Two new players have joined the developing world’s burgeoning social investing scene: Unitus Capital, a financial advisory firm serving microfinance institutions (MFIs) in Asia, and IGNIA Partners, South America’s first social venture capital fund.
Bangalore, India-based Unitus Capital (UC), which launched in July, provides a range of financial advisory and consulting services for mid- to late-stage microfinance institutions. The firm spun out of Unitus Inc., an international nonprofit that works with young MFIs, after Unitus’s financial advisory team became “way too small for the size of the need,” says Eric Savage, UC’s managing director. The MFIs that Unitus had nurtured past their early stage needed more sophisticated services, and Unitus, which offers financial services for free, couldn’t do that on a profitable basis, he explains.
UC has already raised $3 million in equity for Swadhaar FinServe Private Limited, an MFI operating in the slums of Mumbai, India. The funds helped with Swadhaar’s special financial challenge of working in a city where real estate and salaries are high, Savage says. UC also raised $13 million in debt over six months for Equitas, an MFI with 6,000 clients in urban Chennai, India. UC has seven other transactions in the works, and it hopes to cover Asia soon and then move into Africa.
Other plans include broadening its scope of products and offering its services to small-and medium-size companies that benefit the poor. There’s no shortage of clients so far, Savage says, though staffing has proven challenging. “It’s hard to find people with both investment skills and a passion for poverty alleviation. We’ve had to turn away quite a bit of business because we haven’t had the staff to execute it.”
IGNIA, meanwhile, also reports no dearth of projects; but its job is raising funds for scalable companies offering products and services to Mexico’s poor. Cofounder Álvaro Rodríguez-Arregui says IGNIA differs from other social venture capital funds in that it won’t sacrifice financial returns to obtain social impact. “By maximizing financial returns you increase growth and therefore you’ll reach scale much faster and reach more people faster,” Rodríguez explains.
IGNIA raised its first money in May and has since invested in Primedic, a provider of healthcare services in Monterrey, and Jardines de Grijalva, an affordable housing project in Chiapas. Other potential projects include electronic payment systems and a “self-construction” (do-it-your-self) housing company that Rodríguez considers to be far superior to existing companies because of its safety standards. (Forty percent of the houses built in Mexico are do-it-yourselfers and consequently hazardous, he reports.)
Once IGNIA has reached its goal of $75 million in equity commitment and $25 million in debt—it currently has $35 million and $25 million, respectively—it will focus on growing a new fund as large as $500 million. “If we really want to have significant impact on poverty, we need a much larger fund,” Rodríguez explains.
And they hope the capital market funders and foundations will no longer doubt them. “The Wall Street guys say, ‘This is great,’ but since you have a social motive—even if you explain that the potential for returns is tremendous—they think you are soft, that you’ll compromise returns for social impact,” says Rodríguez. “But then you go to a foundation and they say, ‘You’re too commercial for me.’ We’re somewhere in the middle, and there are still not many people who believe in that concept.”
Read more stories by Jennifer Roberts.