John Monahan doesn't expect a Nobel Prize, but the former INVESCO global partner is hoping to do well by doing good in the microfinance sector pioneered by 2006 Peace Prize recipient Mohammad Yunus.
Mr. Monahan, who retired as INVESCO's head of North American institutional sales in December, says he and some former colleagues plan to launch a microfinance operation in Mexico by January that institutional investors could one day tap as an alternative investment option. For now, he hopes to attract an initial $10 million in private equity that could return 20% or more to investors by extending $500 loans to "entrepreneurs" with no access to credit — mostly women — and helping lift them out of poverty in the process, he said.
Operating on a for-profit basis, like existing operations such as ProCredit Holdings, Frankfurt, is the key to making the effort sustainable, while employee ownership should provide an added edge, Mr. Monahan said.
The view in some circles that profiting from such an operation is unseemly hasn't made attracting that initial capital any easier. Mr. Monahan said the investment chief of one college endowment told him "we have students on our board who would go nuts" if they heard borrowers were paying more than 20% to 30% for loans. Pension consultants' lack of familiarity with microfinance has proved another roadblock, he said.
While it may still be too early to attract institutional investors, Mr. Monahan said he is already beginning to reach out to pension consultants. "It only takes one CalPERS to make an investment, and (then) everybody else says ‘great idea,'" he said.