutions.

2.       Embody respect for local traditions and cultures.
Local people are the primary agents of change in their communities, not outside organizations. To develop culturally appropriate solutions, we must first learn about the existing conditions and forces – political, environmental, and familial – that created a need for assistance. Respect the local process for identifying needs, gathering information, implementing projects, and ensuring accountability.

3.       Consider impact on community and long-term relationships.
Increase the focus on long term project impact and outcomes. Aim to build relationships, trust, and leadership in a community, and not harm existing relationships or relationship structures.

4.       Build local capacity by letting locals lead.
Employ local people as the leaders of local projects whenever possible.  Include local voices at all stages of the development project life-cycle. 

 Implementing CSO Development Principles

1.       Be accountable by local standards.
Accountability measures must be informed by local norms. Define success well, using the local definitions of success. Increase grassroots participation and downward accountability in CSOs. Understand local assessment methods, and base monitoring and evaluation on those methods.

2.       Incorporate cultural capacity building training and ongoing coaching as a prerequisite for project planning and development, and monitoring and evaluation activities.

3.       Include relationship building goals and milestones, such as building trust, collaboration, and cross-sector and cross-issue solutions, as indicators of success.

 Standards Which Support an Enabling Environment for CSO Success.

1.       Increase donor responsiveness to local norms for accountability and data indicators, collection and use.
We believe donors need to do a better job of balancing the need to ensure funds are wisely spent, with increased sensitivity to the capacity of recipient organizations to provide such data. Data collection is often considered a resource drain on recipient organizations, and increases the administrative/overhead cost of running a project. Reporting requirements should not place an undue burden on recipient organizations.

Moreover, we encourage donors to consider local standards for accountability. Input from some consultation members suggests that funders collect too much data, with little explanation of what the data will be used for, and that decisions are sometimes made without using the data that was collected. We recommend that funding entities consider collecting less data, and using what is collected more thoughtfully.

We also encourage donors to be more transparent by sharing with recipients why certain indicators are chosen and how data will be used.

2.       Fund for long-term community development, with built in flexibility.
The funding process, from application to evaluation, should create incentives for programs that have a long-term positive impact on community and relationships.  We encourage programs which are nimble and responsive to the changing needs of communities, that offer greater flexibility in how funds are spent, and that are developed in partnership with local CSOs who have a hands on understanding of local conditions.  

Participants indicated that organizations are often hindered by donor funding schedules, preventing locals from addressing pressing needs. We recommend developing more responsive funding timelines which address time-sensitive needs, along with longer term programmatic support to help support sustainable outcomes.

3.       Support transparent and accountable hiring practices.
Ensure that CSO staff work in the interests of the organization’s mission; hire DSO staff on the basis of their qualifications.

4.       Be fair and inclusive.
Promote respect for local professionals and equality between north-south partners.

5.       Develop the cultural capacity of non-local DSCOs to help ensure effective use of resources. Increased cultural competency will help experts to work within local structures more effectively and with each other.

One of the most interesting ideas that came out of the discussion was the suggestion to move towards a resource or asset based development approach. CSOs would identify assets and resources available  to support development activity, along with capacity building programs to build local assets, essential for sustainability. Such an approach would take into account the resources and skills local and non-local CSOs bring to the table, making projects more geared to local capacity while facilitating an exchange of skills and ideas that would benefit both. Based on the assessment, capacity building programs can be put into place to build local assets, which are considered essential for sustainability. As one participant noted” Sharing power with the local leaders is integral to formulating an effective strategy in the field”.

Next Steps

InterAction is combining the recommendations from our Seattle consultation with the ideas that came out of the two-day consultation in Washington, DC, and will write a report based on the outcome.  They will present this report at the Open Forum Global Assembly in Istanbul, Turkey in September 2010.  Stay tuned for updates.  For further information, please refer to the links below.

