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The 16 investment funds whose managers gathered in May at the IDB's Washington, D.C., headquarters have varied and for the most part lofty goals: environmental protection, alternative energy supply, and transfer of technology to small businesses, for example. But they all hold one objective in common. "They have to make money," says Donald F. Terry, the manager of the Multilateral Investment Fund (MIF), the IDB affiliate that has helped establish the funds. "If they don't make money, they will fail to attract private investment." Or as Carlos de Rivas, manager of the North American Environmental Fund, which invests in environmentally-friendly companies, put it: "We are green -as green as the U.S. dollar." Since 1994, when MIF made a $3 million investment in the Costa Rica-based Profund, the world's first investment fund specializing in microfinance institutions, MIF has financed the establishment of a total of 19 funds. They include the first "ecofund" for environmentally beneficial businesses in Central America, Chile's first technology-based venture fund, Brazil's first fund focused on biodiversity, and Peru's first "hands-on" small business capital fund, which supports small firms by taking equity positions and providing technical assistance. Directly or indirectly, MIF has also backed almost every formal microfinance institution in Latin America and played a significant role in their subsequent development. In each case, the goal is to demonstrate that entrepreneurial drive applied to social areas can result in successful enterprises that turn a profit. At the Washington meeting, fund managers gave a generally upbeat assessment of their operations. Some said their investments had advanced to the point where they were working on providing "exit mechanisms" to enable investors to recover profits. Venture capital is also increasingly available, the managers noted. "When an enterprise is doing well, getting enough liquidity is easy," said Fernando Camacho of Agrosid, which develops the use of venture capital for small agroindustrial companies in Mexico. The big problem, said other managers, is matching available funding with a promising enterprise that has good management. Some stressed the need for managerial training for businesses as a way of quickly turning around firms that are having trouble. Among the problems commonly faced by fund managers is what many described as an unfavorable regulatory climate for small business and microenterprise. The managers warned of the danger of strangling companies with too much paperwork and called for changes in laws and regulations to create a more investment-friendly environment. Several of the fund managers said they have a hard time finding competent workers. Some noted that financial specialists are relatively easy to hire, while sector specialists -biologists, chemists, and environmental scientists- are in scarce supply. They also pointed to a shortage of trained business experts. John Forgatch, executive vice president of Terra Capital, a regional biodiversity fund based in Brazil, noted that organic agricultural products --oils, nuts, palms-- are a profitable investment area. Moreover, he said, large multinational corporations are stimulating nontraditional investment opportunities because they are adopting purchasing policies that take into account environmental concerns. Giving an example of niche marketing, he noted that organically grown lettuce raised on a pre-Inca terrace can fetch $8 a head in Germany. MIF limits its participation in a fund to no more than 50 percent of equity and a maximum of $5 million. As of April 1999 the funds have invested an average of $555,000 in 32 projects. All of the funds finance businesses that have a maximum of $3 million in annual sales and less than 100 employees. The number of MIF-supported investment funds has doubled during the past year and is expected to more than double again in the near future. The funds finance a wide variety of ventures. These include a Salvadorian energy firm that sells electricity generated from biomass to the national grid, a Peruvian exporter of alpaca wool, and a Costa Rican doormaker that uses wood from sustainably managed tropical forests. "MIF is increasingly the first stop for prospective small business fund sponsors," according to Terry. MIF also is "demonstrating the financial viability and, in some instances, the attractive returns of microfinance," he said. Together with MIF's direct investments, the funds have assisted more than 272,000 microenterprise borrowers and are expected to generate thousands of jobs. |
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