New York, US, December, 04 2011 -
In an interview with Ashwini Narayanan, General Manager of MicroPlace, we discussed the origin and evolution of the company, the nature of social impact investing and microfinance, organizational milestones of recent past, and how to convince the average investor of the enormous potential of impact investing.
MicroPlace is a PayPal company. Their mission is to help alleviate global poverty by inspiring individuals to make investments in the world’s poor. They want to unleash the capital in people’s investment portfolios and harness it to make a difference in the fight against poverty. Imagine the possibilities if PayPal’s 70 million users were to each commit $500 to a MicroPlace investment – making $35 billion of financial services funding available to the world’s working poor. PayPal believes it’s possible to realize that kind of radical, positive contribution.
As General Manager, Ashwini oversees the strategy and operations of MicroPlace. Her passion to deliver on the promise of the mission is only equaled by her enthusiasm to inspire people to get involved with the cause. She’s a generalist who has occupied a spectrum of roles in product, business, and operations over the last 10 years. She most recently worked as Director of Financial Services for PayPal North America and Senior Director of Product for CyberSource.
Rahim Kanani: Describe a little bit about the founding and motivation behind MicroPlace, and its relation to PayPal.
Ashwini Narayanan: MicroPlace was founded by Tracey Turner. Tracey worked with Grameen Bank (a large microfinance institution) in Bangladesh and was impressed by the impact that financial services could make in the lives of the working poor. Since these organizations were run as businesses, they could actually accept investments and pay a modest return on the capital that they borrowed.
The demand for microfinance services at that time far outpaced the capital available to fund the institutions that were providing these services. A diversified source of funding was a market need and individual investors represented a tremendous pool of untapped capital. But there was no easy way for individuals to make investments that enabled capital to flow to microfinance institutions. Only high net worth individuals and large institutions were able to make such investments.
MicroPlace was conceived as a platform to enable everyday individuals to invest small amounts to capitalize these social enterprises, defined as revenue generating ventures founded to create economic opportunities for very low income individuals, while simultaneously operating with reference to the financial bottom-line. The technology platform would also make it cost effective for these institutions to acquire and manage thousands of individual investors.
This idea needed marketing, technology and distribution that scaled. The eBay/PayPal base and platform would provide the distribution and community to scale investors and investment dollars. Fundamentally, PayPal enables consumers and merchants to transact and connect to financial systems that they cannot use traditionally for various reasons. Microfinance is the provision of financial services to those excluded from the financial system. The synergy was obvious.
While we started with a focus in microfinance, our goal is to offer a variety of impact investments to retail investors as more products in this space become available. The Global Impact Investing Network (GIIN) defines impact investments as those that aim to solve social or environmental challenges while generating financial profit. We’re thrilled to see the growth of impact investments beyond microfinance. And we’re even more excited to provide the everyday investor the opportunity to make such investments through MicroPlace. Think about the impact we could collectively make if all individual investors invested just a small portion of their investment portfolio in impact investments.
Rahim Kanani: What are some examples of social impact investments that can be made through MicroPlace?
Ashwini Narayanan: The majority of impact investments available to individual investors are still in microfinance (or in the US what’s referred to as community investing). Organizations like FINCA International, Calvert Foundation, MicroCredit Enterprises (MCE), Working Capital for Community Needs (WCCN), Shared Interest and Oikocredit-USA issue their investments on MicroPlace and use the proceeds to make loans to microfinance organizations and other social enterprises around the world. Investment returns have ranged from 0.5-6.0%, with terms from six months to four years. Investors can select from about 35 opportunities on the site, filtered by financial, social, and geographic foci.
