Boston International | Starting Up: Venture Capital and Microfinance in Emerging Markets

Starting Up: Venture Capital, Mentor Capital, and Microfinance in Emerging Markets

December 11, 2008 – Boston International organized a panel featuring leaders from Endeavor, Acumen Fund, and the MicroLoan Foundation, three non-profit organizations pioneering the application of market-based approaches — including venture capital, “mentor capital,” and microfinance lending — to socially-responsible investing in emerging markets.

Our four panelists discussed their organizations’ business models, success stories, and struggles; shared experiences and perspectives; and engaged us in a discussion of the various approaches to this type of enterprise. After the initial presentation, the floor opened for questions.

A reception sponsored by the Boston Network for International Development followed the discussion, giving Boston International members an opportunity to chat with the panelists and each other.

Panelists:

Richard Hamermesh – Professor, Harvard Business School; Advisor, Endeavor Global
Misbah Naqvi – Manager, Acumen Fund
David Rice – Executive Director, MicroLoan Foundation USA
Leah Fish de Sacerdote – Director, Endeavor

Multimedia

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Summary

Endeavor. This non-profit global organization is headquartered in New York City and focuses on fostering high impact entrepreneurship by supporting innovation, job creation and promotion of role models. The entrepreneurial role models are very important for the local economies as they can prove that success can be achieved in the local communities by taking initiative and mobilizing the right ideas, talent and resources. The entrepreneurs were able to create high value jobs that pay ten times the local medium wage and this is very uncommon in the developing world. Another important factor is the creation of a local and global network of entrepreneurs who are supporting one another in their efforts to be successful and help bring prosperity to their local economies. Richard got involved with Endeavor because of his personal interest in international development issues as well as a personal relationship with the father of Endeavor’s founder. He is currently involved in the judging panel of Endeavor as well as an advisor to the organization. He mentioned few criteria used by the organization when looking at carefully selecting its entrepreneurs. The nominees are diamonds in the rough, sure fire success, local stars or barrier breakers. Richard exemplified this with two examples of Café Punto del Cielo – Mexico’s local Starbucks and Patagonia Natural Products – a vitamin C producer from Patagonia.

Acumen. Dignity is an essential value for all the people that Acumen works with in various countries. It is more important than wealth. As organization Acumen works to empower people to find solutions locally by developing a laboratory to test, validate and share best practices. An example mentioned in the conversation was the Tanzania based factory that produces bed nets that provide families in Tanzania protection from malaria inducing insects. Acumen invested $325K alongside with IFC in exchange for equity. In total they invested $100M in 60-80 enterprises in countries where people live on less than 4$ per day. The areas for investments include health and nutrition, water, agriculture, housing and energy and the key countries they focus on are India, Pakistan and Kenya. Another example of very interesting projects include drip irrigation and Dial 1298 emergency ambulance system in Pakistan.

Microloan Foundation. The organization provides individual loans but the disbursement and responsibility belongs to the group itself. They currently have a 99% repayment rate. Most loans are $40 and they are provided to women who live under 50 cents per day. They do charge a 16% interest rate to finance the human infrastructure in Malawi. 80 cents out of 1 dollar they raise reach the beneficiaries. They currently have three ways to raise money: School program Global Poverty Alleviation, Campus outreach in US and research programs in partnership with various US schools and centers such as MIT and Fletcher School of Law and diplomacy. Microfinance will not alleviate poverty because most of the businesses the local women develop are trade related. There is a strong need to include access to capital and skills and resource development.

Question 1: What is the impact of the current financial crisis on your organizations?

Endeavor: 55% of the Endeavor entrepreneurs see it as an opportunity and coming from the emerging economies they are already used with the crises. Some of the entrepreneurs may go bankrupt but this will depend on the specific type of business and the country context as well.
Acumen: impact on the fundraising amounts. The entrepreneurs will face a squeeze in their revenues in the coming months. On the other side the 1298 Emergency Ambulance System was at the center of helping the persons wounded in the Mumbai terrorist accidents this month and was able to solve a critical problem.
Microloan Foundation: expect the default rate to increase as people will spend most of the loans on procuring the basics such as food.

Question 2: Are there any other interesting models of addressing the same problem that your organizations address?

Social entrepreneurship is a field that is growing significantly in the past period and it is expected to grow even more as the role and number of the business organizations with a social mission is expected to increase significantly in the coming period.

Thanks

We would like to thank the Acumen Fund, Endeavor, and the MicroLoan Foundation USA for participating; the British Consulate for hosting; and the Boston Network for International Development (BNID) for their financial sponsorship.

A big thank-you to two Boston International members as well: Michael Morisy — for recording the event and editing the video; and Ovidiu Bujorean — for providing the summary writeup.