Tag Archives: Microfinance

MicroCredit Enterprises to grow to a $100 million guarantee fund – Interview with Jonathan Lewis, CEO of MicroCredit Enterprises

4 Dec

Jonathan C Lewis

Jonathan C Lewis

 

 

 

Bhalchander: We have with us today Jonathan Lewis, who is the CEO of MicroCredit Enterprises. MicroCredit Enterprises is committed to reducing poverty by mobilizing private investment capital to finance micro-businesses throughout the world.  Jonathan – Congratulations on winning the Social Venture Innovation award and for being recognized as an honoree by the World Affairs Council of Northern California. And thank you for taking time from your busy schedule to be with us.

 

Jonathan Lewis:  Thank you for your own commitment to economic justice and for inviting MicroCredit Enterprises to this interview. 

MicroCredit Enterprises is deeply honored to be recognized for our pioneering social venture model.  In three years, we have created a stable financing model which is sustaining 100,000 microloans reaching 500,000 poor individuals (89% of whom are women and children) via 28 MFIs partners in 15 nations on 4 continents without needing a single dime of donations, grants OR investment.  In the end, as proud as we are of these awards, our lasting pride comes from knowing that literally thousands of children will go to bed tonight without the pang of an empty tummy and their mothers will awake tomorrow to a more hopeful life. 

 

Bhalchander : I read that Microcredit Enterprise utilizes ‘idle capital’ to help the poor. It is a very interesting concept to take something which is idle and use it for public good. Can you tell us more about your innovative model and Microcredit Enterprises?

 Jonathan Lewis:  Because poor women do not have collateral or credit histories, MicroCredit Enterprises Guarantors – the key program benefactors — pledge collateral assets and personal guarantees (not a donation or grant) to back loans to MicroCredit Enterprises that are used to fund an overseas microfinance loan portfolio.  Our Guarantors realize returns in the open market, manage their own funds and simultaneously support about 5,000 small entrepreneurs. 

 In the event of an overseas financial loss, each Guarantor bears the tax-deductible loss on an equitable, pro rata basis with all other Guarantors.  Guarantors do not realize a return on the guarantee risk, but do maintain complete control of their assets, thus receiving all investment returns from their portfolios.

 

Bhalchander:  In how many countries does Microcredit Enterprises operate currently and how have you chosen the countries to operate in?

 Jonathan Lewis:  MicroCredit Enterprises is in 15 nations diversified across 4 continents.  The special focus is sustainable economic development for families living in extreme poverty ($1.00 per day or worse), so our lending criteria are, first and foremost, targeted to reach overseas microfinance partners in rural areas with high numbers of deeply impoverished women.  Secondarily, we apply strict geographic diversification to minimize risk.  Since MicroCredit Enterprises is entirely open source, your readers can visit our website  to study our specific criteria, loan process and evaluate what we have accomplished and – if they wish – build on it.

 

Bhalchander: What were the biggest challenges you faced in setting up and growing Microcredit Enterprises? How did you tackle them?

Jonathan Lewis:  The steepest hill to climb, which still exists today, is explaining our new model, a new funding paradigm.  Since MicroCredit Enterprises depends on neither donations nor social investments, we have an important educational job to explain how a foundation, high net worth individual or company can directly impact lives around the world without writing a check. 

 The solution?  Patience, and old-fashioned, low-tech guerilla marketing by word of mouth.  

 

Bhalchander :  You were a very successful business executive before you started MicroCredit Enterprises. Can you tell us a little bit more about what you did before starting MicroCredit Enterprises?

Jonathan Lewis:  My last commercial venture was an international knowledge company in the healthcare field.  Among other services, we organized trade missions to other countries to investigate healthcare systems and business opportunities and hosted the International Summit on Public-Private Healthcare Partnerships.  The Summit was attended by delegations from about 80 nations.  One day I realized that I cared more about the people who get no healthcare at all.

 

Bhalchander: In your experience what is tougher and why – running your previous organization or setting up and growing Microcredit Enterprises?

