Microvest fights poverty with microfinance

Like politics, poverty alleviation makes strange bedfellows. CARE is one of the world’s largest humanitarian organizations, formed in the aftermath of World War II to deliver relief to a battered Europe. (CARE then stood for Cooperative for American Remittances to Europe. Who knew?) Mennonites are a Christian -- but neither Catholic nor Protestant -- faith organization with a strong tradition of pacifism and service. Together, they stand behind a for-profit company called Microvest, whose purpose is to help build capital markets serving the global poor, and whose investors include JPMorgan Chase and Prudential Insurance.

Strange bedfellows, indeed. And that’s no accident, as Gil Crawford, the CEO of MicroVest, told me when we met recently.

Microvest, he told me, reflects a belief that we no longer live in a binary world, one that’s divided between amoral profit-maximizing companies and pure-of-heart nonprofits aimed at doing good.

“Our core premise is that doesn’t work,” Crawford said.

Instead, Microvest raises money from institutional investors, mostly here in the U.S., then makes loans or equity investments in microfinance institutions around the world that lend money to the poor. This activity is designed to generate positive financial returns for everyone along the line -- the U.S. investor, Microvest, the local lender and the ultimate borrower. It’s basically using the power of business to fight poverty.

Some people call this impact investing. In a 2010 report, J.P. Morgan and the Rockefeller Foundation described impact investments as “an emerging asset class” that will create “an investment opportunity of between $400 billion and $1 trillion and profit opportunity of between $183 billion and $667 billion over the next decade in five sectors -- housing, water, health, education, and financial services -- serving global populations earning less than $3,000 annually.” They wrote:

In a world where government resources and charitable donations are insufficient to address the world’s social problems, impact investing offers a new alternative for channeling large-scale private capital for social benefit.

To learn how Microvest puts the principles of impact investing into practice, I sat down with Gil Crawford at the company’s office in Bethesda, Md. Gil worked for the state department and the Red Cross in Guinea and Chad, for the International Finance Corp. and at Chase Manhattan. I also spoke by phone with W. Bowman “Bo” Cutter, the co-founder of Microvest. Cutter, who held senior jobs in the Clinton and Carter administrations, is a former managing director at Warburg Pincus, a senior fellow at the Roosevelt Institute and chair of the board at CARE.

Cutter told me that Microvest got started because CARE had successfully backed microfinance entities around the world, but didn’t want to finance and vet many more local lenders on its own. “These are essentially little banks that do un-collateralized lending,” Cutter said. “CARE’s a big NGO and a good NGO but it doesn’t have an infinite balance sheet.” What’s more, special expertise is required to make sure that the local microfinance institutions are trustworthy and well-managed.

CARE turned to the Mennonite Economic Development Associates (MEDA) as its original partner to form Microvest. MEDA, as it’s known, has been lending money in poor countries since the 1950s when it was formed by a group of US and Canadian Mennonite businessmen who loaned their own money to thousands of Russian Mennonite refugees in Paraguay who wanted to start businesses. The group went on to become a microfinance pioneer, working in Africa and Russia as well as Latin America. “They’ve been doing what we call impact investing quietly for 55 years,” says Crawford, who became Microvest’s first CEO.

Abstract 3D illustration by mmaxer via Shutterstock.