The Open Forum
Interaction
2005 Paris Declaration on Aid Effectiveness
Accra Agenda for Action (AAA)

Written by Brett Walton, who writes for Circle of Blue, a network of journalists, scientists and communication design experts reporting on global water issues.

What is a clean watershed worth? Nature lovers might say ‘priceless’, but the emerging consensus among global conservation experts is that the best way to preserve an ecosystem is to put a price on it.

The buzzphrase in international conservation is ecosystem services; that is, the things nature does that are beneficial to humans. Proponents divide the concept into four service categories: provisioning (e.g. timber, food), regulating (maintaining water quality, controlling floods), supporting (pollination, photosynthesis), and cultural (recreation, beauty).

Because these services are not traded on markets, their value is often neglected in corporate and governmental balance sheets. For example, a city might clear-cut a forest or drain a wetland to build a factory. The factory has clear economic metrics: jobs created, output, construction costs; but the ecosystem is usually described obliquely and does not factor well into cost-benefit equations. If we had a way to quantitatively assess the environment, maybe that factory doesn’t get built because the wetland is more valuable as a climate-regulating, water-purifying, flood-controlling, tourism-inducing bird habitat.

To redress this, researchers are now looking at putting a dollar figure on the benefits from natural processes. Programs such as the United Nations Environment Program’s The Economics of Ecosystems and Biodiversity hope that better valuation of the environment will lead businesses and governments to make better development decisions. A corollary to the idea is that an ecosystem is an asset that land owners are paid to preserve.

This shift in thinking is particularly important for watersheds. In my last post I wrote about problems with clean drinking water. Globally, 75 percent of freshwater supplies come from forested catchments. Payment for ecosystem services (PES) can play a huge role in improving source quality. New York City does not have to filter its water supply because of a watershed restoration program that involved purchasing forests and paying land owners for best management practices. The cost of the restoration program: US$1 billion. The cost of a water treatment plant: US$8 billion, plus US$300-500 million annual maintenance. More than one-third of the world’s largest cities get their water supply from such protected forests.

Not only is it good government policy, it is also good business. Evian and Vittel, two bottled water companies, use payment for ecosystem services to reduce treatment costs at their bottling plants in France. The companies have contracts that pay upstream farmers per hectare to use organic fertilizers and pesticides. Preventing pollutants from entering the rivers and aquifers by paying the land owners for the fertilizer cost difference is cheaper than removing them.

These types of payments are most common in Latin America, the United States and China, according to a recent report by Ecosystem Marketplace quantifying PES transactions for water quality. The report found that US$9.3 billion was paid to land owners in 2008. The Chinese government’s Conversion of Cropland to Forest and Grassland program, accounting for 40 percent of its seven-fold increase in water quality PES in the last eight years. The benefits, as measured in economic terms, are substantial. The UNEP’s report on ecosystem restoration argues that well-managed projects provide returns of 7 to 79 percent.

Tracy Stanton, who wrote the Ecosystem Marketplace report, told me in an interview that the market-based approach helped to bring together people who would not normally cooperate.

“With a market system we start from a point of shared stewardship instead of being told by the government to meet a permit volume,” Stanton said.

The PES model is far from perfect. There is much debate on what to include in the valuation calculus: the proper temporal and spatial scales, discount rates, and proper valuation method. Despite the uncertainty, the PES model should continue to grow. It gives land owners incentive to preserve vital spaces, and couches the costs and benefits in language decision-makers are accustomed to using.

“The United States needs a national strategy to clarify the goals of foreign aid, trade policy consistent with those goals, an easier process for small businesses to participate and support for international education programs,” according to a set of recommendations for improving the effectiveness of U.S. foreign aid assistance released Tuesday by the Seattle-based non-profit Global Washington, the Seattle Times reports. More than 40 development experts worked together to create the policy paper (.pdf), titled “Global Development through Aid, Partnerships, Trade and Education: Recommendations from Global Washington,” in response to a request by Sens. Maria Cantwell, D-Wash. and Patty Murray, D-Wash., the newspaper notes. Cantwell and USAID Chief Innovation Officer Maura O’Neill joined representatives of Global Washington on Tuesday to discuss the report.”

