MICROCAPITAL STORY: Schwab Charitable Fund, Grameen Foundation and Developing World Markets Allocate Over $20m in Microfinance Loan Guarantees From Schwab Charitable Gift Accounts

Schwab Charitable Fund (Schwab), a national donor-advised fund based in San Francisco, has begun allowing donors to its Charitable Gift Accounts to apportion some their donations as microfinance loan guarantees in the hopes that this will magnify Schwab’s charitable impact among low-income entrepreneurs. Schwab expects the multi-phase program to increase the number of microfinance loans available at lower costs in more than 25 developing countries. In the near future, the program should provide USD 20 to 30 million in guarantees to over USD 100,000 micro-loans.

Schwab will collaborate with the Grameen Foundation, a global non-profit dedicated to improving the efficiency of microfinance efforts, and in the future Developing World Markets, a microfinance fund manager and investment bank located in Darien, CT. Schwab’s press release did not provide more details on the nature of the relationship. Alex Counts, the president of the Grameen Foundation, noted that in the past “guarantee programs have only been open to large foundations or to the very wealthy” and that the new Schwab program should “open up participation to a much broader range of donors.”

It is important to note that these “guarantees” are not direct gifts to microfinance institutions or entrepreneurs but rather reserve funds that back microfinance loans. Whenever donors make a gift to a donor-advised fund through a Charitable Gift Account they secure a tax deduction. With the new program, they may allocate up to ten percent of their accounts be set aside for a period of twenty-four to thirty-six months to help “guarantee” microfinance loans. These funds will stay in the accounts and will continue to be invested for the entire period; they will be applied to the guarantee only if the microfinance program experiences losses in excess of reserves. The program is optional and available only to Schwab donors, who will receive updates from Schwab on the social and economic impacts of these loans. It appears that the program is the first foray into microfinance by Schwab, although the donor-advised fund has made strides in expanding and managing investment-based charitable contributions in the past.

Donor-advised funds are charitable investment vehicles that allow donors to recommend charitable grants and initial investments for fund contributions. Typically, they offer significant tax advantages and lower administrative costs and consequently have become the fastest growing charitable investment vehicle in the U.S.

Established in 1999, Schwab Charitable is a San Francisco-based national donor-advised fund that facilitates charitable giving and has over USD 2 billion in assets and USD 350 million in annual grants. According to Schwab’s audited financial statement from fiscal year 2007, the fund received USD 835.4 million in donor contributions and paid out USD 246.9 million in grants to charitable organizations.

Founded in 1997, the Grameen Foundation is a global non-profit organization headquartered in Washington, D.C. that provides micro-loans, financial services and technological support to micro-entrepreneurs through partner organizations in twenty-five countries.

Based in Darien, CT, Developing World Markets is an asset-management firm and investment bank that raises capital for emerging markets. The firm received its first asset management contract in 1994.

Additional Resources:

Developing World Markets

Grameen Foundation

The Microfinance Gateway: “Schwab Charitable Launches Microfinance Guarantee Program”

San Francisco Business Times: “Schwab debuts microfinance loan-guarantee program”

Schwab Charitable Fund

Schwab Charitable Fund: “Press Release: Schwab Charitable Pioneers Innovative Microfinance Guarantee Program”