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July 17, 2007

Helping Close the Capital Gap in Africa: Two Big Investments in African Microfinance
    by Anne Moore Odell

More than half of all South Africans still have no access to banking reports Shared Interest, a non-profit investment fund that guarantees bank loans for South Africa's poorest communities. Many Africans suffer from lack of available capital, where only 7 million of Africa's estimated 940 million people had access to microcredit in 2005, according to the State of Microcredit Summit Campaign Report 2006.

SocialFunds.com --

With its many sparely populated rural countries, lack of basic services, and extreme poverty, working in many of Africa's countries is challenging for microfinance institutions (MFIs) and for the investors who support their missions.

Two recent investments by US-based organizations in South Africa and Ghana businesses that help people from impoverished communities gain access to capital will help thousands of people create small businesses, gain access to housing, and create cooperatives to help close the capital gap.

The United Methodist General Board of Pension and Health Benefits (UMC-GBPHB) has invested $1 million in New York-based Shared Interest, which will work with its South Africa partner the Thembani International Guarantee Fund to guarantee bank loans in communities overlooked by mainstream banks. MicroVest and the Calvert Foundation this month also announced a $1.5 million debt investment in the Sinapi Aba Trust (SAT), a MFI based in Kumasi, Ghana.

The UMC investment is Shared Interest's largest single investment to date. Currently Shared Interest has $11.4 million in assets invested with Thembani. This investment also marks one of the first US pension fund investments supporting African communities.

"The UMC-GBOPHB investment will enable Shared Interest to provide access to credit and technical assistance for an additional 30,000 low-income South Africans of color by enabling them to launch small and micro-enterprises," said Donna Katzin, Executive Director of Shared Interest. "This will bring Shared Interest's total of beneficiaries assisted to date to more than 1 million people."

The United Methodist Church is expanding rapidly on the African continent. The UMC-GBOPHB decided to invest with Shared Interest, in part, to develop a retirement program for African clergy. "The decision to invest in microfinance in Africa was driven by our desire to invest funds that will ultimately support African clergy in a manner that will positively impact others in Africa" said David Zellner, Chief Investment Officer for UMC-GBOPHB.

In 1996, Shared Interest helped to launch the Thembani International Guarantee Fund. Shared Interest raises investments in the US to capitalize a pool of funds that is used to back guarantees on Thembani's behalf. These guarantees are backed by letters of credit, drawn on Shared Interest's bank in the US, and issued to South African banks to cover part of their loans to South African community development financial institutions (CDFIs) that serve the country's lowest income communities.

"Our primary goal is to attain an appropriate rate of return for the investment given our assessment of risk," explained Zellner. "An important element of the mission of our organization is to provide participants with a secure benefits program. We do so by investing assets in a socially responsible manner."

Shared Interest estimates that the $1 million investment will leverage at least $6 million in loans distributed through South African CDFIs and will reach 30,000 South Africans.

"Shared Interest's impact in South Africa has increased exponentially in recent months, as demand for our guarantees has increased," Katzin told SocialFunds.com. "During the past 12 months, we have benefited more low-income South Africans of color than during the previous 12 years - bringing our total number of beneficiaries to 975,000 people - 75% of them women. Soon we will reach one million."

MicroVest and the Calvert Foundation are working directly with Sanapi Aba Trust (SAT), in Kumasi, Ghana, with a combined $1.5 million two-year loan. Headquartered in Bethesda, MD, MicroVest, the first private microfinance investment fund in the US with over $64 million in assets, is investing $1 million in SAT. The non-profit Calvert Foundation that works to help investors with community investment is lending $500,000 to SAT.

"Barring two large MFIs, Ghanaian MFIs have not been able to access significant capital from international sources and local funds availability is limited," said Sasidhar Thumuluri, Investment Associate for MicroVest Capital Management. "These MFIs are constrained in terms of business growth due to capital deficit. The MicroVest and Calvert Foundation debt opens doors for such MFIs to access capital from commercial funds at competitive rates and in turn helps them reach large number of economically active poor."

SAT, established in 1994, currently has over 50,000 clients, with 18 branches all over Ghana. SAT's mission is "serving as a mustard seed through which opportunity for enterprise development and income generation are provided to the economically disadvantaged to transform their lives".

MicroVest contacted SAT last year as a part of business prospecting, as MicroVest was interested in entering Sub-Saharan Africa for some time. This is MicroVest's first investment with microfinance in Africa.

SAT reports that in Ghana about 40% of the population lives below the poverty line. "SAT, an institution committed to transforming the lives of the poor, is faced with the challenge of scaling up its operations to serve more disadvantaged entrepreneurs," said Joyce Owusu-Dabo, Programmes Marketing Manager for SAT.

"It is with this background that SAT seized the opportunity to tie a business relations knot with MicroVest and Calvert Foundation, both in the USA where convertible debt equity of US$1,500,000 was realised to SAT in June, 2007, to support its operations, " Owusu-Dabo told SocialFunds.com.

Partnerships between American investors, both institutional and individual, and African MFIs continue to grow, but still lag behind their counterparts in Asia and Latin America.

"I would say microfinance in Africa is at least 5 years behind schedule compared to South Asia or Latin America," MicroVest's Thumuluri said. "But the growth has been phenomenal in recent past. Poor infrastructure, weak institutions, lack of financial and human capital, are in my opinion biggest bottlenecks. However, recent positive changes such as establishment of democratic institutions, reverse migration of qualified professionals, and improving governance in countries like Ghana are attracting greater investor interests," Thumuluri added.

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