Is it really possible to reduce poverty simply by signing your name?
That's the concept behind MicroCredit Enterprises Fund Inc., or MCE, in San Francisco, a not-for-profit that operates as a sort of Lloyds of London Names for the developing world. Rather than using one's name to make a killing, though, a guarantor uses his or her name to do good. In effect, MCE uses the balance sheet of guarantors rather than cash donations to finance micro-loans to women in 21 countries including Kyrgystan, Moldova, Bolivia and Sierra Leone.
“It's a way for our guarantors to amplify the impact of their philanthropy without spending any philanthropic dollars,” says Sara Hall, guarantor liaison at MCE.
According to Hall, guarantors continue to engage in philanthropy and to also invest their assets as they might otherwise.
“MCE is not the main event for them,” she says. “But they also get to [make] a big social impact just based on their balance sheet.”
Personal guarantees, of course, are not new—even in the philanthropic world. Most foundations that use them, however, usually make a deposit at a bank, which then uses the guarantee as either collateral or a line of credit to make loans to high-risk clients like small-holder farmers in Ghana or, say, an arts organization in Chicago.
Although the purpose of these philanthropic guarantees is generally to foster a business relationship between a bank and a small business or nonprofit, the foundation generally does not have use of its funds as long as the program is in place.
MCE's model, in contrast, is about leverage.
With guarantees in units of $1 million from high-net-worth individuals or institutional investors such as foundations, MCE borrows $500,000, which it then lends to micro-finance institutions, or MFIs. The MFIs, in turn, use the funds to provide micro-loans to the poor so they can smooth family income or buy supplies for micro-businesses.
In an effort to help the poorest of the planet's poor, MCE focuses on MFIs classified by OPIC as tier 2 or tier 3. Tier 2 MFIs have assets between $3 million and $50 million, and tier 3 MFIs have assets under $3 million. Most micro-finance investment vehicles, in contrast, serve tier 1 MFIs with assets exceeding $50 million. Although the clients of these organizations are not rich, they tend to be better off. The loan sizes are larger, and there are more male borrowers.