Microfinance and Development Venture Capital

Microfinance CLO

For Immediate Release Launch of BlueOrchard Loans for Development 2007-1 (“BOLD 2”)
Landmark Rated Microfinance CLO
These materials are not an offer of securities for sale in the United States. The securities to which these materials relate have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. There will be no public offering of the securities in the United States.
LONDON, 3 May 2007 - BlueOrchard Finance S.A. and Morgan Stanley announced today the launch of BlueOrchard Loans for Development 2007-1 (“BOLD 2”). BOLD 2 is a CLO of unsecured loans to 21 Microfinance Institutions (“MFIs”) based in 13 different developing countries (Azerbaijan, Bosnia, Cambodia, Colombia, Georgia, Ghana, Kenya, Mongolia, Montenegro, Nicaragua, Peru, Russia, and Serbia).
The transaction will be rated by Standard & Poor’s. This is the first time a microfinance structured transaction has been rated by a major rating agency, and thus represents a major milestone for the microfinance industry.
BOLD 2 follows a similar but unrated transaction brought to market by BlueOrchard and Morgan Stanley in 2006, which was the first ever to be arranged by an investment bank.
Like its predecessor, BOLD 2 funds unsecured loans to a diverse portfolio of microfinance institutions globally. These funds will be on-lent by the MFIs to approximately 70,000 low-income people in the developing world for entrepreneurial activities. The loans to the MFIs will be denominated in a number of local currencies including Ghanaian Cedi, Mongolian Tugrik, Colombian Peso, Peruvian Sol and Russian Rouble, as well as USD and EUR. Denominating loans in local currency assists MFIs with their risk management and micro-entrepreneurs with their ability to match the currency of their liabilities and revenues. All the currencies will be swapped back to the currencies of the notes, in order to protect investors. The swap provider for all except the Ghanaian loan will be Morgan Stanley and for the Ghanaian loan it is intended to be Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”).
The $108 MM equivalent CLO is expected to include two tranches of rated notes and three tranches of unrated notes. The rated classes will be Class A, USD 42 MM, rated AA and Class B, USD 16MM, rated BBB. The unrated notes will total USD 50 MM. The Class A notes will have an average life of 4.94 years and the other notes an average life of five years. Notes will be offered in different combinations of USD, EUR and GBP and fixed / floating bases.
BlueOrchard Finance S.A. is the sponsor and selects and services the portfolio of loans with Morgan Stanley acting as arranger and placement agent. Allen & Overy LLP is acting as transaction counsel. The notes will be offered and sold outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (“Securities Act”), and in the United States only to persons who are both “qualified institutional buyers” (as defined and in reliance on Rule 144A of the Securities Act) and “qualified persons” (as defined and in reliance on Section 2(a)(51) of the Investment Company Act of 1940, as amended).
BOLD 2 offers investors the opportunity to invest in a new asset class with the unique combination of attractive financial returns and effective social returns. The aim of microfinance is to provide financial services to poor and low income people, who have been hitherto excluded from traditional commercial banking. Over the past 25 years, microfinance has become an effective way to promote economic and social development by aiming to build inclusive commercial services for the poor.
Jack Lowe, CEO BlueOrchard Finance S.A., said: “This is another ground-breaking transaction, bringing microfinance closer to the mainstream of the international capital markets as a source of medium term money at competitive rates, as well as the provision of large sums in local currency lending. Blue Orchard is also pleased to have played a major role in helping bring a mainstream rating agency into this transaction.”
Ellen Brunsberg, Managing Director and Head of the European Securitised Products Group at Morgan Stanley, said: “Securing a rating for this transaction is another significant development for microfinance, building on our demonstration with BOLD 1 last year that international capital markets can help fund microfinance on a commercial basis and in scale. Morgan Stanley is applying our securitization expertise to innovate and lower the cost of debt while increasing the supply of funds to microfinance clients around the world.”
The transaction is expected to close at the end of May 2007.

Danone's taste for microfinance pays dividends

Danone's taste for microfinance pays dividends 

Financial Times News

Franck Riboud is a romantic at heart. The chairman of French food multinational Danone is also an astute businessman with a particular nose for marketing. Yet he seems to be managing to combine his passionate commitment for social responsibility with the more humdrum prerogatives of business and maximising profits.

His latest plan is to launch next month with the help of French banking group Crédit Agricole a novel mutual fund to invest in microfinancing projects in the world's poorest countries. It will be called the Danone Communities Fund and the idea is to raise initially some €100m to fund microfinancing investments in countries such as Bangladesh, where Danone is already heavily involved in a pioneering social business model.