Jonathan Lewis:  Both are tough, but in different ways.  All businesses, social or otherwise, and all nonprofits serve multiple stakeholders:  shareholders, customers, the larger community interest, etc.  A social venture adds mission clarity, but – as the adage goes – “no margin, no mission”. 

 

Bhalchander: In the last few months, everyone’s attention has been on the economic crisis. Microfinance is also seeing a lot of changes – there is private equity and venture capital coming in. Are there any new kind of risks Microfinance faces and something we should all watch out for?

Jonathan Lewis:  Microfinance is not immune from the turmoil in the financial markets.  MFIs are indicating that the biggest challenge resulting from the global financial crisis will be securing new financing and rising interest rates which ultimately have to be passed on to impoverished borrowers.  Stories already abound about MFIs losing commitments for funding from so-called mainstream lenders and banks. 

 For some MFIs in select countries, foreign currency exposure is becoming a more serious risk.  In recent years, the weak dollar has largely muted this concern.  No longer will that risk factor be so easy to overlook or ignore.

 In general, microfinance will soon discover that private capital flight risk is real.  Indeed, I predict that the microfinance intelligentsia will mute the complaint about public capital “crowding out” private capital, an argument that actually has never made much sense either economically or in terms of social mission.  Hopefully, in the future microfinance thought leaders will be more respectful of the need for stable, socially committed capital, whatever its source.

 For a quick overview about microfinance, visit the MicroCredit Enterprises Study Center.

 

Bhalchander: What advice would you give to up and coming entrepreneurs and social entrepreneurs?

Jonathan Lewis:  To dream.  Listen to everyone, but trust your instincts.  Hang on to your core beliefs and live them intensely and everyday through your venture.  Keep moving. 

 

Bhalchander: And my last question, what are your future plans for Microcredit Enterprises?

Jonathan Lewis:   One, MicroCredit Enterprises will grow to a $100 million guarantee fund (or one percent risk exposure per Guarantor unit of $1 million).  That will mean roughly 2.5 million people with food security.  Two, in 2009, MicroCredit Enterprises will become an offering on the new, very innovative MicroPlace.com website which allows individuals to earn interest from microloans. 

 

Bhalchander: Thank you very much for being with us. We are all very happy that MicroCredit Enterprises is making the world a better place. We wish you greater and bigger successes.

 

You will also find this interview posted on http://www.mykro.org

Just do it

7 Nov

Continued from United Prosperity – The birth of an idea.

 

At the IIT conference which I attended, I got an opportunity to bounce the idea with several people. As with most IIT conferences, the enthusiasm was infectious and that got me even more excited. I quickly wanted to start validating the idea.

 

I did not know anyone directly working in microfinance and started looking up my contacts. Meanwhile I explained the idea to Michael Laycock, a colleague of mine at PMI.   Michael was a Subject Matter Expert at PMI and we had worked together on a couple of large projects. His knowledge of finance was immense and he was an expert in operations, accounting and business processes with a keen grasp of technology.

 

‘This is a workable idea’, he said. ‘This is about socially responsible investing, which is rapidly growing. Basically this is about people in the developed world stepping up to their plate and taking some more responsibility.  I don’t mind putting some money to help poor but hard working folks in the developing world and I am sure there would be others interested in doing the same thing’. And then very graciously he told me ‘I will help you with this idea if you ever decide to pursue this’. He then went on to explain in intricate detail of how I could apply for a brokerage license to do this or even better partner with a brokerage or bank to make this happen.

 

I also found out that Prof. Srinivasan, who taught me at management school, was deeply involved in Microfinance. Prof. Srinivasan, had joined IIM Bangalore where I studied, from Institute of Rural Management Anand(IRMA) and already had several areas of experience working with co-operatives and the rural sector in general. I wrote to him about the idea seeking his inputs and validation. His thoughts were that guarantees for microfinance institutions are relatively low risk, but there was always going to be political risk. He mentioned the case of how microfinance lending had halted for several months in the state of Andhra Pradesh in India. I set up time to talk to him and I had prepared nearly two dozen questions for him.

