Big money flows into microloans

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The San Francisco Chronicle
By: Andrew S. Ross
May 21, 2010

"I've got a small ice cream business that's not doing so well," California first lady Maria Shriver told 1,000-odd attendees at the Microfinance USA 2010 conference in San Francisco. "Maybe I need a loan, too."

Actually, she admitted offstage, her 2-year-old company, Lovin' Scoopful, whose "gourmet light" ice cream is on grocery shelves in 22 states, is doing quite well.

And Shriver was at the conference to give rather than receive.

Not only to cheer on the burgeoning microfinance movement, but to give $300,000 from her nonprofit Women's Conference organization to various microfinance organizations, including San Francisco's Kiva.org - Shriver heads one of its "lending teams" - and San Jose's Opportunity Fund, which put on the two-day conference www.microfinanceusa2010.org.

But that was a small tip of the growing amount of serious money flowing into the sector. San Ramon's Chevron Corp., the lead sponsor of the conference, has already given close to $1 million combined to Kiva and the Opportunity Fund, with more to come, as part of its California-focused "economic development initiative."

Earlier this month, Citigroup Inc. announced a $200 million fund to be distributed in partnership with Maryland's Calvert Foundation and the Opportunity Finance Network, both specialists in distributing microloans through the U.S. Treasury-backed Community Development Financial Institutions Fund.

Good business: The little-known U.S. Treasury-backed fund www.cdfifund.gov has given out more than $1 billion to community development organizations - it's one of Opportunity Fund's backers - and has $247 million to give away this fiscal year, courtesy of congressional appropriation.

And you know things are getting serious when Goldman Sachs & Co. gets involved. In November, before the you-know-what hit the fan, the investment bank announced $300 million, primarily in loans, to CDFI-connected small entrepreneurs as part of its "10,000 Small Businesses Initiative."

"We've been involved with microfinance as philanthropy for 30 years," said Bob Annibale, Citi's global director of microfinance. "Realizing they're looking for capital, we've become bankers to microfinance institutions."

"Banks, especially since they've come under more scrutiny, realize getting involved in microfinance is good business," said Premal Shah, president of Kiva. "Bringing more people into the economic mainstream ultimately brings them more customers."

Enter the outliers: But with the coming of age also come pitfalls, as Kiva and others have found. A New York Times story last month "Big banks draw profits from microloans to poor" about the seemingly usurious rates of interest some lenders were charging created a stir in the microfinance community.

The Times noted that Kiva, while promising on its Web site it "will not partner with an organization that charges exorbitant interest rates," was working with a Nigerian "local field partner" that charged interest and fees amounting to 83 percent of individual loans to Nigerian beneficiaries.

Kiva, whose loans are distributed in 52 countries and 15 U.S. states, has stopped working with the institution, which Shah described as an "outlier." While pointing out that higher interest rates are simply part of the cost of doing business in much of the developing world, he acknowledged that as the sector grows, more bad actors will attempt to horn in, and be kept out.

Shah posted a longer explanation in response to the New York Times article on Kiva's blog links.sfgate.com/ZJRS.

There is also the issue of transparency. For example, how to explain to donors that their loan of $25 might not be going directly to that Colombian weaver he or she picked out as the chosen recipient on Kiva's Web site; although should the weaver default an exceptional circumstance in the microfinance world the lender would lose his or her money.

"In this one-sentence, sound-bite world," Shah said, "how do we find the balance between explaining the complexity of the system while engaging that woman donor in Iowa?"

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This page contains a single entry by CFED published on May 21, 2010 3:11 PM.

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