Recent investing newsCheckpoint Systems, Inc. Announces Fourth Quarter and Full Year 2006 ResultsRocket City (RCAU) Announces: CompleteAuto Signs Contracts with 103 New Dealers in March. Increasing Contracted Dealer Base by over 41 Percent. 1,000 Additional Dealer Contracts Estimated by Years EndCheckpoint Systems, Inc. Concludes Restatement of Prior Period ResultsStellar Pharmaceuticals Announces 2006 Fourth Quarter and Year-End Financial ResultsComcast Adds YES HD To Channel Lineup in Connecticut The French group will invest about €20m in the new fund, which is attracting interest from investors ranging from big funds and socially committed individuals to trade unions. They need not worry too much over the safety of their investment.

Like other French mutual funds it will yield about 4 per cent a year and will invest only part of its funds in new microfinance projects. Danone will also encourage shareholders to reinvest dividends into the new fund.

Mr Riboud says the new fund is all part of his vision of "positive globalisation": a concept he acknowledges is not always easy to sell in France where most people continue to be uncomfortable if not downright hostile to globalisation. But he is also convinced that new business models can be developed addressing both the interests of a multinational company and the growing pressure and need for these companies to behave in a socially responsible and ethical fashion.

The traditional approach of most of his peers is to launch and finance foundations to fund essentially charitable projects. For Mr Riboud, this is simply subcontracting the problem, whereas the real challenge is to develop new economic models for emerging and very poor countries.

"There are 3bn people living on €2 a day. So why not create a business model that can work with this very low but huge income group. Not for charity but with the idea of profit sharing," he says.

The seeds of this unorthodox approach were sown 10 years or so ago when Mr Riboud took over from his father and decided to expand Danone internationally. He also developed what he calls a strategy of "affordability" to offer a new range of products that poorer consumers could afford. Last year, he went even further by forming a joint venture in Bangladesh with the Grameen Group of Nobel Peace Prize winner Muhammad Yunus, who has pioneered microfinance lending to the very poor.

This venture has completed the first of 50 planned yoghurt factories at the cost of €700,000. Mr Riboud hopes the second one will cost 30 per cent less to allow local villagers to become shareholders in the project. The idea now is to use the new communities fund to expand this model elsewhere.

Some shareholders may question Mr Riboud's idealistic approach and philanthropic vision. But he insists they are already getting both tangible and intangible returns. Developing new nutrition products for malnourished children in very poor countries has transformed Bangladesh into a laboratory for Danone that in turn could help the French group develop new products for mature and richer markets.

Mr Riboud's initiative is also helping to motivate managers and other employees as well as boosting recruitment. Last but not least, it is doing wonders for Danone's image, something a compulsive marketing man like Mr Riboud readily admits. paul.betts@ft.com

Sequoia Invests $11.5 Million in Microfinance Fund

Sequoia Invests $11.5 Million in Microfinance Fund
By Margaret Brennan | 29 Mar 2007 | 02:43 AMFont size:
From Google to Yahoo! and YouTube, Sequoia Capital provided venture capital funding to some of the biggest cutting-edge talent in recent memory.

Now the private equity fund is making a big bet on microlending, with its $11.5 million investment in India's SKS Microfinance.

This is "the first pure for-profit private equity play" ever seen in the microlending world, SKS Microfinance CEO Vikram Akula said in an exclusive interview with CNBC. Sequoia's investment makes SKS the largest for-profit microfinance institution in the world.

An investment from a private equity firm of Sequoia's stature is seen as a sign that microfinance is no longer just a socially-conscious investment option, but a potentially profitable one for investors.

Akula pointed to the 99% on-time repayment rate of the fund's 600,000 borrowers as proof of the efficiency of the microfinance model. Akula estimated that SKS' loans have a return on equity of 23%.

The concept of microfinance -- providing small business loans to poor borrowers who lack credit -- was made famous by Nobel peace prize winner Mohammed Yunus, founder of the not-for-profit Grameen Bank of Bangladesh. While the foundations are similar in concept, SKS' version of microlending provides loans that carry interest rates to its 600,000 members in 7,200 villages in rural India.

"We charge average interest rate of 24%," Akula explained that while this rate is high versus  conventional banking standards, "it is actually the lowest cost financing available to the poor."

IPO or Acquisition

Sequioa's stake in SKS's more than $50 million fund allows Akula to expand SKS' technological foundations. SKS will still provide loans to help create cottage industries within Indian villages. Akula said that Sequoia's investment includes an exit clause that within the next 3-5 years, SKS will either have an initial public offering or be acquired. Akula hopes for an IPO on the Indian market.

Sequoia's investment makes it SKS' lead investor. Other stakeholders including Unitus Equity.

While $11.5 million is not much compared to recent record-breaking deals in the U.S. like the  $39 billion buyout of Equity Office Properties, the multimillion dollar sum is significant for a microfinance fund. SKS's average loan size is around $600.

