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January 17, 2007
MicroVest Secures Mutual Fund Investor
    by Anne Moore Odell

Meritas Jantzi Social Index Fund Invests with MicroVest


After several significant developments in the microfinance arena last year, MicroVest recently announced that they received their first mutual fund investment, paving the way for other interested mutual funds. The $300,000 investment in MicroVest I, LP came from the Meritas Jantzi Social Index Fund, a Canadian-based mutual fund run by Meritas Financial Inc., of Cambridge, Ontario.

In operation since 2003, MicroVest is the first private US microfinance investment fund. Located in Bethesda, MD, MicroVest is managed by MicroVest Capital Management (MVCM). With $25 million, the fund provides debt and equity capital to microfinance institutions (MFIs) in emerging global markets.

Microfinance institutions make very small loans to entrepreneurs in impoverished areas of the world. These small loans, usually in amounts of $100-$2,000, are much less than traditional banks can extend. MFIs offer an alternative to loan sources with unfair interest rates to start small-scale projects in commerce, agriculture, manufacturing and services. MFIs charge only the rate necessary to cover the banks’ costs to make the loans. The default rate on these loans is equal to or lower than traditional bank loans. Women are often the recipients of these loans, helping lift their families out of poverty.

MicroVest invests in 25 microfinance institutions in 12 countries from around the world, including countries such as Peru, Kazakhstan, the Republic of Georgia, Mongolia and El Salvador. As of September 2006, the MicroVest I, LP fund had reached over 196,000 clients worldwide through these MFIs.

The minimum investment in MicroVest debt is $500,000; however, the MicroVest General Partners may accept investments of less than $500,000 at a lower interest rate. Equity slots for MicroVest are closed. Target investors include mutual funds, endowments, foundations, donor-advised funds, institutions, and accredited individual investors.

Lauren Clark, Office Services Manager for MicroVest, told SocialFunds.com, "We hope other mutual funds may follow Meritas’ lead in investing in microfinance. Mutual funds often have limitations on investing in illiquid or un-traded securities. They also have been wary of investing in microfinance ventures because they were perceived as high-risk and low return. However, MicroVest I, LP is proving to be a commercially sound investment."

Brian Barsness, Meritas Vice President of Sales and Operation, explained that Meritas’ investment in MicroVest arrives at an opportune time, coming on the heels of Muhammad Yunus and the Grameen Bank being awarded the 2006 Nobel Peace Prize for their work in creating and promoting MFIs. "MFIs are on peoples’ radar screens," said Barsness.

The Meritas Jantzi Social Index Fund is one of seven mutual funds offered by Meritas. Started in 2001, the Jantzi Social Index Fund was Canada’s first socially screened mutual fund and, currently, Meritas’ most popular mutual fund. Up to 2% of the Jantzi Fund can be invested in community development projects. That means that with this new investment, Meritas has CAD 600,000 in these funds.

Meritas chose MicroVest for their diversified portfolio and their competitive returns. "We are a mutual fund company that grows profits for our customers, but we are also working to make the world a better place," said Barsness, Meritas Vice President of Sales and Operation.

"MicroVest mitigates the risk of investing in microfinance institutions in emerging markets by following stringent due-diligence practices and by using a variety of debt and equity instruments which can balance risk and return," Clark told SocialFunds.com.

MicroVest diversifies their portfolio by focusing of two key areas of the planet. East Europe/Central Asia MFIs make up 41.9% of their MFIs while Latin America/Caribbean MFIs compose 40.5% of the MicroVest fund. The US (8.9%) and Asia (8.7%) round out the fund’s holdings. Their portfolio is also diversified in its investment instruments, including short, medium and long-term debt, loan guarantees, equity, and quasi-equity/sub-debt. For 2008, MicroVest’s target debt to equity ratio is 2:1.

MicroVest’s investment team conducts due diligence assessments of a MFI’s performance, examining, for example, their credit approval procedures, risk management policy, senior management, information technology, repayment and cash management, and default procedures. Moreover, clients are rated by independent rating agencies that specialize in microfinance.

"MicroVest’s reputation in the microfinance industry enables us to leverage our relationships to source and monitor new deals. The deal structures are based on proven private sector experience. By mitigating against industry risks in these ways, MicroVest is able to offer investors low-credit risk and market rate of returns in global markets," Clark told SocialFunds.com. "The flexibility and time horizon inherent in MicroVest’s structure allow the Fund to seek out opportunistic investments in countries that are not typically courted by major financial players."

The working relationship between Meritas and MicroVest grew through their joint contacts with Mennonite Economic Development Associates ( MEDA ). MEDA was one of the founders of MicroVest along with CARE and the Seed Capital Development Fund.

Although there are a number of charitable and government-sponsored agencies that help fund microfinance programs, MicroVest believes that the private capital market can mobilize more capital to meet the funding needs of MFIs than can be expected from donated funds or government institutions.

 

 
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