Social Impact Investing

Investing in Poverty Reduction

A number of people have asked me about whether there are options available for people to invest their savings in ways which are helping to defeat poverty. Investment is different than making a donation. The assumption with an investment is that there is an expectation (although not without risk) that your capital is returned and possibly with some extra earnings. You don’t get a tax deductible receipt for an investment like you usually do with a donation.

There are a growing number of what are called “socially responsible” investment fund options. For instance, you can find mutual funds which explicitly don’t invest in the “sin industries” — tobacco, alcohol, pornography, armaments, etc. These funds utilitize which they call ” investment screens” which are requirements that a company must pass before they qualify to be invested in.

In my searching so far, I’ve only found one investment option* which explicitly focuses on fighting poverty … the mPower Investment Program run by Calvert on behalf of MicroVest. MicroVest was founded by CARE, MEDA and the Seed Capital Development Fund. This fund takes invested monies and loans them out to microfinance institutions (banks for the poor), so these banks can make more loans to the poor. This is a debt fund where you loan (minimum $1,000) to the fund for a term of your choice between 1-10 years and an interest of your choice between 0%-3% per year. Essentially, you’re expecting to get paid back your loan with the selected level of interest.

I have not been able to find any public funds (basically mutual funds or similar) where you can buy shares/units. I expect that this is because of the restrictions on mutual funds needing to be highly liquid (that is, you can sell at any time) and the lack of liquidity for investments that the fund would make in poverty-reduction businesses (like microfinance institutions.)

You might ask why I am interested in investment options for defeating poverty? Should we really think in terms of “making money” while defeating poverty? Why not just make a donation? The reason is that there just aren’t enough donated dollars to fund the initiatives required to defeat poverty. Unitus estimates that only 14% of the people who could benefit from microfinance currently have access to those services. It is only when we start tapping into the capital markets (which means your and my savings/investments) that we reach the capital needs for the one sector of microfinance.

*NOTE: There are an increasing number of private funds being raised for microfinance … both debt funds and equity funds. The issue for most people is that you have to be a “qualified investor” (read: very wealthy) in order to participate in these options. So, they are really not options for most people.

3 thoughts on “Investing in Poverty Reduction

  1. This is a great post, a very clear summary of the issues involved in social investing and microfinance investing. We at http://www.microcapital.org track all microfinance investment funds, including the ones mentioned in your post. Currently, we list 63 funds, 13 of which provide a return to the investor. On the left side of the microcapital blog, please see the “Microfinance Funds Universe” link for the list. We will defeat global poverty in our lifetimes! Thank you again, David Satterthwaite.

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  2. Please post the questions or your email address if you’d prefer a private conversation. In general, I prefer to have conversations “publicly” in order to share the information with others.

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