MicroFinance from The WSJ

	March 20, 2008

Microlending for Microbankers Groups, Web Sites Link Individuals To Poor Borrowers By JILIAN MINCER March 20, 2008; Page D2 While the credit crunch bedevils fixed-income investors, a growing number of individuals are discovering the financial and psychological benefits of an alternative asset class: Lending to the poor through microfinance. Increasingly, individual investors can make microfinance loans themselves through charitable organizations and the Internet. Microcredit, which was made prominent by Nobel Peace Prize winner Muhammad Yunus, is the practice of making small loans to the world's poor. While the goal is the charitable one of helping them out of poverty, investors are discovering that most borrowers -- 97% industrywide -- repay their loans, according to San Francisco-based nonprofit outfit KIVA. A growing number of private banks are offering high-net-worth individuals advice to help them invest in microloans. The Internet and groups like mutual-fund company Calvert, national financial services organization TIAA-CREF and international microfinance organization Accion are enabling individuals to make small loans, typically for one to four years, and get a return ranging from 1% to 4% annually. "It's a safe way for investors to get involved," says Shari Berenbach, executive director of Calvert Foundation, which offers investors ways to invest in microfinance. "It's like getting a CD. It's a modest yield, but it's very safe and very convenient." The Calvert Foundation offers a securitized note through the foundation or on the newly created MicroPlace, a Web site (www.microplace.com1) and registered broker-dealer. Funds can be invested for up to 10 years with a maximum guaranteed return of 3%, guaranteed by Calvert Foundation. Calvert's securitized note isn't rated by rating agencies. "Poor peoples' credit is very reliable," says Terry Provance, executive director of Washington-based Oikocredit USA. Based in the Netherlands, Oikocredit was established in 1975 by a group of churches. "We work very closely with the people who borrow that money," says Mr. Provance. "We want to reduce poverty, and we want them to pay us back." The minimum investment in loans made through Oikocredit, if not made online, is $1,000 for one year with a maximum 2% return. The fund has about $530 million deployed to 410 credit banks and almost 220 cooperatives, which work directly with the borrowers. (Investments can be made online for as little as $100 through the MicroPlace Web site.) David Mesenbring is typical of many investors in microfinance. While working in the 1980s in Africa he saw that poor people couldn't get credit from traditional banks. But a loan of $50 or $100 could be life changing because it would enable someone to start a business selling produce or producing crafts. Over the years, he and his wife have invested about $6,000 in Oiko, which they keep relending. "When I think about the social dividend it pays to me, $500 is another five families working their way out of poverty," says Mr. Mesenbring. MicroPlace, launched in October, hopes to expand microinvesting to many more investors. "Think of us as a marketplace for microfinance investors," says Tracey P. Turner, founder and general manager of MicroPlace, which is a subsidiary of eBay Inc. "This is another asset class you can add to your portfolio." Individuals can invest as little as $100 on the Web site in one of the agencies. Subsequent investments can be made for $50 or more. Returns are typically in the 1% to 3% range for periods of one to four years. Investors don't pay a fee, but the site charges the issuers of the securities 1% of the loan. Ms. Turner says that eBay has committed to reinvest the profits. Ms. Turner saw firsthand the benefits of these loans when she lived with a single mom in Kenya. The woman bought three sewing machines, which she used with her cousin and mother to sew school uniforms. Her oldest son attended school and went on to college in the U.S. with help from her earnings. Individuals also can get involved in microfinance by investing in a variety of mutual funds, securitized notes and annuities available through TIAA-CREF, Accion and others. Accion's Global Bridge Fund allows individual investors to lend money to the funds and earn interest while their pooled funds support small to midsize microfinance institutions. Accion, like Calvert, guarantees the fund, which isn't rated by rating agencies. The minimum investment is $2,000 for at least 18 months. Interest rates vary from zero to 3% for new investments. "I'm extremely bullish on microfinance as an investment for the right kind of client," says Melanie Schnoll-Begun, managing director at Citigroup Inc. unit Citi Family Office Philanthropic Services, which now offers high-net-worth individuals advisory services for microfinance investments. The Web site run by KIVA (www.kiva.org2) has attracted a lot of attention to microfinance in the past two years. Individuals could select a recipient and contribute $25 or more online. The money is typically repaid and could be lent again or taken out of the account. However, at this point the lender doesn't earn any interest. Fiona Ramsey, a spokeswoman for KIVA, says it eventually hopes to enable individuals to receive interest from the borrower. The nonprofit has been so popular that at times during the holidays there were not enough borrowers for lenders. "We have a perception that the poor are a [poor] credit risk, but actually they're a very good credit risk," says Ms. Ramsey. "The poor are highly motivated to be successful. Usually, this is their only chance for a loan."