Microfinance · Opinion

Questions about Unitus changes

I wish I had posted this closer to the announcement date, but I still think this will be helpful for people who care deeply about Unitus and microfinance/poverty alleviation…

I am a board member of Unitus, a global poverty 501c3 charity which recently announced that it is redirecting its efforts from microfinance to new areas of reducing global poverty.  This came as a shock to many people who have valued the transformative work that Unitus has done to dramatically increase access to financial services for poor families.

False and Misleading Rumors

Unfortunately, false and misleading information about this announcement have become widespread.  This is very disheartening because:
(a) The significant positive impacts Unitus has made on behalf of the global poor have been largely ignored, and
(b) Concern that Unitus’ announcement indicates that microfinance no longer requires innovative philanthropic support.

In an attempt to correct some of these misconceptions, I have re-stated some of the most common questions that I’ve been asked along with my thoughts that I shared in conversations with multiple people:

Q: What is Unitus’ mission? Vision? Approach?

Unitus’ mission is to help eliminate global poverty.  Like Nobel Peace Prize laureate Muhammad Yunus has said, we want poverty to be something future generations can see only in museums. From the start, we have been agnostic about methods.  We are not about microcredit, profits, nonprofits, or any other methodology.  We have searched for highly leveraged ways that we might uniquely contribute to empowering millions of poor working families with the opportunity for economic self-reliance. We are strong believers in identifying and accelerating the activities and approaches that most effectively reduce poverty and empower the working poor. We see market systems and capitalism as powerful tools that can and should be harnessed to bring opportunity and sustainability and global impact.  We are committed to identifying high-impact projects with clearly defined and measurable goals.  When we determine our work is done with a particular job, we will declare that we are done, then exit and pursue other worthy projects.

Q: What did Unitus announce?

With approximately $50 billion of microfinance capital now available to more than 150 million of the world’s working poor — and a large and a growing community of philanthropic and (now primarily) commercial microfinance institutions serving this previously greatly underserved market — we feel the time is right for Unitus to seek out other transformative fields of endeavor. Accordingly, going forward Unitus will no longer initiate new microfinance partnerships. We will honor all existing obligations and commitments to existing MFI partners, then move on to new high-value activities. Consequently, Unitus will be downsizing its operations to a small team as we identify new transformative projects to reduce poverty.

Q: What project has Unitus completed?

Our first project was focused on attracting commercial capital into the microfinance sector.  When we first started on this project 10 years ago, almost all microfinance was funded by philanthropic capital.  Less than 10 percent of the working poor had access to microfinance and growth was slow due to capital constraints and lack of innovation.  Our vision was to identify entrepreneurs building the next generation of microfinance organizations in underserved and un-served markets and to support them in demonstrating the financial viability of commercial microfinance operations.  The results of our endeavors have been beyond our imagination when we started.  Our partners are now serving 12-plus million poor families, and represent some of the most innovative, efficient, fast-growing financial organizations on the planet.  And many of them are passing on those efficiencies by regularly reducing interest rates paid on microloans by the working poor to levels never seen before. A recent IDB survey reported that “profit-making MFIs (charge) lower interest rates [than non-profit MFIs].”  This is significant.

Therefore, Unitus is declaring “project accomplished” (which I think is a more accurate statement than the politically charged “mission accomplished” language.) We set out to accomplish a specific project — attracting commercial capital to the microfinance sector.  There was broad agreement amongst Unitus staff and board (although not unanimous) that we had reached our demonstration effect goal. We looked extensively at (and actually experimented in a few) other geographies where we thought our consultative approach to accelerating access to high-density microcredit might apply and we concluded that the right situations did not exist for Unitus to have further transformational impact.  Since our organization and structure was set up for this project, the board unanimously decided that the right decision was to: (a) wind down the existing microfinance accelerator organization; and (b) with a small team, begin new explorations for areas where we could start new projects that had similar transformative potential on global poverty.

Q: The announcement felt so abrupt. Why?

