We welcome the opportunity to respond to the aforementioned review, which comments on our assets/budget ratio and investments as described by the Better Business Bureau. (http://greatnonprofits.org/reviews/accion-international/#r_id-106883--user_id-144548)
Accion has made program-related, long-term, ‘patient’ equity investments since the early 1990s. We take minority equity stakes in microfinance institutions (MFIs) that provide people living in poverty with access to financial services and education. These investments enable us to assist the MFIs through governance, management services and technical assistance, which includes capacity building and training.
We make these investments at very early stages, when an MFI is still young and has no other access to capital. It allows them to expand their lending and outreach. When Accion comes in as an early-stage investor in a program, it often serves as a ‘stamp of approval’ that typically brings in other investors and recognition for the MFI. Over the years, we have helped build 63 MFIs in 31 countries on four continents, including some of the most successful MFIs in the world.
As of December 31st, 2011, our investments in our affiliates and microfinance loan funds totaled $179 million. Generally accepted accounting principles (GAAP) require Accion to treat these program investments as ‘undesignated.’ However, since these investments are made to advance our social impact goals, they are not managed as investments for financial return. Moreover, the nature of investing in social enterprise in emerging markets makes an exit from these investments difficult, if not impossible. Not surprisingly, these small finance companies and banks serving the poor in countries like Bolivia, Haiti, Nicaragua, and Ghana are for the most part illiquid. Therefore, these assets are not truly ‘available for use’ in the sense described by the reviewer above.
Since 1992, when Accion made an equity investment in the first commercial microfinance bank dedicated solely to the poor—BancoSol in Bolivia—we have not sold any substantial portion of any mission-related equity investment, with the exception of our shares in Compartamos in Mexico, who held an IPO in 2007. This was a singular event in the history of our operations. Compartamos Banco, the microfinance institution to which the reviewer refers, stands today as proof that the commercial approach to microfinance, which Accion pioneered in the 1990s, can have a remarkable impact on the lives of people living in poverty because it serves millions of microentrepreneurs with financial services and education while generating sustainable financial returns. This approach has brought to bear the power of capital markets to confront a critical social challenge—a challenge so great that philanthropy alone cannot effectively mitigate.
We made one of our ‘patient’ equity investments in Compartamos when it was a small nonprofit, and we worked closely with Compartamos’s founders and management in a partnership spanning two decades. When Compartamos issued its IPO in April 2007, it was an unprecedented event in the history of microfinance. We realized a gain of roughly $300 million ($140 million net in cash, the rest held in shares), and our board of directors and senior management crafted a strategy to re-deploy those assets into our microfinance programs over the next several years, in keeping with our mission as a public charity.
The reviewer’s claim that Accion’s microfinance loan portfolio totals only $3.6 million is very misleading, because that figure only accounts for our majority-owned microfinance programs in Brazil and China. Accion’s partner network loan portfolio is actually $6.1 billion (as of June 30th, 2012), with 5,417,520 active microloan borrowers and 2,071,895 savers across 28 partner programs in Latin America, Africa, and Asia. Accion’s assets are not ‘overwhelmingly’ invested in cash and short-term financial instruments; rather, less than half ($129 million, or 41%) of Accion’s assets are ‘current assets,’ and these assets are being re-deployed as rapidly as propriety allows: We have already deployed more than $100 million into new programs and partnerships that form the three pillars of our work:
1. Building the next generation of top-tier microfinance institutions by using our 50 years of experience to help smaller MFIs achieve greater scale, sustainability and efficiency, helping MFIs expand their products and services to address their clients’ full range of needs, and focusing on un- and under-served regions such as India, China, Brazil and sub-Saharan Africa;
2. Pushing the frontiers of financial inclusion beyond microfinance institutions by accelerating the development of new business models, technologies and channels, and providing seed funding and assistance for promising start-ups and adjacent technologies through new impact-investment initiatives, including our Frontier Investments and Accion Venture Lab groups; and
3. Helping to build a strong industry with high standards by redoubling the microfinance industry’s commitment to consumer protection, transparency and social performance measurement, and by working through and with our Center for Financial Inclusion, the Smart Campaign for consumer protection in microfinance, and other industry watchdogs and working groups.
We’d be happy to answer further questions at firstname.lastname@example.org and would like to take this opportunity to invite interested parties to follow our work by signing up to receive our monthly newsletter at www.accion.org/subscribe.
According to the Better Business Bureau, "ACCION International (ACCION) does not meet the following Standard for Charity Accountability. Standard 10: Ending Net Assets - Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher. ACCION does not meet this Standard because:
"According to its audited financial statements (consolidated with affiliates) for the year ending December 31, 2010, the organization's total unrestricted net assets were $402,937,952, or 10 times the charity's total budgeted expenses of $38,727,000." (BBB) The majority of the firms assets (as of December 31, 2010) are comprised of approximately $162 million in cash, receivables, and short-term investments, and $251 million investment in affiliates. Of the $251 million investment in affiliates, $201 million represents an investment in a publicly-traded for-profit Mexican bank named Banco Compartamos. While the affiliates of Accion do appear to make microfinance loans, Accion's total direct microfinance loan portfolio consists of $3.6 million, or 0.84% of total assets. By far the largest affiliate to which Accion can claim any responsibility for microlending is Banco Compartamos, a firm which makes for-profit loans at for-profit rates. Overall, the financial statements indicate that as of December 31, 2010, Accion's assets were overwhelmingly invested in cash, short-term financial instruments, and for-profit banking, rather than micro finance loans.
Review from Guidestar