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| Philanthropy |
Priming the Free Enterprise Pump
Jan Alexander
02/02/2004
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Tapping the Markets
MFIs have been in business long enough to establish performance track records, and while there are close to 10,000 of them around the world, there may be only about 200 that are truly effective, well-managed commercial entities that get the capital to lending banks, monitor the banks, and make sure the money goes to entrepreneurs, says María Otero, president and CEO of Accion. The most successful of the micro-lending banks have begun to finance their activities by issuing debt on local capital markets. Compartamos, the biggest and best MFI in Mexico, earned an A+ credit rating from Standard & Poor’s and has issued debt on the local market since 2002, underwritten by Banamex, a local subsidiary of Citibank. MiBanco in Peru has issued $20 million in debt on the local bond market. Donor money in these areas, Otero explains, goes into training and technical assistance for the entrepreneurs.
Meanwhile, less successful MFIs struggle for capital. Attempts to reform the less successful banks can be a daunting task involving lobbying of local governments to pass transparency laws, raise interest rate limits, stamp out corruption, and deal with myriad other small details that stand in the way of viable micro-lending. According to Deutsche Bank research, only about 11 percent of the world’s potential 500 million micro-finance clients are being reached.
Bill Clapp, the great-grandson of Weyerhaeuser Co. cofounder Matthew Norton, decided in 1994, after 20 years of heading his family’s investment company, to step down in order to run a private microfinance fund with his wife, Paula, a social worker. The fund focuses on Central America, and Clapp has found that the search for well-managed MFIs and reputable lending banks is about as challenging as flying planes in the Alaskan bush, something he did in an earlier chapter of his life. But he is determined to run his own program. "Business
people are problem solvers," he says. "I wouldn’t say we’re better at micro-credit than others, but when we engage with a partner, it’s like a venture capital deal. We work out a plan."
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