Nonprofit launches $35M microfinance fund

Unitus Equity Fund is raising $35 million to launch a fund focused on microfinance startups and has already secured the Omidyar Network as a limited partner, PE Week has learned.

The fund will invest directly in small regional banks in developing countries that loan money to local entrepreneurs. The carry will accrue to Unitus, a Redmond, Wash.-based nonprofit organization focused on eliminating poverty worldwide. Unitus recently upped the fund size to $35 million from $20 million and says it has been getting positive feedback from about 70% of the institutional investors it has approached.

The firm has already made an investment in SKS Microfinance, a private company in India that loans less than $100 to locals. The Unitus Equity Fund put $470,000 behind the company and invested alongside Khosla Ventures.

The Unitus fund is run by Chris Brookfield who joined in April. He previously co-founded Open Water Investors, a small buyout fund focused on the Pacific Northwest. Brookfield says that getting into microfinance companies, or MFIs, was a no-brainer when he thought about the growth potential. “It just felt an awful lot like wireless circa 1994 or the Internet in 1999. It may even be better than either since the best MFIs are growing and profitable,” he says. “Plus, It just seemed like an incredibly meaningful way to spend my time working.”

Unitus will focus on startups trying to make microloans, but some commercial banks are already having success with this model on a large scale. The PT Bank Rakyat Indonesia, for example earned $387 million on $1.7 billion in income from its loans, many of which are microfinance.

Unitus Fund will be looking for its startups to either go public or get acquired as they grow. Brookfield is quick to admit there haven’t been many success stories yet in this field. “The concept of ‘exit’ is emerging here,” he says.

It will take time to define his new field, especially as microfinance is still changing rapidly. “Ten years ago you could have called these people peace corps hippies and there are some that come from that perspective and we’re trying to ‘MBA-ize them,’” says Geoff Davis, Unitus CEO.

Davis says that he is increasingly seeing bankers, consultants and other business people starting microfinance companies. “It’s a generation of people who see the potential for market forces to achieve social good,” he says.

The trick will be in translating that doing good into doing well.