The news business may be down, if not completely out of favor, here in the United States and the rest of the developed world. But in the developing world, it is thriving, and the Media Development Loan Fund is taking full advantage of the upswing.

Since 1996, the fund has provided more than $120 million in loans and equity investments to media companies in 26 emerging market countries—and has earned over $37 million in interest, dividends and capital gains.

Meanwhile, major American news media companies such as Gannett Co., the New York Times Co. and E.W. Scripps, among others, have seen their stock prices and valuations fall by more than 50 percent over the past five years alone, their revenues declining as advertising money becomes diluted, sapped along with readership by social media. More and more people get their news online, and subscription models have yet to capture the same paid audiences that printed publications used to enjoy.

But the developing world’s media landscape is in an entirely different situation. As populations grow in these countries, and as education improves and democracy is increasingly embraced, there is a hunger for news and information as never before.

The Media Development Loan Fund invests in independent news outlets in countries with a history of media oppression. This mission organically puts the fund at the center of emerging and breakout economies such as Indonesia’s, the Ukraine’s and South Africa’s. Last year, more than 42 million people in developing countries got their news from the media loan fund’s clients.

Because of the desire for news in these locales, media businesses can grow quickly. They just need capital to do it. And that’s where the loan fund comes in.

In five years, the companies the fund has invested in have seen their sales rise on average by 377%. That’s tremendous growth for relatively little capital investment. The average investment the fund makes is $800,000.

The fund was started in 1995 by Saša Vučinić, the general manager of the B92 radio station in Belgrade, and by the late Washington Post reporter Stuart Auerbach.

It was Vučinić who struck on the idea for the fund. His radio station—and freedom of speech generally—had suffered financially from government interference, he believed. He pitched the idea of investing in like media organizations to George Soros. Soros bit. The Media Development Loan Fund was soon born and began making investments in 1996.

As the fund says on its Web site: “Starving independent media of finance is one of the most effective ways for governments to stifle criticism. News outlets that are denied capital to grow—particularly in times of dynamic technological change—will wither and die. Standing still is not an option.”

In that spirit, the fund invests in everything from printing presses to the implementation of online revenue strategies. It also helps media companies build their management teams and train journalists.

“We are very mission-focused,” says Harlan Mandel, the fund’s chief executive. “That is the first filter. Everything else follows.” By “mission,” he means empowering independent media companies that aren’t owned by a government, political parties, oligopolies or organized crime.

Here’s why that matters: Independent news promulgates democracy, freedoms, education and a more free-thinking electorate. In short, it is the conduit of truth.

He says the loan fund looks hard at the quality of the journalism produced by the companies it wants to invest in (often reading months of back issues and interviewing the news staff). “It’s really about the mind-set first and the commercial appeal second,” he says.

Because it’s an impact investment fund, it seeks both social and financial returns. It crunches a lot of numbers, too. “We create very granular business plans,” Mandel says. “The news business is a very tight-margin business. We look closely at cash flow and, based on that, a repayment system.” The loan fund makes both debt and equity investments, though the debt is two-thirds of the portfolio.

The Media Development Loan Fund calls its money “patient capital.” It has a time horizon of five to eight years before it exits a holding.

On the financial side of its operations, the fund operates very much like private equity or venture capital vehicle. Yet it is a registered nonprofit corporation. It has an existing capital base of grants. It then leverages that pool by borrowing funds to gain access to more capital. The tax code allows nonprofits to make program-related investments that further the mission of the organization.

“At MDLF, we have a pool of funds dedicated for investment purposes in incorporated media outlets,” Mandel explains.
The fund has come up with a unique and sophisticated approach to raising capital. Part of this involves taking in money directly from investors or through financial intermediaries (for example, ImpactAssets, a nonprofit that shines the light on promising initiatives and lists the Media Development Loan Fund among its annual list of 50 important fund managers, the “ImpactAssets 50.”) But the loan fund’s more unique and sophisticated fund-raising approach also uses a derivative offering. In this, the fund issues debt against its balance sheet backed by a third party to create structured products. These are, in turn, sold off to investors.

The fund offers different securities to myriad investor types -- individuals, companies, foundations -- both domestically and abroad with investment minimums as little as $1,000. These securities offer market rates of return through a series of notes that pay as much as 3%. In addition, the fund offers notes that take advantage of secondary market issuance: Known as “Voncerts,” these pay a guaranteed 1% return (and are open only to certain foreign nationals).

In 2005, for example, the fund received a bank loan from a Swiss bank. The bank took a note as it would traditionally under any loan arrangement. The twist is that the bank then used that note as part of an instrument for a structured product. These structured products were then sold to the bank’s private clients. The products were composed of the loan to the Media Development Loan Fund (20% of the product) and the rest were in an interest rate instrument. The Swiss government guaranteed 100% of the media fund’s paper. Other issuances have been made over the years that have also been backed by private institutions.

Despite the fancy financial footwork, the media development fund’s success still depends on investment prowess in the journalism business. And the journalism field is radically changing, if not the definition of journalism itself.

“There is a Fifth Estate,” argues Patrice Schneider, chief strategy officer at the fund, referring to the news media’s traditional nickname as “the Fourth Estate.” This Fifth Estate, he says, is made up of a new breed of information providers that act, react and disseminate just as news organizations do—but aren’t technically news organizations. Think Twitter. Think Facebook. Think of any social media outlets that provide a mass oracle without the gatekeepers (trained reporters and editors).

“A geomapping system company in Malaysia. Is it a news organization?” asks Schneider. “Not really. But does it provide information that allows people to get from one place to another? Yes.” So the whole idea of what constitutes news in the digital age has to be re-examined by the media fund if it is going to stay relevant, he says. Printing presses in Zimbabwe are important investments now, but in 10 years they might not be. It might cost $500,000 to get a printing press like that up and running.

Even though it might get the word out and foster independent media, two kids operating out of a garage in Estonia might need only $5,000 to jump-start their online business and produce a similar impact. “We have to be nimble,” Schneider says.

There are also “crowdsourcing” sites, he says, that turn the public into reporters and pundits—sites such as in the United States and Ushahidi, a site originally developed to take accounts of post-election violence in Kenya in 2008.

The loan fund has carved out an increasing percentage for digital news ventures. How much these will grow and how much legacy media organizations will shrink as part of the portfolio is anyone’s guess. “We have to get used to not knowing,” says Schneider.

The bottom line is not only about money. It’s about having an impact.

Take Radio Pikon Ane. The first radio station in its remote spot of rural Indonesia, it broadcasts to an area suffering from one of the highest poverty rates in the country, with over half the district’s population living below the poverty line (the national average is less than 17%). Malnutrition is commonplace in this area and food scarcity is a seasonal routine.

By broadcasting news about crop prices and allowing the farmers’ cooperative to coordinate the sale of produce via the radio, Radio Pikon Ane has improved the bargaining power of farmers and increased their ability to command higher prices. This, in turn, increases their incomes and standards of living.

The station is also playing a key role in health care, broadcasting information about sanitation and communicable disease prevention.

Listeners tune in not merely for pleasure; they get life-improving and life-saving information. Listenership is nearly compulsory. And that’s a good business model.

As the growth in social entrepreneurship rises and as social media companies spring up at a rapid pace around the world, the Media Development Loan Fund may have a good problem to deal with: too many opportunities. To that end, Schneider says it is becoming more like an “affectionate VC” and focusing more on process to weed out good companies.

Media development, it seems, is still developing and may always. But the returns are promising.