 So I have to say, we are impressed. Friday morning, last day, we thought we were going to be talking to ourselves. So hopefully this will be helpful. This is, oh, just to make sure, the lessons learned from microfinance applied to impact investing. So if you thought this was the free money session, it's over there. Quick question, just as we get started here, and then I'll introduce the panelist, and we'll kick things off. How many of you feel like you know a decent amount about microfinance enough that you could explain it to your grandmother or at a coffee party or something like that? How many of you don't know much and are here to learn something about it? How many worked in this space or still do? OK, fantastic. So this will hopefully be a robust conversation. And we'll see if we can wrap it up in time to turn to questions for the audience. It sounds like we can be a lot more interactive. So let me introduce the panelist, and then we'll kick things off here. So let's see. I'll start my far right, Arun Sharma, formerly the chief investment officer of the IFC, now senior advisor at the IFC, the International Finance Corporation, which is the private sector arm of the World Bank, been involved in microfinance and almost every other thing taking place in emerging markets for a long time. Arun's been there about 30 years and has a master's degree from St. Stephen's College in Delhi. And Arun, you were too humble. The purpose of these introductions were to let me brag for you. So I'm going to have to try to remember as well as I can. Among other things, Arun was the founder, if you will, if that's the right term. He started the structured finance work within the IFC and ran that for, what do we say, five years, and if you just take that and extrapolate it out over 30 years, that's what Arun's been doing. So he's an intrapreneur. He's been creating new opportunities within a very large institution and executing them fantastically. To my right is, I should know who you are, Johanna Basada. We've known each other for 18 years, maybe. We worked together at Unitas previously. She's the co-founder and a partner of Elevar Equity that's described as a human-centered investment firm focused on emerging countries. They're in their fourth fund, invested in 35 companies and have an AUM of about $280 million. And that work grow out of the work of Unitas. And I don't have my intro here, but I'll have to describe that a bit in a moment. On my left is Monica Brand Engel, partner and founder of Quona Capital, which previously was called Axion Frontier Capital. And she'll talk a little bit about the founding of that later, but that grew out of Axion's early commercial investment work in microfinance. And they are unlocking FinTech for the unbanked, if you don't know them. And they're focused on Sub-Saharan Africa, Latin America and India. And they use their strategic relationship with Axion to do that. And I assume everybody here knows Axion from their amazing work. Monica is a board member of Vyoko, Azimo, Zuna, and has been involved in many other companies and many other boards throughout her history. She's an adjunct professor in impact investing at Johns Hopkins, MBA from Stanford. Oh, so did Joanna. That wasn't on there. John has an MBA from Stanford and also has a master's degree in education in public management from Stanford. And I'll have to make mine up. So I'm an entrepreneur and a board member and an impact investor and was the CEO of a company called Unitus for about eight years. And along with Axion and a few others were very early investors in microfinance and learned a lot of things, stubbed our toe along the way. So hopefully we'll bring that up. I now run a firm called Cicero Impact Capital, which combines capacity-building consulting and growth capital, flexible growth capital, your revenue-based growth capital, and emerging markets to scale entrepreneurs who are helping achieve the SDGs. That's sort of the short version. Some other things may come out. So we're going to start. Everybody grab a microphone. You and I can share or you have one. And we're just going to lay a little bit of context just to do some context setting level setting for our conversation, talking about microfinance. I'm going to start off with a few points in the evolution of microfinance and then add my esteemed colleagues, ask them to add a few things, and then we'll jump into some of the questions. So this is not going to be complete either from one of us or all of us, but it will be directionally there. So microfinance, as many of you know, emerged initially as a development, quote unquote, a development activity, and much of it was philanthropically motivated and financed early on. And then Axion with Compartamos and some others started to realize, wait, this is fundamentally a business. If that's the case, we can design it to run like a business. And if that's the case, we can finance it like a business and grow it like a business, et cetera. So it seems obvious to us now that back in the early days, it was not so obvious. It was an evolutionary thing. And so the Compartamos. So the World Bank put $2 million, I think, into Compartamos early on. Is that about right? $1 million, I'll say $1 million into Compartamos to help them really get going and