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February 24, 2008

MicroPlace: Microfinance for the Masses
    by Anne Moore Odell

US investors with as little as $100 can help fight global poverty at eBay owned MicroPlace. -- Working for the Grameen Bank of Bangladesh in the 1990s, Tracey Pettengill Turner saw first hand how microfinance works to lift people out of poverty. What she also learned was how microfinance can be a profitable investment. In October 2007, Turner and eBay launch the first of its kind MicroPlace, a website where investors can chose to invest in microfinance institutions (MFIs) in specific areas of the world.

Please support
our sponsorsMicrofinance is the offering of very small loans, typically ranging from $25 to $500, to people in developing markets to grow their businesses. MFIs usually operate in areas that don't have access to traditional banking services. The repayment rate for microfinance loans is extremely high.

When Muhammad Yunus and the Grameen Bank received the Nobel Peace Prize in 2006, investing in microfinance, which had been offered for decades, started to grow rapidly as more institutional and high-net worth individual investors diversified their portfolios with microfinance. However, until MicroPlace, it was difficult for individual investors, especially investors with hundreds not thousands of dollars, to become involved with microfinance.

MicroPlace raised nearly $500,000 in its first six weeks of operation. That dollar figure translates to more than 8,000 loans to microfinance borrowers around the world.

"If all these big guys are going to invest in microfinance, let's give the little guys a way to participate in microfinance," Turner told about the rationale behind MicroPlace. " What the microfinance industry needs to do is increase its scale. The industry now reaches hundreds of million people. There are a billion people who would benefit from microfinance."

MicroPlace is solely owned by eBay with Turner as director. MicroPlace is also partners with the Calvert Foundation and Oikocredit, who are both security issuers of the investments.

"Having eBay support us is a blessing," said Turner. "We can take advantage of their experience and connections. We've had hundreds of eBay employees reach out and volunteer to get us off the ground, from every aspect of the company, from HR and IT systems to web development."

MicroPlace is a registered broker-dealer, and is a for profit business. All profits, however, eBay promises to reinvest in its social programs like the eBay Foundation. MicroPlace's business model is actually comparable to online traders like E-trade and Ameritrade.

Investors can simply click on the area of the world they would like their microfinance investments to support. They are then presented with a list of MFIs operating in the area, their missions, and the terms of investments, including interest rates, maturity, and security issuer. Each MFI also features recent microfinance borrowers and their businesses.

Calvert Foundation was the first issuer on MicroPlace and recently announced $16 million in front-end investments to help defray start-up expenses and establish an essential risk-capital pool needed to protect retail investors. These investments in the Calvert Foundation to support its work with MicroPlace come from Omidyar Network, the Rockefeller Foundation, the DOEN Foundation, the John D. and Catherine T. MacArthur Foundation and OPIC. Each state has securities laws in place to protect investors, which the security issuers must fulfill. For example, the Calvert Foundation must have $1 on hand for every $6 invested.

Calvert Foundation is responsible for the interest and principal on any investments purchased through them on MicroPlace. However, MicroPlace will distribute interest payments, and is responsible for all direct communications with MicroPlace investors.

There is no cost for investors to put money into MicroPlace. All fees MicroPlace must charge are paid by the organizations that offer investments through the website.

"We had wanted to sell the Community Investment Note online for a long time, but didn't have the resources to develop the systems or clear the investments online," said Shari Berenbach, executive director, Calvert Foundation. "So, we were especially excited when eBay agreed to help launch MicroPlace. They were instrumental in helping to develop the systems and involving PayPal to clear transactions."

"Oikocredit took part in the launch of MicroPlace with two listings," said Karima Wardak, head of Oikocredit's corporate communication department. "Today we have twelve of our microfinance institutions listed on MicroPlace. We see MicroPlace as a very exciting opportunity for socially responsible individual investors. MicroPlace allows every day people to invest online in Oikocredit community notes available in the USA."

There is a great need for capital to move into MFIs. "Microfinance: An emerging investment opportunity," a study released December 2007 by Deutsche Bank, reported about only a tenth of the need in microfinance is currently being met. The study's author Raimat Dieckmann estimates that currently there is an outstanding loan volume of $25 billion. However, Dieckmann puts the microfinance funding gap at $250 billion. The study further anticipates a growth in microfinance to $20 billion by 2015 from the $4.4 billion that was invested in microfinance in 2006.

"Microfinance is growing at an extremely fast pace. ASA in India, one of our project partners, reported a growth from 27,699 clients in 2001 to 137,548 in 2006, " supported Wardak.

The MicroPlace also offers information on what microfinance is and how microfinancing can help fight global poverty. Harnessing the web savvy of eBay, the experience in securities of the Calvert Foundation and Oikocredit, the vision of social entrepreneur Turner and the others at MicroPlace, US investors have a serviceable tool to reach across the world, making a difference while making a favorable return.

"This is an exciting step because it has the potential to take the 'blended value' investing model to an even greater scale" Berenbach told "This is a costly model to put in place but once there, it has incredible potential to be scalable and sustainable. Each player involved, therefore, is crucially important to making it work: the investor, Calvert Foundation as the security issuer, MicroPlace as the online marketplace, funders with the foresight to serve as the source of critical layers of investor protection...and so on."

Berenbach continued, "This is what makes it so exciting--having all of these disparate forces come together to really provide a long-term solution that can grow and grow, helping the working poor make better lives for themselves, all while providing a financial return to those who choose to invest in helping them."

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