MICROCAPITAL STORY: MicroCapital talks to Shari Berenbach, Executive Director of the Calvert Foundation, About the Foundation’s Relationship with MicroPlace and how it Became the First Issuer to Sell Investments on the Site

The Calvert Foundation has always been at the cutting edge of social community investing, so it was no surprise to find out that it was the first issuer to market securities on the new retail microfinance web-brokerage service owned by eBay, MicroPlace. Through MicroPlace it is marketing 15 microfinance institutions to which everyday investors can make loans by investing in Calvert Community Investment Notes.

The Foundation was established in 1995 as a separate not-for-profit entity from the Calvert Group Ltd, a socially responsible investment (SRI) house, after the Group had successfully experimented in making below-market investments in microcredit, low-income housing and small business.

Since then it has created a number of initiatives to support social community investing, most notably the Calvert Community Investment (CCI) Note, sales of which hit over USD 100 million by 2006, but also with the Calvert Giving Fund and its community investing administration, analysis and consulting services.

Shari Berenbach has been with the firm since 1997, and has over 20 years experience in business, working previously for the International Finance Corporation (IFC), as well as private firms. She found it unsurprising that Tracey Pettengill Turner, Founder and General Manager of MicroPlace was referred to Calvert as early as 2005 when MicroPlace was in its early phases of start up.

“The Calvert Foundation’s goal is to get average people to use investment as a tool to alleviate poverty, and Tracey’s aim is to get average people to invest in microfinance, so our goals seemed aligned.” In fact, Calvert could offer far more than just a shared vision and in reality was one of very few issuers who would be appropriate to take part in MicroPlace’s launch.

In the field of social community investing, there were few other firms that could provide a ten year track record and brand credibility that could match the standards set by eBay.

Secondly, few had products that were compliant with SEC regulator’s standards to the extent that they could be marketed on MicroPlace to the everyday investor. The compliance systems needed when marketing to the average individual investor are far more complex than procedures that would be needed to protect high-net worth or commercial investors, and notably are not in place for some of the other high-profile retail microfinance sites, such as Kiva.

Finally, Calvert also had to be prepared to change its products and systems to accommodate the way MicroPlace was proposing to do business. Currently, an investor who invests in a CCI Note via Calvert has their investment pooled and placed in a managed portfolio of loans to over 200 nonprofit organizations, MFIs and social enterprises working in over 100 countries, or into a portfolio covering a themed selection of the 200. Only those placing over USD 50,000 get to target specific projects. The minimum investment is USD 1000 and investors choose the term they invest for, as well as the level of interest they would like to receive (between 0 and 3 per cent).

However, investors in CCI Notes coming through MicroPlace have a minimum investment level of USD 100, and choose a specific MFI to invest in, with a set term (between 3 and 4 years) and receive a defined level of interest (between 2 and 3 per cent). This is because the systems developed by MicroPlace have significantly lowered administration costs and because Calvert expects large amounts of business from the brokerage, potentially USD 10 million over the first six months.

With this in mind, Calvert has been able to guarantee each MFI represented on MicroPlace a minimum loan of USD 250,000, which will be funded by Calvert’s own sales, with any further increases in the loan coming through the MicroPlace investor sales.

However, Calvert do not want to lend any MFI more than USD 1.5 million if it means they provide more than 20% of its total assets (ideally not more 10% per MFI) and will certainly not give any institution regardless of size more than USD 3 million. If demand outstrips supply Calvert would rather find more MFIs than increase loan size. As a result of these new capital concerns, Calvert is targeting tier 2 MFIs for the new venture, those with USD 15 million or below.

To cover the interest repayments offered to investors, the 1 per cent fee that MicroPlace charge and cover their own administration and systems (which include the 3 extra staff needed to work on MicroPlace), Calvert are aiming to charge 8 per cent (to make a 7-9 per cent average yield). So for some MFIs Calvert is charging 9 or 10 per cent, but for others, like those in India for example, this could come down to 6 per cent.

Calvert aspire to have as much of this lending as possible done in local currency agreeing with MicroCapital that MFIs should not be exposed to foreign currency risk by receiving dollar rather local currency loans. Calvert has already been experimenting with back to back and bridge fund structures. It has begun to execute on swaps in Mexico and Peru using Standard Chartered Bank and there may be potential to implement euro denominated hedging techniques in Eastern Europe.

However, many of these solutions are expensive and hard to come by, so by March 2008 Shari expects to have devised a formal strategy on creating a foreign currency system. In the meantime, she expects a quarter of all the Calvert projects presented on MicroPlace to be funded in local currency by the end of the year.

Amy Rennison, MicroCapital writer

Similar Posts: