We develop business solutions to social and economic problems for people at the base of the pyramid.
Our first initiative is in microfinance, where we seek to improve access to financial services for the unbanked. Affordable microfinance services enable them to build businesses, to increase and stabilize their income and to reduce their vulnerability.
We are applying our expertise and experience from the microfinance sector to other areas, such as water and sanitation, and renewable energy.
Microfinance
What we Do:
New and Growth Phase Microfinance Institutions (MFIs)
Equity Investments
Active Support
Our Approach:
Local Partnerships
Regional Investment Companies
What is Microfinance?
Bottom Up Economic Development
Huge Unmet Demand
Double Bottom Line
Moving Towards Meanstream Finance...
India: a Fast Growing Market With a Huge Untapped Potential
West Africa: Emerging Microfinance Opportunities
Water and Sanitation
Renewable Energy
Microfinance: What We Do
Goodwell aims to improve access to affordable financial services for millions of people in the ‘Base of the Pyramid’. Worldwide, more than 100 million families have access to microfinance, but at least 500 million families have not been reached yet. Affordable microfinance services allows poor people to help themselves, to build businesses, to increase and stabilize their income and to reduce their vulnerability.
Goodwell invests in entrepreneurial microfinance institutions (MFIs), with the goal of creating a substantial social impact and an attractive financial return. For this purpose Goodwell has set up two investment vehicles:
Goodwell Microfinance Development Company I
(launched in 2006 and closed in 2009 for investors)
Goodwell Microfinance Development Company II
(launched in 2009 and open for new investors)
Investors in our microfinance initiatives include Development Bank FMO, IFC (World Bank), Deutsche Bank, Blue Orchard, Noaber Foundation, Pension Fund for the Bakers, Pension Fund of the SER and Bedrijfschappen, and Pension Fund Productschappen.
New and Growth Phase Microfinance Institutions (MFIs)
Our investment strategy in microfinance is to develop new entrepreneurial microfinance institutions (MFIs) and support the growth of existing MFIs. We provide long-term risk capital as well as guidance and support, to accelerate the growth of the MFI and to support their integration into the mainstream financial sector, whilst maintaining their social focus.
For start up and small scale MFIs we work closely together with partner IntelleCash, which developed an innovative operational support programme. Its wide variety of services to MFIs includes operational consulting on back office processing, technology support, and debt and equity linkages. For Goodwell the programme provides a pipeline of high quality start-ups.
The strategy for medium to large scale MFIs is to provide risk capital to fund further growth and to build value as an active stakeholder in the underlying business.
By focusing on scale and efficiency, we seek to realize an accelerator effect: efficient organizations perform better, are more sustainable and can grow faster. They can provide more affordable microfinance services to more people in the ‘Base of the Pyramid’. Goodwell believes these “benefits of scale” will translate into a substantial social impact and an attractive financial return.
Equity Investments
The microfinance business model is highly replicable and scalable. Growth rates of 100% or more per year are achieved by efficient and growth-oriented MFIs. Mainstream capital is finding its way into the sector, but most capital comes in the form of loans. However, MFIs have an increasing need for patient risk capital (equity). Goodwell recognizes this need and provides equity, along with active support. Goodwell invests with the objective to hold the investment for the long term, averaging between 5 to 7 years.
Active Support
As active shareholders, we provide support to the MFIs in which we are invested, in areas such as financial management, governance, growth planning, technology and innovation. Generally, we have representation on the board to help the MFIs achieve its growth ambitions and business goals.
Microfinance: Our Approach
Local Partnerships
Our investment funds are managed in joint venture with strong local partners, who share our vision on how to fuel the growth of microfinance, while realizing social and financial value simultaneously. Our partners have professional investment expertise and experience from other business operations. Furthermore, they have a deep understanding of the microfinance sector and the needs of people at the base of the pyramid.
Regional Investment Companies
Goodwell MDC I and Goodwell MDC II are structured as private equity companies, which invest through regional development companies focused on a specific region. The first regional investment company, Aavishkaar Goodwell, started in 2007 with a focus on India. In 2009 we added two new regional companies, one for West Africa (Goodwell West-Africa) and a second one for India (Aavishkaar Goodwell II). The regional investment companies are established and managed with our local partners: Aavishkaar in India, Alitheia in Nigeria and JCS in Ghana.
What is Microfinance?
Microfinance is the provision of small loans and other small scale financial services to the poor. Having access to affordable credit, a secure place to save money and insurance to protect against the unforeseen can make a world of difference for the “unbanked”, some 2-3 billion poor people in “The Base of the Pyramid”. Affordable microfinance services enables them to build businesses, to increase and stabilize their income and to reduce their vulnerability.
Bottom Up Economic Development
Microfinance is not a panacea, but it can be very effective. It reduces the dependency on aid and subsidies and allows people to help themselves with dignity. It raises self-sufficiency and self respect, and can contribute to better living and housing conditions, better health and education, and the empowerment of women and minorities. Affordable loans and insurance products enable micro-entrepreneurs to grow their businesses, create jobs and thereby advance the economic development in their communities.
In brief, microfinance improves the opportunities for poor families, communities and villages to break the cycle of poverty, thereby creating bottom up economic development.
Huge Unmet Demand
In the ‘80s and ‘90s microfinance pioneering institutions like the Grameen Bank of Bangladesh have developed models that work. They have proven that the poor are capable of paying a market rate of interest and repaying their loans. Today, there are some 10,000 microfinance organizations across the globe. Most of these are small scale “grass roots” organizations, operating on a non-profit basis and serving only a small community. Only a few hundred have managed to reach a critical mass and operate on a sustainable basis.
