DOING WELL FROM DOING GOOD:

Microfinance gets VC nudge (Tricia Duryee, 5/22/06, Seattle Times)

Mike Murray, a former Microsoft executive, founded Unitus in 2000 with the aim of improving the industry. In microfinancing's 30-year history, loans have been distributed to 20 percent, or 100 million, of the 500 million people in the world who could benefit from the loans.

"In business, after 30 years, if you have only reached 20 percent market share, you aren't successful," Murray said. "That's not good enough. It works well, but the industry hasn't grown."

So Murray hired Geoff Davis as president and chief executive to devise a new model.

Davis, who has worked with microfinance organizations worldwide, realized one of the problems is that they depend on donations. Of the 3,000 institutions that make loans, 95 percent have fewer than 100,000 clients.

"That's not quite large enough to get economies of scale," he said.

Davis identified the constraints: not having enough resources to make more loans and not having access to capital.

"We designed a business plan where investors would fuel the growth, rather than donors," he said.

The model is called the Unitus accelerator, and it's similar to how venture capital works.

Unitus raises a fund and looks for small microfinance banks around the world that have good management teams and large market opportunities. It helps turn the bank into a for-profit entity, then it makes an investment.

The money can give the institution leverage to borrow more money from traditional banking institutions.

Unitus also takes a seat on the bank's board and provides consulting services to set up the infrastructure designed to support fast growth.

With the transformation in place, Unitus expects a bank that once served 3,000 people to help 100,000 to 200,000 people in five to seven years.

That kind of growth may need millions of dollars, a sum that would never be able attained through donations, Murray said.

Applying such capitalist forms to social problems is archetypally Third Way.

Posted by Orrin Judd at May 22, 2006 11:44 AM