Where lending hands out more than just money

Local investors, including McKinstry Chief Executive Dean Allen, the Seattle Foundation and Seattle University, are finding that returns from a microfinance nonprofit are among the best performing investments in their portfolio. The returns are both financial and social.

They have each contributed to a new $20 million fund that will provide capital for Seattle-based Global Partnerships' lending partners in Latin America. The fund offers a 4 percent annual return on a five-year investment.

But along with the money, the Social Investment Fund 2010 includes a requirement that lending institutions offer services such as preventive health education.

As the microfinance industry grows with an influx of capital from banks, some have come under scrutiny for charging high interest rates and profiting on the poor.

Global Partnerships says it aims to strike a balance between helping people in poverty get services they need and earning a modest return for investors.

"We're trying to target investment to things that matter from a social point of view," said Rick Beckett, Global Partnerships chief executive.

The group's "microfinance plus" approach shows how some programs are expanding beyond loans to health care and education, using the inroads made by microcredit networks to reach borrowers with other services.

One of the lenders that Global Partnerships funds, for example, is a nonprofit that also provides cancer screenings for its clients. Pro Mujer, which operates in Argentina, Bolivia, Mexico, Nicaragua and Peru, offers basic health education before and after repayment meetings to discuss nutrition, hygiene, pre- and postnatal care and family planning.

Jane Stonecipher, a former technology executive who is now doing volunteer work, said those services were important factors in her decision to invest into the fund.

On a recent trip to Bolivia, she visited two local microfinance organizations and attended village banking meetings where women gathered to make payments on their loans. At the meeting, they also heard a talk about nutrition. A nearby clinic offered health screenings and immunizations for their children.

"It seemed to me these people were largely living off the grid.," she said. "I'm not sure they had a lot of sources for health care."

Trust built up through the microfinance programs encouraged them to take advantage of the other services, she said. "Not only to take control of the family's finances, but also to make decisions about their health," she said.

Of the fund's 39 investors, 22 are new. Their investments range from $100,000 for individuals to $500,000 from family foundations and religious pension funds, $1 million from larger foundations, and $5 million to nearly $7 million from development banks.

"It has been one of our best investments in the economic downturn," said Ron Smith, vice president for finance and business affairs at Seattle University. "It's a social-justice issue, and that's what we're about."

Seattle University, which has invested $1 million in Global Partnerships since 2006, contributed $500,000 from its endowment's fixed-income category into the new fund.

Smith said investing in the nonprofit's funds has turned out to be "very dependable" and less volatile than other investments.

The borrowers in Latin America repay the microfinance-lending institutions, those institutions pay back Global Partnerships, and the nonprofit repays investors quarterly interest. The borrowers' repayment rate has been 98 percent in previous funds.

Beckett said the organization's goals include offering lower interest rates to borrowers, reaching more rural poor and finding micro enterprises that could grow into small businesses that employ others.

He described the kinds of "microfinance plus" investments as "highly impactful but not highly profitable."

"You can sell life insurance along with loans and make a lot of money," he said.

While integrating business training or access to health-care raises costs, Beckett thinks over time "some of the things will be fully sustainable because the customer will value them so much."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com