Ms Camilla Nestor (CEO) | Interview given to Ms Maria Louisa Vafiadaki
-Please talk to us about MCE Social Capital and its mission. How did you decide to become involved in it?
We are a non-profit impact investing firm and our mission is to unlock capital to empower families living in poverty throughout the developing world. We work with different types of companies in these markets to help smallholder farmers increase their income for example, or reach women running small businesses. In a nutshell, we unlock capital to lend to people so that they can build a better life for themselves and their families. We are not just giving money and dictating how it’s spent. We do this by lending in the range of 100.000 to 3.000.000 US dollars to small and growing businesses (SGBs).
I’ve spent my career focused on the transformational role of capital: I spent some time on Wall Street and later worked in the non-profit sector, helping to build impact investment programs. The first thing which attracted me to MCE was that it takes impact seriously. Impact investing can mean a lot of different things, but MCE has a strong impact thesis, measurement efforts and always puts impact first.
When COVID hit in March in 2020, there was a lot of uncertainty and risk, which caused many impact investors to retreat. Instead of pulling back, however, MCE doubled down on our investing, knowing that our loans were truly catalytic at such a critical time. Eighteen months in, we have seen this decision pay off in profound ways: in one of the most difficult years on record, the agricultural SGBs in our portfolio thrived – they grew revenues by 50% on average and they purchased from 78% more smallholder farmers, supporting those farmers’ livelihoods. This of course speaks volumes about the SGBs themselves, their leaders, and the role of essential services in the pandemic.
-In what ways do your firm’s investments generate a positive impact for poor families in the developing world?
We create economic opportunity so that people can generate more income to invest in their families and communities. It is important to help communities build resilience to survive shocks that disproportionately affect people living in poverty -- such as those related to climate change. The small businesses we work with help smallholder farmers increase productivity and adapt to climate change, which is incredibly important now.
Within our Inclusive Finance portfolio, we focus on helping families achieve financial stability to have access to credit, savings accounts, supporting services like business development training, healthcare, insurance. We select institutions which offer comprehensive financial services packages to improve people’s livelihoods.
Meanwhile our Small and Growing Business portfolio is focused on creating jobs and employment. SGBs, and the jobs they create, are critical for economic growth in emerging markets.
Across both portfolios, empowering and investing in women has been a core focus on our work since we launched in 2006. We have always focused on women as stakeholders. We ‘ve learned over the years that when companies we invest in have a higher proportion of women in senior leadership and a higher proportion of women as employees, these companies do an amazing job in empowering women. It is really interesting to see this correlation.
-Briefly share with us an overview of your portfolio and the countries where you operate in so that we get an idea of you work’s scale.
Our current outstanding portfolio is about 60.000.000 US dollars. We operate globally, which works as an excellent risk mitigant through having investments in diversified geographies. In terms of geography, half of our portfolio is invested in sub-Saharan Africa, the balance is in Latin America and Southeast Asia. We have also invested in Central Asia and Eastern Europe. We are recognized in the impact investing industry for entering markets that most other investors won’t invest in, such as Ethiopia, Nicaragua, Mali and the Democratic Republic of Congo (all are tougher markets for political and macroeconomic reasons). It is interesting how these countries may be perceived to be higher risk, but when you select the right companies to invest in, they can thrive even in challenging operating environments. MCE can take measured risk in service of impact due to our unique guarantee model.
-Please present your pioneering loan guarantee model – how does it work and how does it develop economic opportunities for women & families in underserved communities?
At its heart, the loan guarantee model is centered on a group of Guarantors who are part of the MCE community. We have about 100 Guarantors who have provided guarantees in the amount of either 1.000.000 US dollars or 500.000 US dollars. A 1.000.000 US dollar guarantee allows us to raise and lend-out 500.000 US dollars to financial service providers, and a 500.000 dollar guarantee allows us to raise and lend-out of half of that (250.000 dollars) to small and growing businesses.
The way the model works is that if one of MCE’s investees in the developing world defaults on their loan to MCE, the pool of Guarantors covers that loss on a pro-rata basis. With a low default rate of less than 2% per year, this means that each Guarantor makes a charitable contribution of between $5.000 to $10.000 dollars annually to MCE. Our Guarantors tell us that this is a terrific way to leverage their asset base, and create a powerful multiplier effect on their philanthropic giving.