scale, et cetera. And Axion put about the same amount of money in. And they eventually went public. And we'll talk about some of the lessons learned and the stubbed toes and the good things that came out of that, including you and what you're doing now. Similarly with the Unitus, we did a few deals, if you will, and realized, yeah, this can really go. You can make money doing this and still help the poor if you're very focused on that and you're trying to measure it, et cetera. And some of those lessons learned will come out when we describe things. Our first biggest investment was in SKS. We were technically the founding investor. We started with the founder and his uncle's bedroom. And I think I can't remember the number. You might remember 1,400 clients or less than 10,000 clients. Very, very small. And then they grew. And we brought in Vinod Kosla. We brought in Sequoia. Eventually SKS went public for, I think, $1.2 or $1.3 billion listed in Bombay and New York. And then some of you may already know what happened a little while later with SKS. There were a bunch of government problems. There were allegations of over indebtedness and suicides from over indebtedness and things like that. And then in Africa, Africa was a little bit more mixed. There were some successful, large, successful commercial ones, East Africa in particular, which maybe you'll want to talk a little bit about, et cetera. So it's a little bit spotty. Looking back on it now from a 35,000-foot lens, it looks obvious that this would always happen this way, but it wasn't. And so our hope is to get into some of the details. But in terms of context setting, anything either of you would like to add? And then from a larger institutional structural perspective, I don't know if you would add anything. Any couple key points or trends? Maybe I'll just say that I think this evolution you describe of the philanthropic and commercial, it was messy. I think a lot of times there were different actors. Even some of the stakeholders you mentioned in SKS, and certainly that was true with Comportamos, with IFC en acción, I think initially investing is a very philanthropic development motivation. But even at that point, we called it el gran salto, which means the big jump, which was an effort in the 90s to say actually maybe charging market rates of interest actually helps the poor rather than hurts them, which is a very radical idea. It was a very controversial thing to say, and that was even in the 90s. And I would just say that I think something if I think about today what we're doing impact investing. And even if you look at what's happening in venture capital or the markets, it is, I think these are very gray areas. It's so easy in retrospect to say, how could you have done that? How could you have let this person do that? And I think to really humanize and understand the very difficult decisions you make in every board decision, every investment, even while structure deals, well-developed governance, they're people at the end of the day with multiple motivations. And I think bringing a lot of empathy and curiosity is something I learned because even, in fact, I'm speaking, I go every year, there's a, one of our investment community members, Sean Foote, teaches a class at Haas on venture capital. And one of his case studies is Comportamos, which actually I worked, I actually ran product, and it's my fault, I didn't actually send my bio to Jeff. I was head of product at Comportamos. I was living in Mexico for a year and a half before the IPO, and actually it was a decision to rather than lower the price to keep the interest rates as they were and to diversify product offering. So we offered insurance for free and did all this education campaign to explain why would you wanna use different types of financial service products. But even then, subsequently, and what I will guess lecture on, I will defend Comportamos till my dying days. I really think that it was really an effort, not that we didn't make mistakes or you couldn't disagree with some of the choices, but I will say that people tried to act with integrity and with a lot of honesty about the trade-offs. So I would just say that I think it was a great summary and recap, and it would be interesting as we talk about where we are today, how much of it is still, I think, a learning process. Yeah. We're just context setting and we'll apply lessons learned to what we're trying to do now, what we think we're trying to do now and see if we're any smarter. I think microfinance is a great example. I think when you kind of look money and meaning, it's really one of the first sectors that was under the intersection of that, and I think that's why we all came into the sector. What was really, I guess, just surprising for me is also how fast microfinance commercialized. So when we were launching United Security Fund and we're thinking about 10, 12 years out, like we never expected that three years after initial investment, there was an IPO, right? I mean, it just happened really fast. 2006, you know, compartemos with public, then you had winning funds like Sequoia and suddenly you're sitting and a lot of commercial capital is coming in. And I think, you know, something just to put context is it was messy and it was also very, very