Unitus announced last week that they’ve raised a US$23 million private equity fund to invest in microfinance. I was able to catch up with Chris Brookfield, Director of Unitus Equity Fund, last week to find out more about this announcement.
Dave: What is Unitus announcing today?
Chris: Unitus is announcing the closing the Unitus Equity Fund (UEF). UEF is formed just like the other venture funds I have been a part of. The difference is that UEF is committed to investing into sustainable microfinance enterprises. It is our hope that by demonstrating that microfinance can scale rapidly and produce returns for investors that much greater amount of investment capital will follow. By increasing the capital available to microfinance companies, we increase the number of borrowers that can be served. So each new investment dollar in will translate to a new opportunity for a poor person to become an entrepreneur.
The ‘close’ means that we have exceeded our goal and will now be focused 100% on finding new MFI’s to invest into. We closed on $23 million.
Dave: What are Unitus’ key objectives for UEF?
Chris: We have 5 key objectives:
- Demonstrate that non-profit microfinance banks can transform into sustainable commercial companies.
- Show that ‘professional’ investors are willing to invest in microfinance.
- Begin the formation of microfinance as an investable asset class.
- Attract larger, upstream investors to the space, and
- In the end, show the microfinance is a dynamic, high growth business and that the poor are an attractive market for future investment.
Dave: What is unique and ground-breaking about this announcement?
Chris: There a couple of firsts (as far as we know):
- UEF is the first equity fund in microfinance to be financed 100% in the private market. Most others have capital provided by development agencies and the like. This distinction is important because of the UEF’s more ‘professional’ the investors, our results will have better demonstration effect and be more relevant to other professional investors.
- We are taking a unique venture capital portfolio approach. Our intention is to partner with the best managers in microfinance and encourage them to innovate and grow rapidly.
- The UEF is global in scope, but focused on India, Mexico, Brazil, Indonesia and Pakistan.
- The UEF is a pioneer in creating a hybrid socially responsible investment vehicle that is also managed for risk appropriate returns.
Dave: How are the UEF monies going to be invested?
Chris: The UEF will invest in 8-10 microfinance companies and allocate $2-3 million per company. More than 50% of the companies will be in India, with the rest spread amongst other countries.
Dave: UEF has already made some investments. Can you please describe a couple of those and what impact you are expecting?
Chris: Our investees are SKS (India), Ujjivan (India) and Credex (Mexico). Overall, Unitus has chosen to partner with these MFIs because of the potential for very high growth. You can see some of the detailed goals on Unitus’ web site.
Dave: Who are the investors in UEF and why they have invested?
Chris: The UEF investors break out into roughly 4 groups each contributing about 25% of the capital:
- Unitus board members and friends.
- Omidyar Networks, the investment vehicle of Pierre Omidyar.
- Professional investors who are leaders in technology VC, private equity and health care.
- A group of socially responsible investors managed by Abacus Wealth Management.
Dave: Some people think that for-profit microfinance is (or can be) predatory or immoral … that is, earning returns for wealthy investors from the financial services provided to the working poor? How do you respond to this?
Chris: I believe that investors of all types need to practice the highest ethical standards in all that they do. The investors in UEF, its management and our Investment Committee are deeply committed to sustainable investing that will create ongoing opportunities for people in all of the markets we invest.
To this end, UEF places a strong emphasis on valuing its investment on a basis of the long term health of the underlying customer bases. Our banks can only do well they customers and communities do well. That’s really our bottom line.
Profits means that microfinance is sustainable in the long term. Not hostage to the whims of political agenda or the grace of donors. If microfinance can continue to grow sustainably, then it will be able to attract investment from the global capital sources. This is the only way microfinance will be able to serve the 2 billion people who need it.
Dave: Why do you like working with Unitus and the UEF?
Chris: This has been one of the most rewarding challenges of my life. It is not easy to raise money for an industry most people have never even thought exists or to make investments in multiple countries. While my international travel regimen is quite grueling, I am very energized. I can’t wait to see how the story of microfinance develops and what role our investments will play.