MCE is a great option for (U)HNWIs that want to maximize their impact (by unlocking hundreds of thousands of dollars for people living in poverty) with an annual contribution of less than $10.000 US dollars.
-Strategically, where do you invest the capital that you deploy from high-net-worth individuals and foundations? Which causes do you mostly support and why?
Our primary focus is on agriculture and agribusiness, which is one of the most excluded and underserved industries around the world. There are around 500.000.000 farmers globally that don’t have access to any type of financial services for support. We also believe that the agriculture value chain is a critical space which needs to adapt to climate change. In supporting these types of organizations, we notice the immediate benefit to local communities through increased yield and smallholder farmer revenue – which benefits not just the farmer but also his/her family.
We also invest in other sectors that synergize and support agriculture, such as clean water and renewable energy.
-What are the main reasons to donate or become a Guarantor of MCE Social Capital?
What is compelling about the Guarantor model is how much capital can be unlocked simply with a (U)HNWI’s signature. There is no initial transfer of assets, meaning that the individual’s money stays where it is currently invested while simultaneously creating a significant social return. Our model provides a compelling way to leverage your balance sheet for impact.
Aside from the Guarantor piece, MCE also accepts donations from individuals and foundations to achieve on our mission. For example, doing due diligence on these SGBs is really time-intensive in less-robust markets like Mali and Ethiopia. Some of our donors support the cost of that due diligence.
We also leverage donations to do impact studies to support qualitative findings and find out how households’ lives have actually changed for the better since MCE’s investment. We aggregate those learnings, which helps to continually recenter our work around our impact.
-What are the risks and dangers associated with loans and when do your lenders get repaid?
Honestly, the risks are pretty contained. We have a built a really strong track record over the past 15 years. Thanks to the strength of our investment team, the rigor of our due diligence and the relationships we have built with our investees, MCE has an overall default rate of less than 2%. Even through some very difficult macroeconomic challenges over the past decade and a half, our companies have shown incredible resilience, contributing to our low default rate – and mitigating the risk to our Guarantors.
-Talk to us about one of your most successful case studies.
I will share with you a case study with a company in Nicaragua called Aldea Global, in which we recently invested 1.000.000 dollars. They are a producer organization whose primary activity is sourcing and exporting certified coffee from14.000 small scale farmers. Remarkably, 1/3 of those farmers are women, which is unusual for Nicaragua where most agricultural activities are undertaken by men.
Our capital allows Aldea Global to provide loans to the farmers to purchase inputs like seeds, fertilizers and machinery that help them produce high-quality coffee which they get paid a premium for. We have also just approved another loan to the company that allows them to continue to pay their farmers in a timely way, while they wait for delayed payments from international buyers. Often, payments from international buyers (usually large multinational companies) are delayed and as a result, farmers are left without financing while they are trying to survive.
During our due diligence trip, our team looked deeper into the gender aspect of this and found that in this part of Nicaragua women were typically involved in household activities. Being part of Aldea allowed them to take on a much stronger role for their families financially. The other interesting angle is that Aldea has obtained top certifications (such as the Rainforest Alliance and Fair Trade). Aldea is an inspiring example of an organization with a lot of potential, where MCE’s capital was timely and catalytic to the company’s growth.
-How can one become reach you and find out more?
There are multiple ways to reach us – we always welcome conversations from individuals and institutions that want to learn more about MCE!
We invite you to check out our website, where you can sign up for our quarterly newsletter, read our 2020 Impact Report, check out our Stories from the Field and full portfolio list of companies.
You can also directly contact Christina Lukeman, from our business development team, via email (clukeman@mcesocap.org).
Most of our Guarantors come through referrals. Networking is a very powerful way to spread the world about the model!
-What are some of your milestones for the near future?
We aim to scale to our portfolio from 60.000.000 US dollars to 100.000.000 US dollars by 2024 to meet the high demand for our capital. If you are a foundation, (U)HNWI or ecosystem player that wants to leverage your balance sheet for impact, please do not hesitate to reach out. We would love for you to be involved in the growth of our portfolio and our impact to financial service providers and small and growing businesses in emerging markets across the world!
Thank you.