Citi To Open Microfinance Donor Fund

Jun 2007
New York, United States, June, 11 2007 - Citigroup Inc. (C) has created a new vehicle to connect wealthy philanthropists with poor entrepreneurs around the globe.

The giant investment bank plans to launch a charitable fund in late June through which individuals and organizations can make donations of at least $50,000 to microfinance institutions. These financial institutions offer loans and other services to hardscrabble entrepreneurs in developing countries who don't have access to banks.

Microfinance is gaining traction as both a charitable cause and an investment. Citi is hoping its new fund - the Citi Microfinance Donor Fund - will give private bankers and financial advisors at the firm's Smith Barney brokerage division another reason to discuss clients' philanthropic interests and ways to focus their charitable giving to make a difference. In the process, it hopes advisors can deepen their relationships with clients.

Scott Hayes, a Citi private banker in Palo Alto, Calif., says microfinance strikes a personal note with many of the entrepreneurs, venture capitalists and private equity participants he advises.

Citi's new fund, Hayes said, is "another opportunity for our clients to engage in their passions and look at making an impact in a philanthropic way."

Donors interested in microfinance should be aware that it doesn't offer the same recognition, such as dinners or buildings in one's name, as other charitable pursuits do, said Melanie Schnoll-Begun, director of Citi Philanthropic Services, which advises clients on making charitable contributions. It can be difficult to see one's gift at work due to the physical distance between donors and recipients and the slow pace of change.

Citi plans to give donors regular updates on the projects they're funding and has hired an outside firm to provide independent, analytical reports, Schnoll-Begun said, "so our clients can really see what's going on behind the scenes and how we're using the capital."

The fund will open June 30 for irrevocable contributions of at least $50,000. It will remain open for eleven months and Citi will begin making grants to microfinance institutions shortly after that. Citi plans to distribute the money it has collected within two years of the fund closing, Schnoll-Begun said.

Citi had considered a minimum contribution twice this amount and a limit on the number of donors. It decided, however, to open the fund to more people while keeping the minimums high enough to attract sizable donations and donors serious about microfinance.

The minimum contribution is still at least double that of a donor-advised fund - a popular vehicle that allows investors to establish a fund account, receive an income tax deduction the year they contribute and decide where to direct their funds at a later date.

Donors in the U.S. will be able to take a tax deduction for their contribution to Citi's microfinance fund, but an advisory committee, rather than the donor, will direct the contribution.

The advisory committee, which Citi says is made up of representatives from the bank and microfinance experts from outside organizations, will request proposals from microfinance institutions and decide which ones should receive grants. The advisory committee will seek proposals as the fund is accepting donations in an effort to expedite the eventual distribution of grants and match the number of grant recipients with donation levels.

The board of directors of Citi Gift Inc., the nonprofit that oversees Citi's donor-advised funds, will approve the grant recommendations from the microfinance fund's advisory committee.

Citi will make grants of up to $500,000 for projects in five areas: technology; energy and the environment; banking services in rural areas; life cycle needs, such as financial literacy and the promotion of long-term savings; and the expansion of microfinance institution capabilities, such as back office systems and human resource training, Schnoll-Begun said.

The grants are meant to spur the maturation of microfinance institutions that aren't yet able to cover all their costs through their operations and don't have the track record to attract investments or secure loans from big banks, such as Citi.

Citi formed a London-based microfinance group three years ago, which works with the firm's multiple business units to develop commercial relationships with microfinance institutions. That includes making loans and helping them access capital markets.

Separately, Citi Foundation, the bank's charitable arm, is an active microfinance donor.

Citi plans to roll out other special interest funds - the environment is one area of interest - but first wants to see how things go with the microfinance fund. Depending on the results, it could also launch a second microfinance fund, Schnoll-Begun said.

Citi's focus on microfinance institutions that are approaching self-sufficiency and the size of its grants make good sense, says Chuck Waterfield, a consultant to microfinance institutions and an adjunct professor at Columbia University's School of International and Public Affairs. Waterfield isn't involved with Citi's charitable fund; it was described to him by Dow Jones Newswires.

Grants of up to $500,000 can give institutions a significant boost without overwhelming their staff and systems, he said.

"There's definitely a substantial role still needed for grants, specifically working for organizations that aren't yet sustainable," Waterfield said.

The challenge for the fund's advisory committee, he said, will be determining which emerging microfinance institutions have the capacity, desire and management skills to make their way into the top tier of self-sustaining microfinance institutions.


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