fast. And I think all of that took us a bit by surprise as well. Can I pick up on that? I don't know before you, just to give a little color. I, early on when we first started in settings like this, I would talk about the potential for microfinance to be done commercially so that you can reach scale. And we would talk about the supply demand gap, you know, estimated 20, 30% of demand was being met, et cetera. Supply demand gap so we can commercialize, we can grow it this way, here's what we can do and we not lose our focus on the poor. And there, multiple times somebody would stand up over in that corner, over that corner and yell, it means, how dare you try to make money on the poor? You capitalist pig, you know, and two years later I'd be speaking at a private equity or a hedge fund conference with four times as many people in the room talking about the, you know, money and then their hills, money and then their pueblos and have people saying just the opposite, well, how do I do, what concretely can I do? How can I get involved? So very, very quick evolution. I think it's a, you know, very, very sort of sobering and learning experience for IFC over the years. But hindsight is 2020, but I think it's a good position to be in now to be able to see from all the experience around the world as an IFC is one of the, I guess, first multilaterals to really get involved in detail and actually investing and supporting these institutions around the world. We've been able to get a lot of lessons learned. We have the benefit of seeing, you know, play with a large number of actors, stakeholders of all types that are starting from regulators down to. Equity investors, NGOs, consulting firms and the like. One of the core lessons that we learned is that what we didn't realize in the beginning is that, you know, we were in the business of setting up financial institutions and it's a complicated business. And traditionally, financial institutions are highly regulated sort of entities for very, very good reason because you are taking people's money or whether it's depositors or other providers of funding is much, always never funded with equity of financial institutions. You're always taking other people's money. And it has a whole range of risks and management issues that are very different from a typical corporate business. And it's a complicated business. So here you had essentially a whole set of new actors serving a set of new customers who had never had access to their experience. You had a sector that is extremely sensitive because they're vulnerable on the one side, they're politically important for all the right reasons. And they're also subject to a lot of, I would say manipulation potentially from different types of stakeholders. Some for visibility reasons, some for political reasons, some for financial reasons and so on and so forth. So it was a complicated mix of factors that we realized that it was difficult but we didn't realize it I think as clearly as hindsight tells you in the end. And I think that's one of the core lessons that going forward, I think for all of us is that look we are in the financial institution business in microfinance. So anything we do right from product design to who our customers are, how we should treat them, how this business is going to be viable, what the regulators are gonna think about it, all that has to be seen really from I think a macro institutional framework. I think that's fundamental to really informing the thinking on how we go about taking this sector forward. So that's one lesson. There's all debate about are we being vicious capitalists, basically charging very high rates for people who are the least, I would say, able to pay those high rates. It's a difficult and debatable question in multiple ways. IFC has always taken the view that in order to be sustainable we have to be financially sustainable and that is indeed good for everybody who's involved in the process because if it's not financially sustainable, none of us are going to be around to continue that work. But at the same time, I think what we have also realized that none of this works unless the macro economy is sustainable in itself, which means that if you have interest rates going through the roof, the treasury rates, not the microfinance rates or the inflation is now reaching hyperinflation levels or unsustainable levels, if there is fundamental barriers to economic activity, there's political strife, social strife, law and order, multiple things, a lot of things, bad things can happen that obviously hit the most vulnerable sections first who are our customers. So I think the part of the work and I think one of the things that we feel that the entire industry has done is to shine the light on the sectoral issues. So in the problems that we have faced as a group promoting the sector, the losses or difficulties we have had, a lot of them have been driven by macro factors rather than institutional factors. People have, I think in general, acted with the best interest, with the highest levels of integrity. Many of them have been driven with passion, but it's been difficult to manage the macro risks because of the intensity of those risks. But in the process, wherever these issues have come up, at least they've shown a light on