Venture Capital for MicroFinance: Chris Brookfield (Part 2)

Here Chris details Unitus’ switch from being a non-profit firm to a for-profit firm. Much of the current interest in microfinance is generated by the fact that the discipline is now being viewed as a sustainable “business”, not just charity. Thus, large banks, venture firms, and serious entrepreneurs are starting to wake up to its potential.

SM: Unitus is not a non-profit firm today – when did that change? CB: About two years ago, the founders thought it might be important to convert from being a purely non-profit microfinance consulting company to a more commercial model primarily to access more capital.

One of the problems in the microfinance industry is that most of the capital has been sourced from quasi-governmental or granting agencies, so it tends to be slow moving. It is certainly not as reliable all the time and there is definitely not enough of it. They looked at the industry a few years ago and realized there were about 80 Million microfinance customers in the world, and thought there was a potential need of 1 – 1.5 billion customers. As of a couple of years ago, it was serving less than 10% of the addressable market. They took a west coast technology / venture capital approach to it, and realized there was a lot more addressable market.

If you do the numbers on the back of an envelope, to serve 1 billion more customers at an average loan size of $200, it comes to $200 billion in capital. They set out to see if they could help their partners to access the commercial capital market, and one of the things they ran into is that nobody would invest equity in these microfinance companies because they were constituted as non-profit. The kinds of debt they could get were somewhat limited as well because it is harder to take a security in a non-profit than it is in a commercial entity. They helped SKS, an MFI in India, convert to a for-profit company.

SM: How long ago was SKS founded? CB: It was founded around 1999 or 1998.

SM: Was Unitus involved with them a number of years before this? CB: Unitus has been partners with SKS since about 2002. SKS formally converted and took its first equity just over a year ago. That was provided by the Unitus equity fund and Vinod Khosla and a guy named Ravi Reddy.

[to be continued]

[Part 1]

This segment is part 2 in the series : Venture Capital for MicroFinance: Chris Brookfield
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