I think it felt abrupt because so many people care so much about Unitus and had expectations that Unitus had a long-term commitment to microfinance beyond our initial project commitment.  It also felt abrupt because Unitus announced we were downsizing our staff size not due to funding issues or staff performance issues or other more common reasons that charities reduce their expenses.  It also felt abrupt because Unitus staff members, with the board’s determination that the microfinance project was complete, were hard at work identifying new opportunities for Unitus projects. And it felt abrupt because the board chose to announce the changes soon after they were finalized, because we wanted to have sufficient resources to help impacted Unitus employees to find their next world-changing roles.

Q: Is innovative philanthropic capital still needed for microfinance?

Yes! There are many situations where there are still market failures or gaps in delivering financial services to poor families. In many cases, these will require strategically and innovatively targeted philanthropic resources to move things forward. There are also many good philanthropic microfinance organizations that have long-term commitments to improving the microfinance sector, so we believe there is greater need for our particular skills and contributions elsewhere.

Q: Will donations received before this announcement be allocated to microfinance or to new Unitus philanthropic activities?

All donations received prior to the announcement will by default be directed towards microfinance activities, including the completion of our existing microfinance commitments and the wind down of our microfinance operations.  For donors who wish for their monies to be allocated towards new Unitus philanthropic activities, we will provide a mechanism for doing this. To be clear, 100 percent of donations to Unitus are and will be used exclusively for philanthropic purposes.

Q: How much money does Unitus have remaining?

Until we finalize fulfillment of all of our existing microfinance commitments and obligations, we will not have an exact number. We are taking the approach of being generous to fulfill not only the letter, but also the spirit of our commitments wherever feasible. Also, as noted above, we still need to have conversations with donors who may want remaining portions of their donations allocated to new Unitus philanthropic activities.

Q: Will Unitus be able to properly invest donor monies with a smaller staff?

Yes. There will continue to be sufficient professional staff to effectively allocate and invest donor resources into projects approved by the Unitus board.

Q: Did Unitus time this announcement because of the upcoming public offering of SKS Microfinance?

Absolutely not. Our timing was based entirely on the factors I outlined above: our desire to make a transformative difference in other fields of poverty alleviation, and within the context of our existing microfinance commitments, to be the best possible stewards of the financial and other resources with which we have been entrusted.

Q: Why can’t Unitus talk more about its involvement with SKS Microfinance?

Under India law, Unitus is considered a “promoter” for the SKS Microfinance public offering, and is restricted from any public commentary about SKS Microfinance during the quiet period before and after the public offering.

Q: Did (or will) Unitus board members personally benefit from Unitus Equity Funds?

Absolutely not. Some Unitus board members did provide investment capital for Unitus Equity Funds (a separate commercial social venture fund setup in 2006). These investments either came through: (a) family/community foundations; or (b) personal investments with a commitment for all proceeds to be used for charitable purposes. So, 100 percent of any financial returns to board member-related investments are committed to further charitable activities.

Q: What are the new philanthropic projects/activities for Unitus 2.0?

There are many significant areas of market failure which deny the working poor the opportunity to thrive and reach their dreams and potential. Traditional international development approaches have continued to fail to deliver results. We are currently researching systems, approaches and strategies where we believe there is the potential for transformative impact to create large-scale, sustainable opportunities to reduce global poverty. We will be announcing more details soon.

Unitus has published a follow-up FAQ.

If there are additional questions in which you think a larger audience may be interested, please post in comments.

Updates:

7 thoughts on “Questions about Unitus changes

  1. Dave,

    thanks for engaging on this. My primary interest in this whole situation is the lessons to be learned by other social entrepreneurs who straddle the non-profit and for-profit worlds. Obviously, the way Unitus/SKS situation has unfolded has led many, myself included, to have concerns about the rules and norms that need to be in place when those worlds blend.

    So I’d like to follow up with some questions:
    1) Since according to the public announcements, virtually the entire staff of Unitus has now been laid off, how is it possible that you do have the expertise to continue to make wise investments with the remaining Unitus assets? According to the logic of the decision to shut down, the presence of so much money flowing to microfinance now makes it all the more important to have knowledge, experienced people allocating funds.

    2) If the quiet period restrictions don’t prevent you from posting this information, why did it take 6 weeks after the shutdown to post these answers?

    3) When was the decision to donate board members’ proceeds from UEF to charity made? If it was made prior to July 2nd, why was it not disclosed as soon as the questions were raised?