Double Bottom Line
Microfinance is not only an effective poverty alleviation tool and an instrument to support micro-entrepreneurs and promote economic development. Increasingly microfinance is also recognized as a valuable financial service and a sustainable business opportunity at the ‘Base of the Pyramid’. A significant number of microfinance institutions across the world have demonstrated that it is possible to reach out to the poor and to be profitable at the same time.
Moving Towards Mainstream Finance...
The vision of providing access to affordable financial services for all poor families in the world is within reach, but only if mainstream financial institutions become involved and committed. Increasingly they are doing that. We see non-profit microfinance institutions (MFIs) transforming into for-profit full service finance companies, mainstream banks and insurance companies adding smaller scale services themselves or partnering with MFIs to extend their reach, and we see entrepreneurs from outside the microfinance sector starting up commercial MFIs.
New business models are emerging, and alternative paths are taken to overcome growth constraints, such as securitization, service company models and branch franchising. New technologies, systems and mainstream resources are entering the arena. Competition is becoming a reality here and there, driving interest rates down and client focus and efficiency up. However, the mainstreaming of microfinance is still in its early stages, and significant amounts of long term growth capital and capacity building efforts are needed to support the growth of commercial microfinance. Goodwell addresses this need.
The growth of the microfinance sector is still mainly dependent on funding by CSR programs of banks, insurance companies and corporations, development aid and government support, and soft money and donor grants. These sources are not able to keep up with the pace of growth of the sector. Capital markets and commercial banks are able to finance the growth, but they require a market rate of return and they are weary of the risks in this emerging sector. The market demands robust MFIs that can scale up quickly and operate on a sustainable and profitable basis. Goodwell develops those MFIs and supports their growth and integration into the mainstream financial industry.
India: Fast Growing Market with a Huge Untapped Potential
India is the largest emerging market for microfinance, with 300 million poor households, of which only 15-20% have access to the formal financial sector. The sector has grown from a development focused, mainly government/donor funded NGO sector into a retail financial services sub-sector with an economic and social impact, integrating into the mainstream financial system. The Indian microfinance market has grown to more than 5 billion dollars in outstanding loan portfolio in 2008.
Despite an impressive growth in recent years, the sector still covers only around 10% of potential demand. The unmet demand in India is huge. The number of people in the lowest income groups (below poverty line) is more than 450 million, around one-third of the world’s poor. An estimated 250 million people are unbanked, translating into an estimated unmet demand for microcredit of more than USD 50 billion.
The microfinance business model in India is highly replicable and scalable and growth rates of 300-400% per annum have not been uncommon for Indian MFIs. An estimated USD 500 mln of private equity is required over the next 5 years to finance the projected growth of MFIs.
West Africa: Emerging Microfinance Opportunities
Microfinance in the Anglophone West African countries of Nigeria, Ghana, Sierra Leone and Liberia is beginning to emerge as a viable, prosperous, and growing industry. Of those living below the poverty line, the majority remain financially excluded, producing a massive potential demand for microfinance. In spite of the eager market, microfinance has been relatively slow to take hold in West-Africa in comparison with similar regions elsewhere in Africa, Latin America or Asia. The sector in this region is now catching up rapidly. The combination of recently found political stability, market potential, entrance of international microfinance networks and increased experimentation in institutional products and services has started to attract the interest of commercial investors.
Penetration is estimated at less than 10% across Nigeria, Ghana, Sierra Leone and Liberia. The region is estimated to require around USD 500 mln of fresh equity capital and over USD 1 bln of debt by 2013, the vast majority of it in Nigeria. For more information regarding the emerging opportunities for microfinance in West Africa, please read the executive summary.
Water and Sanitation
Goodwell is part of a joint programme with the Indian Development Finance Consultancy Intellecap, Cordaid and the Dutch Development Finance Company FMO to build scalable business and finance solutions to meet the huge water and sanitation needs of low-income households, farmers and communities in India. This joint programme is called Flows and in the next 2-3 years this programme will select proven water solutions and seek to finance demand-driven, sustainable and scalable businesses around these solutions. The Flows programme aims to leverage strategic partnerships across supply chains in the water, sanitation and finance sectors.
The report of the Flows programme, Phase 1 was produced in 2009. In the beginning of 2010 an update report followed. If you would like to read these reports, please download here the full FLOWS report and update FLOWS report. If you are interested in obtaining the complete report of the Flows programme on water and sanitation in India, please contact us at info@goodwell.nl.
Renewable Energy
In 2009, Goodwell received a mandate from Shell Foundation to create a financial structure to scale up the distribution of improved cook-stoves in India. Every year, 1.5 million people around the world die from indoor air pollution, as they cook indoors on open fires or traditional wood-fired stoves. This especially affects poor women and children, as they are exposed to the smoke for hours each day. Envirofit International developed a stove, which reduces the indoor air pollution by 80% and reduces the cooking time by 50%. Not only does this stove improve the health of poor women and children and the air quality in the larger environment, it also creates a 60% saving on wood usage. Goodwell is looking at different financial solutions, such as providing micro loans to allow poor families to obtain such a stove, to increase efficiency of the supply chain of Shell's Breathing Space programme.
What is Microfinance?
Microfinance is the provision of small loans and other small scale financial services to the poor. Having access to affordable credit, a secure place to save money and insurance to protect against the unforeseen can make a world of difference for the 'unbanked,' some 2-3 billion poor people at the 'Base of the Pyramid.' Affordable microfinance services enables them to build businesses, to increase and stabalize their income and to reduce their vulnerability.