the macro challenges that a country faces. And I think that's something that we need to highlight even more, that when a sector is being impacted in this particular way, why it is being impacted in which country. I think it's as an industry, I think that's become a very important lesson for us in essentially recognizing those challenges in the design of what we do going forward. And then also bringing it to the notice of all stakeholders around the world as we go about this business. Just say, listen, if you really want your people to prosper, if you want this instrument to be helpful to them, then you've got to fix these four, five, six macro things that are fundamental to it. So I'll stop here. Great, thanks. So a few things emerge from this that maybe we can focus on for a few minutes. First is intentions. And everybody in this room presumably has the same type of intentions that we did back 10, 15 years ago when we were trying to do this in microfinance. Second is stakeholder alignment. I think we should talk about that a bit more. Related to that is governance. Monica alluded to this, but that's where a lot of the rubber meets the road or met the road or didn't. Fourth would be a business model and thinking really deeply about the business model. And then maybe last, we've just slightly alluded to this, but I think we should talk about it both because it's the way things work, but also because of the risk. And that's perception versus reality. And many times, Kompartama's got slammed, or SKS got slammed for things that were more perception than reality, and to your point about defending them to your dying day. Hopefully, maybe we won't all agree, but I would hope we would at least get close to agreeing that microfinance does a lot of good for a lot of people. So there are some bad things that happened, but that doesn't negate the amazing good for done for many, many people. So let's start first with intentions. And to frame this, we were joking on our call before the panel that, you know, we claimed we never said microfinance was a panacea. But we sure acted like it. And I see us in impact investing, having potentially the same risk of just going to, you know, the massive wealth transfer that's taking place now, so going to family offices, millennials, women, et cetera, who are receiving all this capital and are investing with their values and saying, oh, no, no, don't worry about it. If you're smart, you can make money and help people too, always. If you can't, you're just not being creative enough. And so I think let's talk about that a little bit how much of that is reality? How much of that is hype and what's the risk now? What are you seeing? I think it's super important. And I think even in the, even, I think it's a call to us as actors and stakeholders to be really responsible. There's one of my, here as Brené Brown says, unclear is unkind. And I think to say, for example, if you are not earning a risk-adjusted rate of return, you shouldn't use the word impact investing. An investment without a return is a grant. So you say it's grant and a philanthropy. And I don't think it means it's bad or less. Like, I think we have to get rid of the hierarchy that this, like the market rate of return is somehow better than philanthropy, which has a huge role still to play or government, I agree that absolutely there's a role for the public sector to play. And I think this sort of romanticization that everything should be privatized and put in the framework of commercial return of somehow it's lesser is silly. And I think we have to be careful that we don't kind of drink the Kool-Aid. And I think also just being honest that, you know, again, I think of it as a value chain or an ecosystem where each person, each actor has a very important role to play. And I think even when you pitch to LPs, you know, it's funny what some of our LPs ask us, what is your target, tell me your target impact metric. And I very honestly say we don't have one. And I'll tell you why. We, Axion was our sponsor, Axion was our sponsor. We had this big initiative called our financial inclusion 2020. And the goal was to, you know, we have, you know, two billion unbanked people were gonna divide that in half. So we're gonna open a billion bank accounts. And you know what? We did it. Billion bank accounts open. What were the results? Dormant bank accounts empty. And you realize actually that M-PESA chose us in Africa that actually sometimes a wallet, a stored value account that isn't a regulated entity but has, you know, has more flexibility might be more appropriate for certain segments and others. So for us, what I say, our goal is to learn. We measure a lot. We have a bunch of different social KPIs that we track because we're trying to understand what kinds of interventions have the greatest impact in terms of financial inclusion. So I think you have to just be very careful about what you stated your goals are, honest about what's really happening. And just the, I think openness that there is a role for everybody in the system. There's no hierarchy of market rate versus philanthropic versus government. Maybe thinking about sources and uses of capital or types and uses of capital. What tool for what problem? Maybe this isn't impact investing. However you define