Unitus Expands in Africa as Indian Partner Mulls IPO
Seattle, United States, June, 23 2009 -
Unitus, a Seattle non-profit supporting microfinance around the world, is entering a new phase as it expands into northern India and Africa, and its social enterprise investment arm builds a second equity fund of at least $70 million, almost triple the size of its first fund.
From its new location on the fifth floor of a Queen Anne building, Unitus President Ed Bland talked about the group's progress to help small microfinance organizations grow by providing capital and business consulting. Unitus has about 40 employees and 24 microfinance partners, 14 of them in India.
Among them, SKS Microfinance in India is the fastest growing microfinance organization in the world, reaching more than 4 million clients today from the 12,000 it had when it first received support from Unitus in 2003. I wrote about SKS here when its founder Vikram Akula was in town.
SKS, which has relied on private equity so far, is likely to go public within the next 18 months. "It will make a big splash," Bland said, but not in the same way as the last major microfinance IPO, Compartamos of Mexico. SKS charges interest rates of 26 percent, compared to the 84 percent interest charged by Compartamos, he said. The IPO helped fuel a debate about the role of microfinance.
A public stock offering would be one way for investors in Unitus Equity Fund to get back their initial capital investment. Another way would be for a microfinance partner to be acquired by a bank in a private buyout. That could help the bank push its services to more low-income clients, who have proven to be reliable borrowers with higher than 90 percent repayment rates. Two-thirds of the Unitus Equity Fund's investments are in microfinance organizations that Unitus supports on the non-profit side.
The first fund's investors were socially minded individuals willing to take a risk for a modest return over 10 years. The $24 million fund was managed with a "charitable override," Bland said. That meant that its social purpose was the most important aim, and making money was second.
Now Unitus' for-profit arm has been renamed Elevar to avoid confusion with the non-profit. Elevar is raising the second fund with a different strategy: broadening its investors to include institutions that weren't part of the first fund at all. To draw investors such as pension funds, Elevar changed its mission to remove the charitable override, Bland said.
It still has a social mission, but that can't be above profit, he said.
The fund will make almost no investments in Unitus' partner microfinance organizations, but rather invest in "innovation at the bottom of the pyramid," Bland said. That includes things like technology, insurance for the poor, private education and anti-malaria bed nets.
The second fund has a target of $70 million to $100 million, focusing on a new category of investing in services for the 4 billion people at the lowest socioeconomic rung.
Unitus opened an office in Nairobi earlier this year, along with the Africa Microfinance Growth Centre, an 18-month program in leadership development for microfinance CEOs. As it moves into Africa, Unitus has partnerships with MFIs in Kenya and Tanzania and hopes to expand to groups serving Uganda, Rwanda and Ethiopia in the future.
Some of the challenges are different, Bland said. Capital is much harder to come by than in India, where the government has identified microfinance as a priority sector and banks have an incentive to support it. In Africa costs are higher, and MFIs must hedge against currency fluctuations as they borrow in dollars and lend in Kenyan shillings, for example.
But Unitus' mission is to put its resources into promising regions where microfinance is struggling. Places that are "harder but not so hard you're stuck there for 30 years banging your head against the wall," Bland said.