 

He answered each of the questions patiently and also gave me a detailed overview of the scenario in India. Most of my concerns were also addressed to a reasonable degree.

 

I had run out of specific questions and also accumulated simply too much information in my head. I finally asked him, ‘What would be your advice?’

 

‘Just do it’ he replied.

 

I let all the advice sink in over the next couple of days. I was already thinking how I would go about executing this.

 

More later, and thanks for stopping by.

United Prosperity – The birth of an idea

6 Nov

Let me introduce myself and share with you the story of the birth of United Prosperity. My name is Bhalchander Vishwanath, ‘Bala’ to folks who know me. I came to the US from India 8 years back almost to this day. I worked with MphasiS and subsequently Infosys, building large software systems for financial institutions.

 

On the side, I kept coming up with startup ideas and would spend several months researching them – an innovation and idea management system, a website for comparison shopping of elective medical procedures and many more. I would typically spend 3 to 4 months researching each idea and then evaluate whether I should seriously pursue it further.

 

In 2006, I was working as a consultant with PMI, a Mortgage Insurance Company.  Borrowers who have poor credit scores and cannot put the 20% down payment towards a home  cannot get a mortgage. However, if the borrower or the bank buys mortgage insurance from PMI, the bank will make a loan to the borrower and the borrower can enjoy home ownership. Over the years, Mortgage Insurance or Guarantee as it is called has significantly expanded home ownership in the US.

 

My idea was simple, if guarantees could help people buy homes, why cannot guarantees help poor people get small loans from banks? I had heard a little bit about microfinance and I felt these guarantees could also expand the reach of microfinance. I started reading literature on microfinance and would spend endless hours reading articles and papers I could find on the internet.

 

Sometime in 2006, it was also announced that Prof. Mohammad Yunus, the pioneer of microfinance, had won the Nobel prize and that increased excitement in the field. But I soon realized that I had hit upon a massive roadblock – An organization which plans to offer guarantees needs to have adequate capital. How do I raise the several million dollars to set up a guarantee fund? I was a little disappointed that I had hit this seemingly un-surmountable road block and decided to move on to finding the next idea.

 

The next few months I spent time conceptualizing a website which would measure one’s carbon footprint.  It would be integrated with a recommendation engine which will then suggest upgrades to household appliances, changes in lifestyle etc. By then http://green.yahoo.com was launched. It had similar features though a little more basic than what I had envisaged. There was also another well-funded project on similar lines being done by UC Berkeley. Given these, I was not sure if my idea could compete against these well funded ventures.

 

I came back to the earlier microfinance guarantee idea – it simply would not go away. I continued to read more on guarantees and microfinance and figure out how I could raise funds for the guarantee fund. Sometime in April of 2007, I came across Prosper.com and a few days later Zopa and Kiva. Peer to peer lending fascinated me. Instinctively I realized that this held a clue to solving my problem, but I did not know how. By then I also became familiar with the guarantees offered by Grameen foundation and Accion. I also learned that the smaller Microfinance institutions (MFIs) were not having adequate access to capital and no organization was offering guarantees to smaller MFIs. This was a problem waiting to be solved.

 

But after all this research by June 2007, I was beginning to get a bit impatient. I had no business idea. I responded by setting myself a deadline – I would come up with an idea by July 3, 2007. There was an IIT alumni conference in the valley the following week, and in one of the tracks, VCs would hear and fund idea pitches. I hoped to have an idea by then. The next few weeks I kept thinking on how the peer to peer model could come together with the guarantee model. And finally on July 2nd or 3rd, the whole thing came together: The general public will guarantee loans to entrepreneurs on a website. The guarantee will allow the MFI to borrow from local banks and make loans to the entrepreneurs.

 

The idea made sense to me, but another reality dawned on me. Just taking an idea to a VC will not secure funding. I decided to first get the idea validated. More on that tomorrow.

 

Thanks for reading.