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January 17, 2007
MicroVest Secures Mutual Fund Investor
by Anne Moore Odell
Meritas Jantzi Social Index Fund Invests with MicroVest
SocialFunds.com --
After several significant developments in the microfinance arena last year, MicroVest recently
announced that they received their first mutual fund investment, paving the way for other
interested mutual funds. The $300,000 investment in MicroVest I, LP came from the Meritas Jantzi Social Index Fund, a
Canadian-based mutual fund run by Meritas Financial Inc., of Cambridge, Ontario.
 In operation since 2003, MicroVest is the first private
US microfinance investment fund. Located in Bethesda, MD, MicroVest is managed by MicroVest
Capital Management (MVCM). With $25 million, the fund provides debt and equity capital to
microfinance institutions (MFIs) in emerging global markets.
Microfinance institutions
make very small loans to entrepreneurs in impoverished areas of the world. These small loans,
usually in amounts of $100-$2,000, are much less than traditional banks can extend. MFIs offer an
alternative to loan sources with unfair interest rates to start small-scale projects in commerce,
agriculture, manufacturing and services. MFIs charge only the rate necessary to cover the banks’
costs to make the loans. The default rate on these loans is equal to or lower than traditional bank
loans. Women are often the recipients of these loans, helping lift their families out of poverty.
MicroVest invests in 25 microfinance institutions in 12 countries from around the world,
including countries such as Peru, Kazakhstan, the Republic of Georgia, Mongolia and El Salvador. As
of September 2006, the MicroVest I, LP fund had reached over 196,000 clients worldwide through
these MFIs.
The minimum investment in MicroVest debt is $500,000; however, the MicroVest
General Partners may accept investments of less than $500,000 at a lower interest rate. Equity
slots for MicroVest are closed. Target investors include mutual funds, endowments, foundations,
donor-advised funds, institutions, and accredited individual investors.
Lauren Clark,
Office Services Manager for MicroVest, told SocialFunds.com, "We hope other mutual funds may follow
Meritas’ lead in investing in microfinance. Mutual funds often have limitations on investing in
illiquid or un-traded securities. They also have been wary of investing in microfinance ventures
because they were perceived as high-risk and low return. However, MicroVest I, LP is proving to be
a commercially sound investment."
Brian Barsness, Meritas Vice President of Sales and
Operation, explained that Meritas’ investment in MicroVest arrives at an opportune time, coming on
the heels of Muhammad Yunus and the Grameen Bank being awarded the 2006 Nobel Peace Prize for their
work in creating and promoting MFIs. "MFIs are on peoples’ radar screens," said Barsness.
The Meritas Jantzi Social Index Fund is one of seven mutual funds offered by Meritas. Started
in 2001, the Jantzi Social Index Fund was Canada’s first socially screened mutual fund and,
currently, Meritas’ most popular mutual fund. Up to 2% of the Jantzi Fund can be invested in
community development projects. That means that with this new investment, Meritas has CAD 600,000
in these funds.
Meritas chose MicroVest for their diversified portfolio and their
competitive returns. "We are a mutual fund company that grows profits for our customers, but we are
also working to make the world a better place," said Barsness, Meritas Vice President of Sales and
Operation.
"MicroVest mitigates the risk of investing in microfinance institutions in
emerging markets by following stringent due-diligence practices and by using a variety of debt and
equity instruments which can balance risk and return," Clark told SocialFunds.com.
MicroVest diversifies their portfolio by focusing of two key areas of the planet. East
Europe/Central Asia MFIs make up 41.9% of their MFIs while Latin America/Caribbean MFIs compose
40.5% of the MicroVest fund. The US (8.9%) and Asia (8.7%) round out the fund’s holdings. Their
portfolio is also diversified in its investment instruments, including short, medium and long-term
debt, loan guarantees, equity, and quasi-equity/sub-debt. For 2008, MicroVest’s target debt to
equity ratio is 2:1.
MicroVest’s investment team conducts due diligence assessments of a
MFI’s performance, examining, for example, their credit approval procedures, risk management
policy, senior management, information technology, repayment and cash management, and default
procedures. Moreover, clients are rated by independent rating agencies that specialize in
microfinance.
"MicroVest’s reputation in the microfinance industry enables us to leverage
our relationships to source and monitor new deals. The deal structures are based on proven
private sector experience. By mitigating against industry risks in these ways, MicroVest is able
to offer investors low-credit risk and market rate of returns in global markets," Clark told
SocialFunds.com. "The flexibility and time horizon inherent in MicroVest’s structure allow the Fund
to seek out opportunistic investments in countries that are not typically courted by major
financial players."
The working relationship between Meritas and MicroVest grew through
their joint contacts with Mennonite Economic Development Associates ( MEDA ). MEDA was one of the founders of MicroVest along with CARE and the Seed Capital Development Fund.
Although
there are a number of charitable and government-sponsored agencies that help fund microfinance
programs, MicroVest believes that the private capital market can mobilize more capital to meet the
funding needs of MFIs than can be expected from donated funds or government institutions.
©
SRI World Group, Inc. All Rights Reserved.
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