Tufts’ Microfinance Director Reports Strong Growth for Fund
Boston, United States, December, 04 2009 -
Tryfan Evans is director of the Omidyar-Tufts Microfinance Fund. He sat down with the Daily to speak about microfinance in general and the investments of Tufts’ fund.
Christy McCuaig: We wanted to talk to you today about the microfinance industry in general and, of course, the fund specifically. Can you give us a sense of the fund’s mission and what it’s striving to do and the status at this point?
Tryfan Evans: The fund has two objectives. The first is to support the university, as with any other long-term investment asset within the endowment, and the second is to … demonstrate the viability of institutional investment in the microfinance sector.
CM: At this point, in light of the current economic downturn, how is the fund doing?
TE: … I guess what I can tell you now, before we have that final sign-off from the auditors, is that the fund produced a positive return in fiscal year 2009 ... Looking beyond that, the crisis has had a broad impact across the microfinance landscape. In particular, Eastern Europe has been hard hit by the crisis. This is largely because Eastern Europe as a region is more integrated into Western capital markets than perhaps other parts of the developing world, particularly where microfinance predominates. So for example, we saw a great contraction in bank funding in Eastern Europe that came about because of this crisis. That has had an impact on growth rates across the region, as these microfinance institutions have not been able to attract the liquidity to refinance their portfolios and grow. That being said, we’re still seeing strong demand [globally], though not as strong as before the crisis, from the underlying customer segment, and for the most part microfinance institutions continue to grow, albeit not at the rate prior to the crisis … The fundamentals of the sector have remained positive during the crisis despite a temporary contraction, and the long-term outlook remains positive …
CM: Can you sort of explain … how exactly the fund goes about supporting different microfinance companies or groups? Someone was telling me it’s through a bank instead of directly with the companies or the directly with the people who are affected by microfinance.
TE: What the fund does is that it makes two different types of investments. Primarily we are an investor in funds, that is to private equity funds, venture capital funds and hedge funds, and those funds take money from investors such as us and invest in microfinance institutions, which then in turn provide loans to the micro-entrepreneur. The funds pursue different strategies, and they provide different types of investment to these microfinance institutions. For example, some funds will lend to these microfinance institutions, and the institution then uses that capital to then lend to their borrowers. Other funds are investing in equity issued by these microfinance institutions; it’s a longer-term, higher-risk type of investment aspect. … What we have done is to build a portfolio of investments in those funds that we think is optimal for the university.
CM: Do we try to focus on certain areas, or are we near anywhere where poverty and microfinance is effective?
TE: We are broadly focused on the global opportunities there are. We will look at absolutely anything. We have exposure in [every region]. We’re in 34 different countries right now, and those are across Eastern Europe, Central Asia, South Asia, East Asia, Africa and Latin America. We have invested, for example, in South Asia … in a fund that makes equity investments in microfinance institutions. We have another investment in Africa that is also making equity investments in microfinance institutions across that region.
CM: Going back to microfinance in general, can you speak to the future of it or maybe the future goals of the [Omidyar-Tufts Microfinance Fund]?
TE: Well, the goals for the fund remain the same. We are now four years into this project, and we are making some very long-term investments, and some of the partnership agreements we are entering into have terms of up to ten years. And so we still see ourselves as in the early stages of this fund’s evolution. We’re past the first stage — the fund is largely invested — but these are still early days. The goals remain the same. They have not changed, and I don’t anticipate they will change in the near future.
CM: And the goals specifically are?
TE: First, to support the university. Fifty percent of the total return of the fund in any given year is provided to the university in the form of a grant, and that goes into the operating budget of the university. And then the other 50 percent is reinvested in the fund, and then that capital is distributed back out among microfinance institutions. Second, to test the viability of institutional investment in the sector.