According to the World Bank, foreign private investment has exploded over the past two years to more than $4 billion in 2006. Commercial banks like Deutsche Bank, Citigroup, HSBC and others are entering the market.

The interest of such global players shows that there is "tremendous business potential," according to microcredit specialist Guatam Ivatury of the World Bank. He sees sustainable potential of these funds within five to ten years.

Tapping into the more than two-and-a-half billion "unbanked" individuals worldwide who lack access to financial services is the long-term payoff on investments for firms like Sequioa. The potential to develop these budding entrepreneurs, who borrow from funds like SKS, into potential customers of those retail banks is huge.

Besides creating what he believes is the largest venture-backed microfinance fund in the world, Akula says the success of SKS Microfinance is proof that, "the poor are credit worthy. What they are looking for is the opportunity to access working capital."

Perspective on Prosper and Kiva (from BusinessWeek)

A Tale of Two Lenders
Two startups with similar goals travel very different paths

In 2004, while backpacking through Northern California's Desolation Wilderness, Chris Larsen told his buddy John Witchel about the concept of a hoi. Larsen, whose wife is Vietnamese, described how entrepreneurs in that country join cooperatives called hoi, then pool their resources to give one another informal loans. Not long after, the topic came up again as Larsen and Witchel hashed out business ideas at Larsen's dining room table in San Francisco's tony Russian Hill. At the time Larsen, 45, was the founder and chairman of online lender E-Loan, but he was ready for a new challenge. The competitive Witchel, 39, was hungry for another go at the dream: He had watched the software company he had founded, Red Gorilla, disappear when it ran out of money in 2000. What if, they wondered, they started a company that let people bypass banks and get small loans from one another?

Around the same time, across the city in a modest Noe Valley flat, Matthew Flannery, a 27-year-old product developer at TiVo, was receiving long e-mails from his new wife, Jessica. She was a consultant in Kenya and Uganda with Village Enterprise Fund, a San Carlos (Calif.) microfinance organization. The 26-year-old described how she drove from village to village, evaluating the living conditions of business owners who had received $100 loans from the fund. "A little bit of money does so much,'' she wrote. What if, Matthew thought, he started a company that would let Americans lend money to struggling entrepreneurs in Uganda, enabling those entrepeneurs to bypass banks and loan sharks?

In March, 2005, Flannery mocked up a Web site, Kiva.org, which, loosely translated from Swahili, means "agreement.'' A month earlier, Larsen and Witchel had launched Prosper.com, a site that helps individuals loan each other small amounts. Both businesses are pioneers in microlending, a field born in the 1970s that is gaining prominence. Muhammad Yunus, who founded microlender Grameen Bank in 1976, won the 2006 Nobel peace prize for developing the idea of making small loans to entrepreneurs who otherwise might not be able to raise money. Entrepreneurs and philanthropists including Bill Gates and eBay founder Pierre Omidyar increasingly consider microlending an important strategy for lifting people out of poverty.

Kiva and Prosper share more than the goal of increasing access to capital. Both strive to keep operations lean, and both wrestle with a complicated regulatory environment. But Prosper is a dot-com, and Kiva is a dot-org. Prosper is a classic Silicon Valley baby, nourished by $20 million in venture capital and heavy-hitting backers including Accel Partners, Benchmark Capital, Fidelity Ventures, and the Omidyar Network. As a nonprofit, Kiva relies on donations and grants, which so far total $250,000.

The different models affect not only the superficial -- guess which company has slicker offices -- but also the fundamental. One key question: How will the benefits and challenges of each model affect its results? The issue is increasingly relevant for entrepreneurs whose businesses have an explicit social mission, be it protecting the environment or helping the disadvantaged. "Choosing between for-profit and nonprofit is becoming more of a common dilemma for entrepreneurs,'' says Alan Abramson, director of the nonprofit sector and philanthropy program at the Aspen Institute. "This is becoming an uncomfortable choice to make because they're trying to do both.''

Soon after their dining table epiphany, Prosper's Larsen and Witchel each kicked in $10,000 and hired a lawyer to see if their idea would fly with the U.S. Securities & Exchange Commission. In early 2005, they started offering programmers contract work and the promise of equity, and soon they had six employees. "They weren't doing it for charity,'' says the sandy-haired, soft-spoken Larsen. "There was no question we were going to get funded because of our track record.'' In April, Prosper raised $7.5 million from Benchmark and Accel. Prosper moved into a 2,500-square-foot office with furniture left over from a dot-com that went bust. Larsen brought his computer and office chair from home.

Larsen and his colleagues developed a site where those in need of cash can set up an account and list the amount they want to borrow and the maximum interest they will pay. Prosper's analytic tools assign each borrower a rating based on his or her credit record. Other Prosper users then offer a portion of the capital and bid on the interest rate. Those with the lowest bids become lenders. Last February, Fidelity and Omidyar Network invested $12.5 million in Prosper. "We didn't need the money,'' says Larsen, "but we wanted the brainpower.''

