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Financial Backbone of MicroCredit Enterprises
Guarantors are MicroCredit Enterprises' principal
financial benefactors. Because poor entrepreneurs do not have collateral
or credit histories, the MicroCredit Enterprises model takes advantage
of economic guarantees in the developed world to provide capital
to overseas shop owners, farmers, craftspeople, weavers and others
to start and expand their small enterprises. Each $1 million guarantee
(which is the minimum required) approximates to up to 5,000 microcredit
business loans feeding as many as 25,000 people in the developing
world.
| Voice of a Guarantor |
"Your clear and consistent
awareness and respect of
the women whom MicroCredit
Enterprise is really impacting
is genuinely appreciated. In our lives it's
all too easy to forget the
conditions and struggle of
the majority of the planet.
Thank you for using your wisdom and resources to help people use their wealth for authentic and broad impact. It's a joy to partner with you and the other Guarantors in impacting and transforming the world as best we can. The interaction is delightfully refreshing." |
-- Julie Oswald
MicroCredit Enterprises Guarantor |
To achieve a social purpose for some of the poorest families in the world, a Guarantor provides a full recourse guarantee and/or assets to secure financial lines of credit provided by lenders (typically, financial institutions, foundations or other entities) to MicroCredit Enterprises. MicroCredit Enterprises then utilizes the lines of credit to make loans to overseas microfinance institutions which, in turn, provide tiny loans to poor entrepreneurs.
A Guarantor is responsible for the investment returns in their individual accounts, which are invested as each Guarantor determines, but the assets are subject to additional risk. A Guarantor may lose money because of an overseas MFI loan default, but accepts this financial risk in exchange for achieving a worthy and noble social objective. At any one time, MicroCredit Enterprises borrows no more than 60% of a Guarantor¡s pledged assets or guarantee.
In December, 2007, the 34th MicroCredit Enterprises Guarantor joined the program. With 34 Guarantors, the individual Guarantor risk exposure per MFI loan default (in the event one should occur) is below three percent (3%). With 34 Guarantors, MicroCredit Enterprises entered 2008 capable of providing food security to 850,000 impoverished people.
In the event a financial loss caused by a MFI loan default occurs, the allocation of losses is calculated on a pro rata or equal basis among all Guarantors. Thus, the more Guarantors in the program, the less risk exposure per Guarantor. Conversely, the fewer Guarantors, the greater risk exposure per Guarantor.
Prospective Guarantors will want to read the following materials:
Social Return on Investment Only
MicroCredit Enterprises is not an investment, a securities offering, an ownership proposal, a socially responsible investment fund (sometimes called an "SRI investment") or any other offer to sell an investment opportunity of any kind. None of a Guarantor's money or assets are available for direct use by MicroCredit Enterprises and, thus, MicroCredit Enterprises does not pay dividends, interest, compensation, fees or any other payments to Guarantors.
Important Disclaimer: Information provided on our website is not intended to be tax or legal advice. Please consult a qualified tax or legal advisor. It is also important to understand MicroCredit Enterprises is not a socially responsible investment fund or an investment of any kind. MicroCredit Enterprises is not operated as a profit-seeking venture for the benefit of any individual or institution.
The MicroCredit Enterprises program is only
appropriate for high-net
worth individuals and institutions
who have the social goal
of helping the poor in developing
countries. A Guarantor's
pledge involves a degree
of financial risk. Accordingly,
Guarantor eligibility standards
have been established for
participation in the MicroCredit
Enterprises program, as explained
in the Comprehensive Informational Memorandum and Philanthropic
Guarantee Agreement.
Becoming a MicroCredit Enterprises Guarantor is not for everyone. Some benefactors prefer to make a tax-deductible contribution. Others are profit-maximizing investors who want or need a risk-adjusted rate of return. If you fall into either of these categories, please consider other options for supporting microfinance programs, including the Permanent Fund to Alleviate Extreme Poverty.
MicroCredit Enterprises, a 501(c)(3) IRS non-profit organization, is not an investment fund, but it is part of a growing interest in socially responsible investing and using the private marketplace to advance economic, environmental and social justice. "More than one out of every nine dollars under professional management in the United States today is involved in socially responsible investing." (Social Investment Forum, 2003 Report on Socially Responsible Investing Trends in the United States, December, 2003)
Creating socially responsible approaches to utilize private capital for microfinance is not a new idea. "There are approximately 45 private social investment funds dedicated to microfinance institutions. These funds control an estimated $400 million to $550 million held mostly in debt, though some is found in the form of equity and guarantees. Almost 80 percent of the funds operate internationally from developed country markets." (Marc de Sousa-Shields & Cheryl Frankiewicz, Financing Microfinance Institutions: The Context for Transitions to Private Capital (USAID Accelerated Microenterprise Advancement Project, December, 2004)
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