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June 03, 2004
Sarona Supports Microfinance To Help Alleviate Poverty in Developing Regions
    by William Baue

The Sarona Global Investment Fund finances starch processing in Paraguay, a foundation supporting small enterprises in Romania, and a savings and loan cooperative in Haiti.

In 1953, Mennonite refugees from the Soviet Union needed capital to set up a dairy farm in Fernheim, Paraguay. A group of eight US and Canadian businesspeople established Mennonite Economic Development Associates (MEDA) to provide $40,000 of loan capital to the refugees, who named the farm "Sarona" after the fertile Palestinian plain in the Bible. In 1999, MEDA, which had grown to 3,000 members, established the Sarona Global Investment Fund to offer North American investors the opportunity to help alleviate poverty by supporting low-income communities in developing regions through microfinance.

“Our money is an extension of ourselves and so we want it to be used in a way that is consistent with our values," said Sarona Global Investment Fund investor Martin Edmonds.

“Sarona is a way for me to embrace my values--it puts my money to work for the poor," echoed Stuart Clark, another fund investor. "The fundamental requirement of any economy is employment--people need work [and] Sarona is about creating jobs."

The Sarona Global Investment Fund has more than $5.6 million in assets, as of April 30, 2004. Investors can buy $1,000 certificates in the fund that earn from 1 to 3 percent interest annually, depending on the term period.

True to its roots, the fund provides financing in Paraguay through a $212,000 equity investment in CODIP, a plant that processes starch from manioc, a potato-like root that serves as a dietary staple in South America. CODIP benefits local small-holder farmers by providing a good price and a steady market for their manioc harvests, and also by infusing the majority of its profits into providing technical agricultural assistance to the farmers.

"That starch plant has done fabulously well," said Gerhard Pries, president of Sarona Social Investment Group, which manages the Sarona Global Investment Fund as well as the MicroVest Fund, which provides capital to microfinance banks throughout the world.

The MicroVest Fund is open to "accredited investors," a designation by Canadian and US securities commissions for high net-worth individuals.

Sarona also offers direct investment opportunities to accredited investors, as demonstrated by the CODIP investment.

"We were working with an investment group of about 15 people from Denver who were interested in direct investment, so they formed an investment company and we acted as an intermediary, putting them together with this starch plant," Mr. Pries said.

The Denver group agreed to provide $225,000 in loan finance to CODIP, but they came up about $9,000 short, so the Sarona Global Investment Fund covered this shortfall.

The Sarona Global Investment Fund invests in seven other developing countries, mostly in South America. Exceptions include Romania, where the fund provided two $500,000, five year loans to the Romanian-American Enterprise Fund (RAEF) to support CAPA, a Bucharest-based foundation that supports small enterprises.

Another exception is Haiti, where the fund has two investments. One is a $240,000 loan at six percent interest (that has been paid down to $80,000) and a $20,000 equity stake in the Société Hatïenne d'Epargne et de Crédit (SHEC), a homespun savings and loan coop that grew out of a MEDA urban development program. The other is a $10,000 loan at eight percent interest to a rural credit program that provides loans that average $120 to finance small-scale trading, grain storage, and livestock production.

"They're both still alive and active, in spite of all that's happening in Haiti nowadays," said Mr. Pries. "We're sitting on pins and needles hoping that Haiti won't collapse, what with the political crises and mud slides going on down there."

SHEC survived the 1991 ouster of Jean-Bertrand Aristide and the ensuing North American embargo, with two thirds of clients showing up to make loan payments to the skeleton staff in the MEDA offices that were officially supposed to be closed. Time will tell whether history will repeat itself, and whether the benefits of microfinance will help it survive the political and environmental ravages endemic in developing regions such as Haiti.


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