it, there's a continuum. However, maybe it's not the one answer. It's part of it is a tool for a certain problem and getting clear about that. Yeah. And also, I mean, it's, you know, again, going back to 2004, we had less wrinkles and gray hair, but when I think about, I mean, the intention was there. We really thought that just making sure that as many people had financial services, that in itself was good. You were helping people. You were definitely, the rates were very high, but they were lower than their alternative, which was loan sharks. Again, that's kind of seeing some of the positive things of microfinance. But we also thought that microfinance was gonna solve many other problems that it didn't. So you have to realize it was giving, you know, financial tools to some people and frankly, it wasn't all financial tools. It was credit, right? And from there on, to have someone really, you know, really prosper, they also need savings, you know, the insurance. I mean, you've gotta kind of think, and we weren't, I mean, in fact, we were thinking that we were gonna get there. When we're fundraising for the fund, we said, if you think about microfinance, it's really the first connection that this informal clients have with the formal sector. It's access. I mean, the word access was there all over, right? And if you have the connection, imagine what you can do. All the other services that you can provide, right? And that was for us, it was like this distribution platform that was gonna do all of this for the clients. And then when we started investing, we realized that they were very good at one thing. They were very good at giving credit and growing really fast on it. But every, like the innovations of trying other products and everything, it really, it ended up being just a pilot in many of them, because they were so focused and just growing and growing on a very simple product that that's where our, I think, evolution, then it became all of our evolved saying, well, if microfinance is not gonna look at this, then we have to find other entrepreneurs, right? That start investing in, you know, financing for housing, financing for small and medium enterprises, not only $200 loans, right? And that's been the evolution of the industry, but back then we didn't know that, right? And it has been learnings that we've realized through the way and then, you know, we didn't anticipate over in-debtness, right? The importance of regulation and an ecosystem in credit bureaus and everything that came in later and then, frankly, the absence of those things also led to some of the crisis that we saw. So, just on the impact itself, and I like to call IFC the original impact investor, and we were set up for that very purpose way back in 56. And, you know, in our view, anything we do has to have an impact. I mean, I've had to justify for the last 28 years in IFC every single deal on impact and have, you know, one way or the other justified. So I think it's very difficult to put a, you know, very one-size-fits-all metric on impact. I think that's a very firm view that, you know, I have. And I think it's a common sense view in the sense that if you build a hotel in Rwanda or in Ghana, which is the first hotel, it has a lot of impact. I mean, you know, we got really a huge amount of flak because we did a hotel in Ghana and it happened to be the equity investor was a Saudi Arabian equity provider. He was a very, very wealthy businessman, but entrepreneurial and he was the only person willing to invest in a hotel in Ghana at that time. And we provided debt financing and it created all kinds of jobs. It created all kinds of other impacts, including simply facilitating the flow of investors into Accra, coming in and actually doing business and helping the economy, you know, continue on its growth path. So multiple impacts, so you could argue that unless there is, you know, nothing that is in, you could have a long argument but the simple point I wish to make is that I think this debate is on what is exactly, you know, it needs to be really held in more realistic terms. I think impact is what is in your, with you, you know, as an investor, as a fund manager or as an entrepreneur can in your own conscious with a straight face truly believe that you're making a difference. Whether it's a hotel or whether it's a daily farm or whether it is somebody financing, you know, 20 new cows for a farmer in Africa, it could be anything but so having a clear, well understood expectations managed kind of arrangements with investors, fund managers and all other stakeholders I think is important but having to try for something that one size fits all I think is not a realistic or even a useful proposition. I think that's the first point I wanna make. The second point, you know, in terms of, you know, the impact again, you know, as I've seen, we get to look at, you know, more than 70 countries, you know, whole range of fund managers, a whole range of microfinance networks that we get a chance to work with. And another macro lesson I think that we've learned over the years is that microfinance is one part of the overall process of improving the economic and social status and prosperity of the segments that we're trying to serve. There are lots of other things that go with