Seattle Non-Profit Recommends Strategy For Improving U.S. Foreign Aid Efficacy
Kaiser Family Foundation Daily Global Health Report | July 07, 2010

One might not usually expect to find an indoor auditorium packed to capacity on a beautiful sunny, Seattle summer afternoon. But on July 6, Seattle University’s Pigott Auditorium was filled to capacity as Senator Maria Cantwell and Maura O’Neill, Chief Innovation Operator of USAID headlined the release of Global Washington’s policy paper; “Global Development through Trade, Aid, Education, and Partnerships: Recommendations from Global Washington.” This paper was designed to provide policy makers with the knowledge and tools with which to reform a broken foreign assistance system.

After an introduction by Stephen Sanborg S.J., president of Seattle University, Senator Cantwell highlighted the importance of Global Washington’s activity in a state that is deeply connected with the world around it. With a culture of unbridled generosity, caring, and innovation, Senator Cantwell believes Washington State is well positioned to provide recommendations to the policy makers in Washington DC on issues of development. As Senator Cantwell recognized, it is very uncommon for constituents to provide their elected officials with clear policy recommendations and a plan to enact those policies. Thus Senator Cantwell committed herself to play her part in promoting these recommendations. To raise awareness of the need to reform the foreign aid system, Senator Cantwell promised that she and Senator Patty Murray would work together to ensure policy makers such as President Obama, Secretary of State Hilary Clinton and important Congressional leaders consider these recommendations.

Senator Cantwell noted that with only 1% of the federal budget, foreign aid funding must be spent as efficiently as possible to ensure development objectives are met. Development projects must be crafted to ensure aid reaches the intended targets, that aid is measurable and that future development strategy is formed on results. Given President Obama’s understanding and commitment to strengthening development alongside diplomacy and defense, Senator Cantwell believes there is no better time than now to reform foreign aid. Referencing a local Native American saying, “Alki,” Senator Cantwell ended by saying “Global WA is giving hope for everyone in the future.”

After Senator Cantwell’s speech, a panel of leaders in the development community convened to discuss the main recommendations of the policy paper. Jennifer Potter, President and CEO of the Initiative for Global Development, opened the panel discussion by noting the need to make foreign aid a main priority of the U.S. government. To accomplish this task, Ms. Potter offered several primary recommendations of the policy paper. Most notably, Ms. Potter expounded the need to create a national development strategy that would incorporate various policy sectors such as trade, aid, and agriculture. Ms. Potter also voiced the importance of targeting aid to those most in need and ensuring the local ownership of aid projects, a central tenet of the Millennium Challenge Corporation.

Steve Crane, president of Crane International, focused on trade as it relates to development policy. While noting there is still much to be done to achieve the goals of development, Mr. Crane believes trade is an important factor in achieving development. As such, Mr. Crane highlighted the need to target aid to build the capacity of local entrepreneurs as a means to achieve sustainable economic growth. Mr. Crane also noted the need to grant the poorest countries duty-free access to U.S. markets.

Given that education correlates to positive trends in society such as improved health, higher levels of economic growth, and increased democracy, Steve Hanson believes global education policy must be incorporated and coordinated with development policy. Scott Jackson, of the Rural Development Institute discussed the need to improve public-private partnerships in the development community. To ensure partnerships work as effectively as possible towards achieving development goals, Mr. Jackson offered the recommendation that a directory of all opportunities to work with the government be created. Such a tool would clearly delineate the roles of all organizations and facilitate a stronger public-private partnership.

