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Poverty fighters seek investors

The Democratic Republic of Congo is emerging from a brutal
civil war that cost millions of lives.

The Democratic Republic of Congo is emerging from a brutal
civil war that cost millions of lives.

The average person in this country of more than 60 million
makes less than a dollar a day.

A World Bank study ranked it as one of the hardest places on
Earth to do business.

All which made it seem like a pretty good place to set up
shop in Peter Greer’s eyes.

“It was like, you know – fits us!” Greer said. “We want to
go to places that no one else wants to go into.”

Greer is president of Hope International Inc., a Lancaster County
microfinance nonprofit that operates in 13 countries from Afghanistan to Ukraine. The microfinance industry
offers financial services to the poorest of the poor, focusing on loans. The
biggest name in microfinance, 2006 Nobel Peace Prize winner Muhammad Yunus, is
scheduled to address members of the Lancaster Chamber of Commerce and Industry
at an April 30 dinner.

Microfinance is not charity. It is a business venture
designed to pay for itself and fight poverty by helping entrepreneurs in the
developing world.

“(Microfinance is), from my perspective, the most powerful
agent to eliminate poverty … that really exists,” said James M. Deitch,
chairman and chief executive officer of Lancaster County-based American Home
Bank and a Hope supporter.

But the worldwide demand for microfinance far outstrips the
supply. To serve all those potential borrowers, microfinance institutions such
as Hope need capital – lots of it. Hope started its business with help from
donors, but as it matures, the organization is turning to another source.

Investors.

A leg up

One of Hope’s clients in the Congo is Mama Monique Ngalula, a
mother of nine who received a $50 loan in 2004 to buy equipment and supplies to
start a juice-making business. Since then, Ngalula has repaid eight loans and
now earns enough money to send her children to school every day, according to
Hope. She provided all the juice for a celebration of Hope’s third year in the Congo, Greer
said.

“This was a woman who was just … full of pride as she saw
everyone sipping,” Greer said.

Ngalula’s story is typical. As with many microfinance
institutions, Hope’s clients are usually women, and they usually pay back their
loans. Microfinance institutions such as Hope do not take collateral. Instead,
they require borrowers to cross-guarantee loans. If one member of a group
defaults, the others will have to repay the loan. That leads to discipline
among borrowers and gives them a forum to share ideas, too. Over the past 10
years, Hope’s loan repayment rate is 99.6 percent, Greer said.

Behind that repayment rate are stories of entrepreneurs
working up from poverty, Greer said. His face glowed as he described what he
hears from his borrowers: “My kids eat two meals a day. My kids are all in school.”

A recent report from Deutsche Bank estimated that
microfinance institutions worldwide have some $25 billion in outstanding loans
but that there is enough demand for more than 10 times that much money.

Violence erupted outside Hope International’s office in Haiti as
would-be borrowers jockeyed for position.

“It was people fighting to get in line so that they could
have a loan at a reasonable rate,” Greer said.

Microfinance institutions are trying to figure out where to
get more of the capital those people were fighting over. The industry
traditionally has been funded by donations. The last three to four years have
seen a rapid influx of for-profit investors, though, said Camilla Nestor, who
helps microfinance institutions find capital.

“The only way for microfinance to be able to really grow and
meet that demand is to tap capital and financial markets,” Nestor said. She is
director of the capital management and advisory center at the Grameen
Foundation in Washington, D.C., which is affiliated with Yunus’
Bangladesh-based Grameen Bank.

For Hope, tapping these markets is not just about getting
more money. It is about ensuring that microfinance institutions can stand on
their own feet, Deitch said. He likened Hope to an angel investor who uses
donor funds to get microfinance institutions going. The idea is for those
institutions to mature and move to other levels of financing just as a regular
business would.

Hope leaders in April 2007 launched a new unit called Hope
International Credit Corp. The unit has raised about $1.9 million from
investors, mostly in the form of loans. Hope officials hope to raise an
additional $4 million to $6 million by the end of 2009 and funnel the money to
their lenders on the ground. Investors will be repaid with an annual return of
about 3 percent. After that, the microfinance institutions could get commercial
loans elsewhere with backing from Hope International Credit, which would
essentially guarantee the debt.

Many institutions already borrow money from conventional
banks, and there are scores of investment funds devoted to the industry, Nestor
said. In fact, investors are pouring money into microfinance. The boom has
caused controversy, as some people worry that for-profit investors will pull
microfinance institutions away from their social missions. That’s more of a
concern with equity investors – who buy a stake in a microfinance institution –
than with debt investors who simply lend money, Nestor said.

Landing a commercial investment means a microfinance
institution has made it.

“It forces transparency. It requires extremely strong
management,” Nestor said. “In a way, it’s a stamp of approval.”

Before big financiers will offer that stamp of approval,
microfinance institutions must work doggedly to build the “micro” side of the
business, often under forbidding circumstances.

Breaking in

Hope was the first legally registered microfinance lender in
the Democratic Republic of Congo. The group settled on the Democratic Republic
after studying several sub-Saharan countries. Hope aims to use the country as a
springboard into the Republic of Congo, a separate country next to the Democratic
Republic, and into the Central
African Republic.

If this sounds like tough going, that’s the whole idea.

“It kind of drives to the point of microfinance,” said
Blaine Stephens, chief operating officer and director of analysis at the
Washington, D.C.-based Microfinance Information Exchange, which provides data
to the industry. The number of microfinance borrowers has swelled by an average
of 25 percent in each of the last five years, he said. Those are worldwide
numbers, though – in Africa, growth has been
anemic.

Nestor worked at a microfinance institution in
Bosnia-Herzegovina after the war that tore Yugoslavia apart in the 1990s.

“The lack of infrastructure is a massive challenge,” she
said. “How do you move large amounts of cash around? How do you get around?”

Greer works with entrepreneurs, and often, he sounds like
one himself. In the Congo,
Hope saw an opportunity to help rebuild a country that has seen incredible
suffering, he said.

“That’s what made us go in,” he said.

About HOPE International

Hope is a nonprofit Christian organization based in Manheim Township,
Lancaster County. It was founded in 1997 by Jeff
Rutt, president of Lancaster County-based Keystone Custom Homes.

Hope supports microfinance institutions in developing
countries by providing financial and technical assistance. HOPE runs those
institutions directly in some countries and works with partners in others. The
network operates in 13 countries, including Afghanistan,
China, Rwanda and Ukraine. The network has $19.5
million in loans outstanding.

Hope states on its Web site that loan officers provide
spiritual guidance in the context of relationships. The group also operates
children’s ministries in partnership with local churches, according to the
site. Hope is committed to serving people of all faiths and backgrounds,
President Peter Greer said.

For more information, visit www.hopeinternational.org.

-David Dagan

If you go

What: The Lancaster Chamber of Commerce and Industry’s
annual dinner featuring Nobel Peace Prize winner Muhammad Yunus.

When: 5 p.m. April 30

Where: Franklin & Marshall College
Alumni Sports
& Fitness Center,
Lancaster

How much: Dessert and coffee tickets are $95 per person.

For details: Visit www.lcci.com/dinner

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