Some examples of current offerings on the site include:
- A 4.5% investment funding more than 20 microfinance institutions across the developing world
- A 3.5% investment benefitting environmental sustainability in Latin America
- A 1.25% investment supporting fair trade certified cocoa famers in the Dominican Republic
- A 2% investment providing financial and educational services to help Haiti’s working poor rebuild their earthquake-devastated country
As more impact investments become available, we’ll work hard to offer them on MicroPlace. For example, Calvert Foundation recently added an investment (offered exclusively through MicroPlace) that benefits the California Freshworks Fund, making fresh and healthy foods available in underserved communities in California. We’re also about to add an investment that benefits a provider of healthcare services and clean water to remote communities in India.
Rahim Kanani: How are the potential investments vetted or curated for the public?
Ashwini Narayanan: Issuers of securities on MicroPlace are subject to a rigorous due diligence process. Our Due Diligence Committee is comprised of members of our team, as well as representatives from the eBay/PayPal credit, legal and risk organizations. Our process is designed to ensure that all risks related to investing in these securities are understood and disclosed in the prospectus. The due diligence process also ensures that the issuer’s mission/practices and policies align with those of MicroPlace. Finally, our due diligence process is specifically designed to ensure investments are suitable for a wide range of investors, from unsophisticated to sophisticated.
We’re proud to state that none of the issuers currently on our site has ever defaulted on payments to a MicroPlace investor. (In fact, they’ve never defaulted on payments to any of their investors (and that spans 20 to 25 years for three of our issuers). Of course, past performance is no guarantee of future success, but those are the facts we can state today.
Rahim Kanani: What have been some of your major success stories of MicroPlace investments?
Ashwini Narayanan: In 2009, MicroPlace worked with MCE to bring a unique guarantee structure to the market which offered an attractive interest rate to investors; investors greeted this new offering with such enthusiasm that the full offering sold out in record time.
MicroPlace also works closely with WCCN, a development organization with over 20 years’ experience helping to alleviate poverty in Latin America. WCCN channels capital from MicroPlace investors and other sources to microfinance institutions and credit cooperatives that serve the poor. For example, MicroPlace investors helped fund a WCCN project to drive truly transformational change in Ecuador. The project provided below-market-rate loans to families with special needs children and to special needs adults helping them achieve economic independence. It also provides special needs children and adults with crucial health care, therapy and job training so they can fully participate in society.
Rahim Kanani: How can we convince traditional investors to lean more into impact investing?
The key is to raise awareness, education and the tools to allow investors to adequately evaluate impact investments. While it’s still debatable whether impact investing can be defined as a separate asset class, it is still akin to other asset classes (like emerging markets when they were in their infancy).
Most people assume you invest to earn returns and donate to solve social problems. The idea that one can make an investment that is financially sound and socially responsible is novel to most investors. Educating investors of the availability of such investments is a major focus of the impact investing industry. It is certainly our focus.
In addition, the framework used by traditional investors to evaluate investment does not quite capture the value of impact investing. Until people understand the impact that their financial decisions can have, they won’t be moved to make those decisions. Organizations such as MIX Market and MicroRate have done fabulous work to provide more information and transparency to the industry, which we fully support. In September, an industry group launched a new project called the Global Impact Investing Rating System, or GIIRS. GIIRS is an independent third party that assesses the social and environmental impact of companies and investment funds. This also is a huge step forward for the industry in providing investors the tools they need to make smart decisions with their impact investments.
As the idea becomes more mainstream, the industry will develop the products and the evaluation tools that most traditional investors are used to; at some point, the ability to assess the social return on investment will be a standard. Just as most individuals donate some percentage of their income to charity, perhaps all investors will devote a certain percentage of their investment portfolio to making a difference. And, once this shift happens, perhaps all of our decisions, including financial ones, will include an element of conscience, and “return on investment” will also include benefits to someone/something other than the person who is making the investment.
In terms of the potential opportunity, demand from US individuals is estimated at $120 billion. It is estimated that $30 billion in impact investments have been made to date, with the potential for that number to grow to $500 billion globally over the next decade. Finally, we believe one of the most convincing angles for impact investments on MicroPlace today is how they fulfill a growing demand from retail investors for low-volatility portfolio options.