One private equity firm working in the region is TVM HealthCare Partners, an affiliate of Munich-based TVM Capital Group, which specializes in growth capital and small buyout investments in health-care companies in the Middle East and India. While the company didn’t start out calling itself an “impact investor,” it soon realized that its investment criteria, calling for such things as the improved quality of life for its patients, made it one, says Hoda Abou-Jamra, TVM HealthCare founding partner. For those wishing to invest with TVM, the minimum is generally around $5 million, though that is not fixed, and the average internal rate of return is typically 25%, a company spokeswoman said.
Since its inception in 2009, the Dubai-based firm has made four portfolio investments in specialized services that had been either nonexistent or drastically undersupplied before—long-term care, rehabilitation, home care and fertility treatment. The first company was ProVita, a long-term care provider in the United Arab Emirates, with facilities in Abu Dhabi and Al Ain.
While the government in the United Arab Emirates has been expanding public medical services and encouraging private investment, when TVM started its research roughly a decade ago, medical care there, and in the Middle East in general, tended to be centered in hospitals, Abou-Jamra says. This left patients with chronic health issues with few options. “The area that we created didn’t exist; there was nowhere for long-term care patients to go,” she says. “They were stuck in hospitals, taking up beds. We improved the quality of life of the patients—we took them to school and to the park.”
Ironically, despite the aforementioned desperate need for jobs, TVM ran into difficulties finding qualified staff. School enrollment rates are high in the MENA region, with an average of 70% of teenagers enrolled in secondary school in 2010, the latest numbers available from the World Bank. However, education systems in the region tend to be academically rigid, and many students graduate high school and even university without the skills required—both technical and soft—for the job market, according to a World Bank brief on the region from 2014. Employers surveyed by the bank report that only about one-third of new graduates are ready for the workplace, and the region invests little in real world training such as internships.
This is exactly the problem Binzagr hopes to tackle with his job guarantee program. But while he spoke of jobs only in a general sense during his talk at the conference, looking at the list of industries the institute hopes to work within—sustainable agriculture, solar energy, health and wellness—I began to think about not only jobs, but purpose, which brings us back to peace.
The conventional wisdom of the past said terrorist groups preyed on disaffected youth, the poor and the uneducated with little hope for the future. But more recent research has shown that many employed college graduates from various countries have also left home to join ISIS, and not always for religious reasons (though that is the case for some and an entirely different conversation). What researchers have found is that these young people are bored; they long for adventure, to feel part of something. Of course, every article written, every talk given, runs the risk of oversimplifying what are infinitely complex issues.
But perhaps what might lead at least some young people down a more peaceful path is being given purpose—so instead of running off to fight in Syria they would head off to other parts of the world, to join the war against the plethora of crises threatening humanity and the planet we share.
Financing Entrepreneurs In A Chaotic Region
When impact investors think of microfinance, for the most part they imagine helping a coffee farmer in Bolivia or a shop owner in India. But a tailor and father of four in the Palestinian West Bank?
For obvious reasons, many Western investors tend to steer clear of the Middle East in general, and the microfinance sector—the loans and other financial services that help entrepreneurs and small businesses without access to regular banks—is no exception. With the need for financial inclusion stretching across the globe, social impact investors have plenty of places far less chaotic than the Middle East to choose from. The global microfinance market—largely centered in Asia and Latin America—is expected to grow by 10% to 15% this year, according to the 2016 “Microfinance Market Outlook Report” from Zürich-based asset manager responsAbility Investments AG.
What investors might find surprising is that people like Sobhi Abo Za’roor, the tailor from the town of Nablus in the West Bank, are not any riskier a gamble than microcredit recipients in other parts of the world. Za’roor had only three sewing machines and two full-time employees in 2003, when he received his first loan of $3,250 from Vitas Palestine, a subsidiary of microfinance company Vitas Group. He now employs 15 full-time tailors and has sent all four of his children to university.
Vitas Group is a commercial holding company created by Global Communities, a Silver Spring, Md.-based nonprofit global development organization. The company provides microfinance and small- and medium-enterprise finance, focusing largely on the MENA region. Through a network of lenders in Palestine, Jordan and Lebanon, and an affiliate in Iraq, Vitas has disbursed more than $1.4 billion in loans (averaging $2,000 in size) to more than 535,000 customers in the region over the last 10 years. The average default rate over that same period has been less than 1% annually, according to the company. This compares with average microfinance default rates of 2% to 3% (annual loan losses) globally.
“Obviously there’s been a lot of volatility in the region, and recent events have limited foreign investment,” says Elissa McCarter LaBorde, chief executive officer of Vitas. “But when we look at our customer base, the small business owners, the carpenters or shops, they’re there through good and bad. It’s a customer base that’s very entrepreneurial that has a high degree of ethical responsibility to repay their debt.”
As it looks to expand in the region, Vitas is actively trying to grow its investor base and raise more capital at the holding company level. Global Communities continues to be the largest shareholder in the company, while the Geneva-based Bamboo Financial Inclusion Fund holds a 29% minority share. Vitas’s return on equity over the last three years has averaged 12%, and the company is targeting 15% to 17% over the next five years.
The company sees both a great need and opportunity for growth in the Middle East, LaBorde says. When it comes to banking, the region is the least financially inclusive part of the world, with only 14% of adults with a bank account in 2014, up from 11% in 2011, according to the World Bank’s Global Findex.
“You have a banking tradition that’s very conservative in these countries,” LaBorde says. “Commercial banks haven’t reached down to the low-income customer.”