The panel discussion ended with a speech by Maura O’Neill, the Chief Innovation Officer at USAID, calling on Washington State to harness its bountiful sources of innovation to work towards achieving development objectives. For local ownership of aid projects to work with sustainability, Ms. O’Neill believes a dialogue must be in place between donors and local leaders in which a free exchange of ideas exists. Simply fulfilling the requests of the locals can often be counterproductive to the goals of the development project. Ms. O’Neill also informed the audience of the current administration’s policy shift from a focus on basic education, to a focus on higher education. Another important concept of development Ms. O’Neill discussed was scale. The development community must learn how to build development models that can be scaled-up and apply to a larger population.

With such a large turnout from Washington State’s development sector, it is apparent that the issue of foreign aid reform is of paramount concern to the global development community. Hopefully, as this policy paper makes its way to the political arena of Washington, DC, policy makers will awaken to the pressing need of reforming the bloated and fractured U.S. foreign assistance structure.

To read the full version of our policy paper and other publications of Global Washington, please visit our website.

“Global Washington today will release its policy paper Global Development through Aid, Partnerships, Trade and Education: Recommendations from Global Washington, which provides recommendations for improving the effectiveness of U.S. foreign assistance.”

Global Washington Releases Recommendations For Improving U.S. Global Development Efforts
Fox Business News | July 06, 2010

“Global Washington today will release its policy paper Global Development through Aid, Partnerships, Trade and Education: Recommendations from Global Washington, which provides recommendations for improving the effectiveness of U.S. foreign assistance. The recommendations draw on Washington’s status as an international leader in the growing global development sector and were prepared at the request of Sen. Maria Cantwell (D-Wash.) and Sen. Patty Murray (D-Wash.).”

Global Washington Releases Recommendations For Improving U.S. Global Development Efforts
Puget Sound Business Journal | July 06, 2010

“The system of U.S. foreign aid is broken, Seattle experts on development issues say. Now local nonprofits, businesses and educational institutions hope to have a direct impact on how it’s fixed…Those recommendations from Global Washington, a Seattle association of 120 groups working in the field of global development, were released Tuesday and discussed by U.S. Sen. Maria Cantwell and others in a forum at Seattle University.”

Local Organizations Weigh In On Global Summit Failures
The Seattle Times |  Kristi Heim | July 06, 2010

Unitus Redirects Efforts From Non-Profit Microfinance Acceleration Toward A
Broader Array Of Social Ventures

• Innovative non-profit helped shape and validate microfinance as a viable commercial activity, increase access to investment capital for working poor; with tens of billions of dollars in commercial capital now available in the microfinance industry, Unitus will refocus efforts to other scalable solutions to global poverty

• Over nearly 10 years, Unitus has directed $40 million in donations and almost $30 million in investment capital to strategic microfinance partners

• Unitus strategic partners have channeled $2 billion in loan capital to more than 12 million clients, most of whom live on a few dollars a day

• New activities will adhere to the vision of positively impacting the greatest number of the world’s poor through innovative, highly leveraged solutions that are currently not widely available in the marketplace

SEATTLE, BANGALORE and NAIROBI (July 2, 2010) – Unitus today announced that it will suspend its micro-finance acceleration activities and shift its resources and activities to areas of maximum socio-economic impact for underserved people throughout the world that have yet to attain either scale or commercial viability. After fulfilling current partner commitments, the organization will release its staff of nearly 40 individuals in its Seattle headquarters and its Bangalore, India and Nairobi, Kenya field offices. Remaining assets will be directed into new early-stage, poverty-focused philanthropic activities.

“For the past decade, Unitus has been working to increase access to capital for the working poor, under the central premise that this vast, underserved segment of the world’s population was a good investment and could be well-served by commercial capital providers,” said Joseph Grenny, chair of the board for Unitus. “We are gratified that this core belief has been validated—capital markets have embraced microfinance to the extent that there are tens of billions of dollars in microfinance capital now available annually, with additional providers entering the marketplace at an aggressive clip. We now feel that there is greater need for our capital and energy in other areas—which we are currently exploring—aligned with our overarching mission of alleviating poverty through opportunity.”