At Kiva, Flannery also worked his connections, albeit far less moneyed ones. He asked Moses Onyango, a pastor Jessica had met in Uganda, to gather $3,100 in loan requests from seven businesses, including a vegetable stand and a fishmonger. "The idea was that we would divide the loans into shares and sell them to the friends and family from our wedding invitation list,'' says Flannery. The loans wouldn't collect interest, but the shares sold in three days. Flannery collected the money through PayPal and wired it to Onyango, who then distributed the money to the entrepreneurs. Each succeeded in repaying the loan within the year.

Encouraged, the Flannerys organized a second round; this time, they invited the public to make loans. "I had this idea about sponsoring a business,'' he remembers. "That word was running through my head because I grew up sponsoring children.'' (His family donated to World Vision in the 1980s.) Jessica worked with Onyango to collect loan requests from 50 Ugandan entrepreneurs. Matt built a tool to create MySpace.com-like profiles for each one and sent out a press release. In November, 2005, two high-traffic blogs, Daily Kos and Boing Boing, featured the site. Within three days, 50 loans had been made for a total of $25,000. After talking with his mentor, Bob King at Peninsula Capital, and his brother-in-law, venture capitalist Peter Cochran, with Vulcan Capital, Flannery decided to take the nonprofit route. "What we were doing was highly experimental,'' he says. "I thought that as a nonprofit I could get early support I probably couldn't get from a VC.''

Unlike Prosper, Kiva works only with entrepreneurs, which it finds with the help of microfinance institutions in developing countries. Those partners bring their clients to Kiva instead of to a local bank. Kiva posts pictures of the borrowers on its site and shows how each would use a loan. When a loan is made, Kiva transfers the funds to its partners. Lenders, who are usually repaid within a year, can read blog updates from entrepreneurs they've sponsored.

Last July, Kiva's six employees moved into an airy, 1,300-square-foot office in a Mission District warehouse with exposed brick and an assortment of secondhand furniture. Kiva also inherited its best talent from other places. Chief Operating Officer Olana Hirsch Khan came to Kiva in May after six years in sales at Google, and Premal Shah, who made his fortune as one of eBay's first employees, became Kiva's president last year. Shah and Flannery now earn about $3,300 a month, and Jessica volunteers while she finishes at Stanford Graduate School of Business. Says Flannery: "In the future, we'd like to scale this to the point where people are paid the salaries that will give them incentive to do the work.''

Since July, Prosper's 25 employees have inhabited 111 Sutter, a 9,000-square-foot space with a majestic wood-paneled conference room and a showstopping view of San Francisco Bay. The rent is more than seven times Kiva's. Prosper's employees could do quite a bit better as well: As part of competitive pay packages, they receive options that vest in four years.

In all but four states, Prosper has secured a lending license by meeting the terms of the Fair Credit Reporting Act. So far, Larsen says, default rates roughly mirror those at major lending institutions. Prosper receives 1% of the loan amount; lenders pay an annual servicing fee of 0.5% of the amount they lend. That money leaves Larsen, who is CEO, and Witchel, who is chief technology officer, free to concentrate on building the business and to add new features to the site.

That's freedom Flannery would like to have. He spends three-quarters of his time raising funds. He can't replicate Prosper's model in the U.S. because the legal expenses would be too much. Instead, Kiva plans to expand by introducing low interest rates to attract more lenders.

It is not surprising that Prosper's reach is so much broader than Kiva's. In its first seven months, Prosper's 100,000 registered users have made $22 million in loans, averaging about $5,000. Kiva's 15,000 lenders have made $1.2 million in loans, with an average loan size of $500. That translates into success for both companies, whose founders agree that there is room in the wide-open field for both models. Says Kiva's Shah: "Right now there are so few people doing this and it's so experimental, we need to help each other. If either model has a significant flaw, it could destroy the credibility for everyone."

Forbes Article - MicroCredit: Why India is Failing

Hi all-

I highly recommend this article which just came out in Forbes magazine about microfinance in India. It's a very interesting read.  http://www.forbes.com/execpicks/global/2006/1113/026.html

Congratulations to Muhammad Yunus & the Grameen Bank!

Muhammad Yunus and Grameen Bank were awarded the Nobel Peace Prize for 2006 for their pioneering efforts in microfinance.

Official Nobel Peace Prize Press Release

New Website!!

The Microfinance And Development Venture Capital (MADVC) network introduces its new website. The interactive blog format is aimed to develop an active community forum for graduate students interested in the field of microfinance. MADVC continually strives to improve the network and this web site, so please send any suggestions you have to email@microfinancenetwork.org.