The Omidyar-Tufts Microfinance Fund

FAQs

What are the fund's objectives?
The fund's objectives include accelerating the growth of microfinance through access to private capital, demonstrating the potential of microfinance as commercially viable investments, and unleashing at least $1 billion of new microloans to the poor in developing nations over the next decade so that these individuals may economically empower themselves.

When did Tufts get this gift and in what form?
On November 1, 2005, Tufts received all $100 million in the form of eBay stock. When the university sold the stock, it realized an additional $4.14 million in additional value.

What is microfinance?
Billions of people worldwide are trapped in a cycle of poverty, because they lack access to the financial services that would allow them to secure a loan and invest in their future. Microfinance addresses this problem by enabling people who are unserved by conventional financial service providers to gain a small line of credit, savings account or insurance policy. With a loan as small as $40, a woman in India can start a business and provide for her family. A key to microcredit is the recycling of loan dollars. As each loan is repaid -- usually within six months to a year -- the money is recycled as another loan, thus multiplying the value of each dollar invested. Microfinance can contribute to poverty alleviation and the empowerment of communities and individuals around the world.

Despite the promise of microfinance to serve the poor worldwide, only a fraction of the world’s poor has benefited from these financial services so far. For example, only an estimated 133 million people have been reached by microcredit, according to the Microcredit Summit Campaign. The industry has cited a lack of access to capital as a limiting factor to its growth. By making this level of private capital available, we anticipate the creation of new investment vehicles specifically targeting commercial-rate investors. Over time, there will be more investment opportunities that provide commercially attractive returns for Tufts and other institutions.

Where does the OTMF invest?
The fund invests in microfinance institutions (MFIs) in emerging markets throughout the world. MFIs provide financial services to clients who are poorer and more vulnerable than traditional bank clients. The fund is currently invested in 35 countries in East Asia, South Asia, Central Asia, Eastern Europe, Africa, Central America and South America that have strong microfinance capacity and reasonable regulatory environments.

What asset classes does the fund invest in?
The fund invests in all microfinance sector asset classes. To date the fund has invested in four sectors: high-grade fixed income, high-yield fixed income, private equity and venture capital.

Is the fund fully invested?
Including reserves for follow-on investments, the fund has committed 100% of the gift. The fund will, however, continue to review new opportunities and will remain an active investor in the sector.

Does OTMF make loans?
The fund does not make loans directly. Instead, it invests in institutions that provide loans or other microfinance services to end users in developing countries. The fund often invests in these institutions through intermediaries such as private equity funds.

How many people have received services through OTMF?
In 2008 well over one million people used financial services and products offered by MFIs in which the fund has invested either directly or indirectly. We expect that number will grow significantly in the coming years.

Is this fund part of the Tufts endowment?
The fund is set up as a trust with a separate board of trustees. While the fund is part of the university's overall endowment, it is not commingled with other long-term investment assets.

Who makes the investment decisions?
OTMF personnel in the Tufts Investment Office research investment opportunities and present them to the OTMF board of trustees. The board reviews the recommendations and decides whether to approve them.

Who is on the board of trustees?

Pierre Omidyar	Founder of eBay, founding partner and co-founder of Omidyar Network, Tufts alumnus, Board of Trustees of Tufts University
Mike Mohr	Founder and chairman, Comprehensive Financial Management, Board Member of Omidyar Network
Lawrence S. Bacow	President, Tufts University
James Stern	Chairman, Board of Trustees of Tufts University, Tufts alumnus, founder of the Cypress Group
Seth Merrin	Board of Trustees of Tufts University, Tufts alumnus, founder of LiquidNet

Are there other universities or colleges with funds invested in microfinance?
To the best of our knowledge, Tufts is the first and only university to invest in microfinance at this scale and with the intent of demonstrating the viability of institutional investment in the sector.

How does Tufts benefit from this gift?
The innovative structure of the Omidyar-Tufts Microfinance Fund aligns with Tufts’ interests as an institutional investor – to optimize long-term investment returns – with the Omidyars’ interest in advancing the field of microfinance. This effort also aligns with Tufts’ international focus and its commitment to active citizenship, and supports the university's core academic mission. As the microfinance investments generate returns, Tufts retains 50 percent of the returns to use for important programs, including support for faculty, need-based financial aid and loan repayment assistance for graduates who pursue careers in public service and the non-profit sector.

How much has Tufts received to date from the fund?
The returns awarded for Tufts from the fund were $1.38 million for the fiscal year ended June 30, 2006, $2.63 million for the fiscal year ended June 30, 2007, and $6.60 million for the fiscal year ended June 30, 2008.

What were the fund's returns?
For the fiscal year ending June 30, 2008, the fund returned 12 percent.

What were the fund's assets?
The fund had $122 million in total assets as of the end of its 2008 fiscal year.

Can you sustain that performance?
The early progress of the fund has been highly encouraging. The fund is, however, a long- term investor and thus considerable uncertainty still remains with regard to long-term investment performance. It is too early to tell if the fund will meet our long-term return targets. The assets and markets in which the fund invests bear considerable risk. The fund expects that returns will vary (perhaps significantly) over short periods. Our goal is to produce outstanding returns that are competitive with other asset types with commensurate risk profiles.

Will you meet your goal of enabling $1 billion in loans within 10 years?
We fully expect to meet that goal.

What impact has the global economic downturn had on the OTMF?
Neither the fund nor the microfinance sector is immune from global economic conditions. The full effect of the global financial crisis on this sector only began to be felt in the fourth quarter of 2008. Thus far, the crisis has had only a limited direct impact on the fund. While we expect the effects of the crisis on microfinance will be less systemically severe than in broader markets, we are closely monitoring developments in the markets in which the fund is invested and at each of our portfolio companies.

Is the OTMF an appropriate model for other investors?
We believe that investments in microfinance can enhance the portfolios of a wide range of investor types. How that exposure should be structured within a particular investor's portfolio depends upon the type of investor and that investor's investment goals.

Have you succeeded in creating a demonstration effect for institutional investors?
We believe that our success to date is having a positive impact but it is too soon to say that we have had a demonstration effect. We probably won't be able to answer this question for another two to three years.

For More Information

If you are seeking a microfinance loan or other financial services, please be aware that the Omidyar-Tufts Microfinance Fund does not provide services directly to end users. We work through microfinance institutions. Similarly, the OTMF does not have the capacity to issue grants.

If you are a member of the news media, please contact:
Kimberly M. Thurler
Director of Public Relations/Medford-Somerville
Kim.thurler@tufts.edu
617-627-3175

If you represent an MFI that you believe offers OTMF an opportunity for investment, or you are an institutional investor seeking more information about our experience, please contact:
microfinance@tufts.edu

If you want general information on investing in microfinance, the following resources may be helpful:
International Association of Microfinance Investors
The Consultative Group to Assist the Poor