Since its launch in 2001, non-profit Unitus has played a significant role in the development of viable business models for microfinance that have been instrumental in attracting a host of commercial lenders and investors to what was previously a significantly underserved marketplace. The organization employed rigorous due diligence to identify microfinance institutions (MFIs) that could serve as strategic partners in India, Southeast Asia, East Africa and Latin America. Unitus then helped accelerate the development and growth of these MFIs through the deployment of grants, guarantees, “catalytic” equity and debt capital, and strategic/operational consulting.

In turn, these partner MFIs have deployed capital for the benefit of the working poor. The Unitus MFI partners have collectively lent in excess of $2 billion in microfinance capital to more than 12 million clients. Unitus hoped that by demonstrating the commercial viability of microfinance, they could encourage capital markets to take an interest and provide greater capital funds than the nonprofit sector was capable of generating. Today a significant portion of microfinance loan portfolios globally are funded by commercial rather than donor dollars.

To achieve its demonstration goal, Unitus also started and spun off two groundbreaking microfinance-oriented organizations that helped further solidify the viability of microfinance as a commercial business model, both of which continue to grow and evolve: the Unitus Equity Fund (now managed by Elevar Equity), a private equity fund; and Unitus Capital, a boutique investment bank.

“The fact that we have become largely unnecessary in the microfinance arena is fantastic news and is a tribute to our generous, enlightened donors and the phenomenal staff at Unitus, who worked tirelessly to validate and refine the microfinance model, and advance the operations of our partners,” said Ed Bland, President and COO for Unitus. “Brigit Helms, our outgoing CEO, merits our gratitude for her outstanding leadership in surveying the global socio-economic landscape, evaluating future options for Unitus and working with the staff to assure that our partners are on solid footing. Outgoing members of the Unitus team can now leave with the assurance that they have contributed to a tremendous legacy of success here, prepared to make a continuing positive difference in the world.”

As Unitus transitions away from microfinance to other strategic areas, Geoff Woolley, a former Unitus board member, will serve as future CEO for the reinvented organization. Bland will remain in his role as acting President and COO. Helms will serve as a key advisor during the organization’s transition. The Unitus Board and executive team are currently considering various strategic opportunities, with the goal to maximize the socio-economic impact for those currently not being served in today’s marketplace.

Nearly two months after the draft Presidential Study Directive (PSD) on development was leaked, the White House is showing a strong commitment to reforming the U.S. foreign assistance system. At the G8 summit in Muskoka, Cananda, President Obama issued a statement outlining his objectives in reforming the U.S. global development strategy entitled “a New Approach to Advancing Development.” Like the draft PSD, President Obama’s new approach would place a greater emphasis on research and innovation, tailor development strategies to specific conditions in the field, and hold all aid recipients accountable for results.

Unlike the leaked PSD draft, this new development approach explicitly exemplifies all four of Global Washington’s Principles of Aid Effectiveness; consolidation and coordination, transparency and accountability, targeting to those most in need, and local ownership. By strengthening multilateral capabilities, the U.S. can consolidate resources and increase donor coordination. Using data and analysis from strong monitoring and evaluation mechanisms to guide policy will help to make the process more transparent and will increase both donors’ and recipients’ accountability to results. President Obama’s new development strategy will also target aid to select countries, regions, and sectors and emphasize local ownership of development projects.

Missing from this strategy, however, is any mention of institutional reform of the U.S. foreign assistance structure. Without addressing the tangled and unwieldy web of U.S. departments and agencies charged with carrying out U.S. development programs, the goals of President Obama’s new development strategy may not be met. Such reforms will most likely be taken up by the highly anticipated development policy directive to be released in the near future. Until the official policy directive is released, “a New Approach to Advancing Development” acts as a strong framework of objectives to be met by a new U.S. foreign assistance strategy.