Microfinance, an investment vehicle for lending money to the working poor across the globe, has been grabbing the attention of socially responsible investors everywhere since its inception during the 1970s and 1980s. MicroPlace emerged onto the scene of the growing microfinance industry in the summer of 2006 as the first and only broker-dealer specializing in microfinance securities for retail investors.
“It’s not your grandpa’s savings bond, nor is it your grandma’s favorite charity,” Tracey Pettengill Turner, founder and general manager of MicroPlace, said in an e-mail interview. “MicroPlace is the best of both.”
Unlike the social lending platform Kiva, where participants provide loans to sponsor a business of their choice, MicroPlace is a website where investors can buy securities for as little as $100 to go towards a larger fund, which in turn provides small loans to the working poor in developing countries around the world. Thus, buying microfinance securities offers investors flexibility in terms of how much they wish to invest and also encourages participation from small investors.
“While microfinance is growing at a fast pace, we have still only reached 100 million people, approximately 10 to 20 percent of the world working poor who could benefit,” Turner said. “By enabling everyday people to invest in microfinance, MicroPlace can provide a significant source of capital to the industry and make a step-function leap towards reaching a billion of the world’s poor.”
MicroPlace investors can buy securities in the country of their choice; possible regions for investment include developing countries in Africa, Eurasia, Latin America, South Asia and Southeast Asia. Investment opportunities are expanding every month as new countries are added, Turner said.
Overall, securities purchased through MicroPlace offer low-risk opportunities for investment. Thus far, none of the loan issuers through MicroPlace have defaulted and the company takes necessary precautions to mitigate risk.
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“Before MicroPlace lists a security, we conduct extensive due diligence [to make sure] the issuer is worthy of being on our platform and to assure the investment is appropriate for our investors,” Turner said.
Specifically, due diligence is conducted to ensure that issuers have appropriate management, oversight, systems and loan loss reserves in place, Turner said.
In addition, microfinance securities offer diversification of risk that would not otherwise be possible.
“Instead of being exposed to the default risk of a single borrower, MicroPlace customers invest in a diversified pool of loans to multiple borrowers,” Turner said.
Microloan repayment rates for the world’s working poor average above 97 percent worldwide, Turner said. By comparison, repayment rates on consumer loans in the United States are around 85 percent. Furthermore, security issuers put loan loss reserves in place to protect investors against default.
Financial returns on investment are modest, typically ranging from 1.5 to 3 percent per year, with maturity periods ranging from 12 to 45 months. From the standpoint of helping the world’s poor, however, microfinance investments offer personal rewards and are more sustainable than charitable donations.
“When the investment matures and the money is returned to [an investor], with interest, that same money can be reinvested again and again, reaching an infinite number of the world’s working poor,” Turner said. A charitable donation, in contrast, doesn’t come back.
MicroPlace selected the Calvert Foundation as the first issuer to sell investments on its platform, according to an October 2007 press release. The press release cited the Calvert Foundation as “a leader in community investment that manages investments for over 2,500 individuals and institutions seeking to support communities around the world.” The Calvert Foundation was selected last November as one of NuWire’s Top 15 Charities for Investors for 2007.
Although the goal of microfinance is to provide working poor individuals with help in small doses, MicroPlace’s overall vision is anything but small.
“If everyone in the microfinance chain was able to make a return on investment, from the investor in Boston to the hardworking basket weaver in Bangladesh, we would have a solution to global poverty that would be unstoppable,” Turner said. “By offering investments that yield a return, MicroPlace plays a key role in building the sustainability and scalability of the microfinance industry.”
For more information, visit MicroPlace.com.