MICROCAPITAL FEATURE: The MicroPlace Launch: MicroCapital Talks to Tracey Pettengill Turner, Founder and General Manager of MicroPlace and Shari Berenbach, Executive Director of the Calvert Foundation, One of the First Microfinance Product Providers on the Site.

For all those involved in the microfinance industry it would have been well nigh on impossible to miss the launch of MicroPlace, eBay’s new online retail microfinance marketplace, in recent weeks in the media. Despite the company’s small-sounding name, the launch is big, and has the potential to substantially grow the capital-raising capabilities of the industry, as well as spread the word about microfinance to a much wider audience than currently exists.

In essence the launch takes three big steps all at once: it will market to over 100 million potential everyday investors via eBay; it will offer them the chance to invest in securities lending to microfinance institutions (MFIs) via the internet; and finally all of this will be completed under full investor compliance regulatory supervision.

This sense of scale and excitement about MicroPlace’s potential is immediately evident talking both to Tracey Pettengill Turner, Founder and General Manager of MicroPlace and also to Shari Berenbach, Executive Director of the Calvert Foundation, one of the first social investment houses to provide MicroPlace with securities to market on the site. Both of them have invested a lot of time as well as their personal reputations on the viability of the project and believe firmly that large amounts of revenue and a force for change will be affected by the launch.

Tracey, a well-known social entrepreneur who has previous experience both at Grameen Bank and KickStart, has employed 15 people for over a year in preparation for the event and has the expectations of USD 44 billion-valued eBay behind her. Shari, Executive Director of Calvert since 1997, has had to remodel Calvert’s internal procedures and employ three extra members of staff in order to become one of the first off the block to trade on MicroPlace and reap the rewards she thinks it will bring. Calvert currently market 15 different MFI projects on MicroPlace from all over the world, supporting MFIs such as Pro Mujer in Bolivia and PRIDE in Tanzania, with interest rates between 2 to 3 per cent and maturity dates of 3 to 4 years. All the loans are made through the Calvert Community Investment Note vehicle.

Both Tracey and Shari see the massification of the market and the leveraging power of the internet as key to enabling the ordinary investor to invest in microfinance. Without the reach and experience of eBay, these features would be difficult and expensive to attain. Tracey admits that developing infrastructure such as safe payment systems, let alone organising marketing, need expertise and money, and she “feels lucky to be incubating MicroPlace with eBay as partner”, adding, “If eBay knocks on your door, you generally answer!” Shari re-iterates this acknowledgement, claiming that Calvert has long wished to market online, but had found the costs of developing a site, clearing transaction money and driving traffic to such a site “daunting challenges,” which they could not tackle on their own.

Another large cost is compliance, ensuring that the firm meets the requirements that the securities regulator (SEC) demands of firms marketing to average investors. These compliance procedures are much more onerous than those for firms marketing to institutions and high net worth individuals, but vital if MicroPlace is to expand the market. Product providers also need to comply and Calvert, unlike many other potential product providers, already has funds and systems that are suitable for the average individual investor.

Tracey is committed to making microfinance available to the everyday retail investor, and sees the development of MicroPlace as a re-balancing initiative, as many of the recent innovations in the industry have been for the benefit of the institutional investor. As a result she thinks, “A lot of the capital markets remain untapped,” and that MicroPlace has the ability to grow the overall amount of money invested in microfinance. But she acknowledges that this dream is dependent on the industry engaging with and using MicroPlace, as in effect, her system is just marketplace, a web-based brokerage on which to buy and sell, and therefore reliant on successful and popular products. “If we can build an efficient platform, it is then up to the industry to think creatively about how to use it,” she says.

In this way, MicroPlace is to be seen as a facilitator for the industry, rather than a product developer. Tracey represents herself as ‘agnostic’ about the types of products that are promoted on the site, their interest rates and their currency status, so long as they support microfinance, allow money to be recycled back into the system and pay MicroPlace a 1 per cent fee on any asset raised. She is unapologetic about this fee system, saying “the power of microfinance is that everyone in the supply chain takes part in a profitable way.”

By having the 1 per cent fee come out of interest repayments, it also means that the investors are not charged for the service and 100 per cent of their investment goes directly to the issuer. She is unsure when MicroPlace will start turning a profit after the start up costs, but eBay have guaranteed to plough all of this profit back into social investment.

Unfortunately, this ‘agnosticism’ means that MicroPlace will not be regulating the foreign exchange risk that the beneficiary MFIs may be exposed to if the money lent to them is in dollars rather than local currency. Although Tracey supports MicroCapital’s stance on this issue (as outlined in the open letter to MicroPlace published on the site on 30 April 2007), which thinks that MFIs should not be exposed to foreign currency risk through dollar lending, she sees this as one of many areas where product providers will innovate, for example by providing securities denominated in foreign currency.

Shari Berenbach at Calvert accepts the challenge and is preparing to innovate. By the end of 2007 a quarter of Calvert’s products on MicroPlace will be making loans in local currency, as Calvert has already been experimenting with back-to-back structures, swaps and some hedging techniques, which can be expensive as well as scarcely available. But by March 2008 Calvert expect to have a formal strategy in place to create a foreign currency system.

Indeed Calvert has had to make a number of adjustments to trade on the new platform, showing the kind of innovative and flexible approach that Tracey is so keen to see from the microfinance industry. The sheer quantity of business Calvert is expecting via MicroPlace means that the organisation is now accepting a minimum investment as low as USD 100 and is allowing investors to target money directly at a particular MFI rather than having their money in a collective vehicle that Calvert spreads over 200 MFIs. It also means that Calvert are promoting tier 2 MFIs, (mid-ranking in size) on MicroPlace as the organisation does not want to be providing more than 10 per cent of the loans of any one institution, something that could potentially happen with a smaller MFI. But Shari is convinced that these changes are worthwhile, commenting, “It’s a phenomenal example of win win.”

Calvert is convinced that MicroPlace will provide younger investors than the average current Calvert clients, the majority of whom are over 40. MicroPlace’s pre-launch market research, identified two key customer segments: the ‘Save the World Enthusiasts’, who are young, idealistic, believe that they can change the world, but who have little investment experience; and the ‘Socially Conscious Affluents’, who are slightly older in their 30s-40s, have some investment experience, but want a socially responsible lifestyle and “probably shop at Wholefoods,” adds Tracey.

But more importantly the research revealed that potential investors feel strong geographical connections to certain areas and these are likely to trigger the decision as to which fund and MFI they invest in. These connections could be due to family history, ethnic background or through travelling. This could significantly effect which areas of the world and which projects benefit from the potential growth in revenue stimulated by MicroPlace and could be a big factor in future product development.

However, all predictions on the behaviour of MicroPlace investors will soon be unnecessary as their actions instead provide clear evidence of the way forward. Already MicroPlace is receiving lots of interest from people living in Europe that it cannot fulfil as MicroPlace is only regulated to operate in the US. If this need directs the company to role out the system to other markets, this could be yet another area of development and growth for the company.

Amy Rennison, MicroCapital writer

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