    4) If the decision to shut down was not abrupt, why was it so surprising to some board members and major donors (as detailed in Clay Holtzman’s reporting)?

    5) What advice would you give to other social entrepreneurs now that you’ve been through this process in regards to transparency and managing of conflicts of interest when it comes to crossing boundaries between non-profit and for-profit structures?

    Tim

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  2. Tim, thanks for posting your questions.

    My responses:
    1) Multi-part question 😉 There still are Unitus staff engaged in completing existing commitments. Some staff are also engaged in helping determine Unitus 2.0 strategies. The majority of program staff were focused on delivering consulting services not evaluating investment opportunities. We will continue to have professional staff to professionally invest our remaining and new philanthropic funds. Investing funds requires much smaller staff than active high-value consulting service delivery.

    2) I’m slow. A number of these questions were also addressed by earlier FAQ at http://unitus.com

    3) board members made charitable commitments when investments were made. we told this to reporters and they chose to ignore.

    4) the decision was not surprising to any board members. It was a unanimous board decision. the decision was a surprise to many donors because of logistics … we first communicated the decision to employees and then immediately sent out an email to donors. we then attempted to proactively reach out to donors as best we could for follow-up conversations. see my post for some other reasons I see for feeling of abruptness.

    5) frankly, we have always been super sensitive to both actual and perceived/optical conflict of interest issues. that’s why we’ve been so careful in ensuring that any situation which had potential conflict of interest was handled with incredible care. I would recommend that like Unitus, social entrepreneurs pursuing a “hybrid” model should setup a conflicts committee and clear conflicts policies. And hire (unfortunately, expensive) attorneys to assure you are implementing best practices. This obviously doesn’t protect you from false accusations, but it helps you keep to the highest ethical standards.

    Dave.

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  3. For the record, this reporter was never told that board members made the commitment to donate their profits from their investments to charity at the time they made those investments.

    Also, how can the board’s decision on Unitus have been unanimous when three board members resigned, two of whom have publicly stated they did so because they disagreed with that decision?

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  4. Thank you for your post, Stephanie. I read your NYT story. In response to your two specific points:

    a) My understanding is that Unitus board members have always communicated when asked that all financial returns from board member investments in UEF were committed to charitable purposes at the time of their investment. Candidly, we have rarely been asked this by reporters.

    b) I was present in the board meeting where the unanimous decision was made by the Unitus board to make these changes. It is not my place to speak for any of these board members or their reasons for leaving the Unitus board.

    Dave

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  5. Dave–

    Re INTEREST RATES:

    Informative post, thanks.

    You mention in passing that “A recent IDB survey reported that “profit-making MFIs (charge) lower interest rates [than non-profit MFIs].” and that this is significant.

    I hadn’t previously noticed the IDB paper cited and went back to take a look at it. What the ABSTRACT for the paper says is worded a little more ambiguously. It says..”…our regression analysis shows PATTERNS (empashis added) of profit-making MFIs charging lower interest rates.” However, within the paper itself I can find no such direct conclusion supporting the sentence in the abstract. The paper DOES say (p. 23) that increases in the OSS ratio (Operating Sustainability–i.e. greater profitability) are correlated with INCREASED interest charges, and that “financially self-sufficient MFIs usually charge HIGHER interest rates than non-FSS MFIs (p. 24). Perhaps I’m missing something that the researchers found but did not explain?

    Personally, I can easily believe that profitable MFIs may (on average) charge lower rates than unprofitable MFIs….since profitable MFIs tend to be larger (enjoying economies of scale), tend to focus on more easily tapped market segments (they have lower percentage outreach to women and to rural areas and to the very poor, and thus have lower costs), AND tend to be run more efficiently.

    But the more interesting question to me is not whether PROFITABLE MFIs charge lower rates—since many, if not most of the profitable MFIs are NOT commercial MFIs but are NGOs–the more interesting question is whether COMMERCIAL MFIs…those that are obligated by custom and expecation to return a larger share of profits to investors instead of using those pofits to reduce prices and to provide additional serves–do COMMERCIAL MFIs charge lower interest rates than other profitable MFIs.?

    That’s a piece of research that would be interesting.

    Thanks.

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  6. I have to say that for the past couple of hours i have been hooked by the impressive posts on this site. Keep up the good work.

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