the fact that if you provide finance to somebody, an enterprise must have a lot of other things like reliable power supply, reliable road network to get the products to market, fair trade arrangements where middlemen are not exploiting their production. So you can give loans to somebody, they can produce maybe five times more what they were producing, but if there is a middleman that has them by the throat because there's no way for them to reach the market, they're going to, yes, be probably able to repay the loan, but the economic status is not really going to shift in any meaningful way. So a lot, I think the fact that we have now access to this group of people in a formal way, and they have access to us as microfinance providers as a very powerful interlocutor on their behalf, and that's the role I think that needs to be played much more seriously by the whole sector. Because now we have their trust, we have their loyalty, we have a track record of helping them in multiple ways. Now, I think it's really incumbent upon us as an industry to act as their representative in an informed dialogue with other stakeholders to essentially help them make better use of the finance we provide. Thank you, try to summarize some of this from the intention perspective and the impact perspective. Early on, we looked at different studies, the World Bank did a big study on the impact at Grameen Bank and some others, but before there was Dean Carlin, before Jay Powell and others, we had to do the best we could with understanding true impact. And once, at least speaking from us, and I think somewhat with Axion and others, once we became convinced that there was impact, maybe it wasn't universal and maybe it wasn't everything that was needed, then we started to say, okay, then we need more of it. And I several times said, measuring impact for the sake of measuring impact from a yes-no perspective, that's a kind of a cost center. I'm not sure that's helpful. And then as it grew and things emerged and there were problems, et cetera, then at least from our perspective, we started to say, okay, yeah, actually it's very important to measure impact, but let's not call it impact. Let's call it customer analytics, customer insights. Let's have it be a customer focus and it's not a cost center, but a new product development process and cycle and improvements. So it's not a yes-no so we can report to donors or investors, but it's a nowhere is it failing and what can we do from a product improvement perspective to plug that gap and to help it work more effectively. By the way, we're not explicitly stating the lessons learned for impact investing. Hopefully you're grabbing these, but right now all the conversation around measurement and everything else, that's emerging. I think this is very, very pertinent. Totally important, very much necessary. If it's always a cost center, it's not gonna do the job it needs to done. It actually needs to turn into, if not a profit center, at least a product development center and capability. Great, let's talk about governance for a moment. You alluded to it, if you want to, you can talk about some of the scenes before some acquisitions or some IPOs or other things that took place in the boardroom, but governance became very, very important. Good intentions weren't enough. And in governance, let's talk about governance and aligning stakeholder interests and where that didn't work and what we learned from that and what we might do, what you're doing, we're all doing differently now that we can share. Do you wanna start? Sure, so I would say it starts again with people and I think who you choose to co-invest with. I mean, I think it's quite telling we've co-invested with Elevara and IFC subsequently because I think you find people who are pragmatic and also who care, right? Who understand that there are nuances, grays and there are both ways to what I call create guardrails to prevent people's baser sides from or maybe greedy sides from manifesting as well as protections throughout the process. So I think one is choosing who, the managers, who are the entrepreneurs you're back, who are the people you co-invest with and I do still, so this day, every entrepreneur I back has met my husband and my children. One, cause life's too short and I'm not gonna spend time, I'm not gonna leave my kids at home to travel with someone who doesn't really pursue and is not someone with integrity. So part of it is sort of pragmatic but it also, I think at the end of the day, you can't, no matter how many controls and governance places you put in, at the end of the day, it's what you do when no one's watching that really tells everything, right? So you need to make sure you're with people that you trust what they're gonna do when no one's watching. But back to what you try to do to stop bad behavior, there are kind of classic governance rules. We actually usually create committees both around people, so remember it's the CEO but then he or she hires a group of people around them to help manage and so we usually ask in our term sheets for votes on the C-suite as an example. We also look at hiring policies, all that gets covered in HR and remuneration. On the governance is audit and internal control so there's a lot of sort of structural things but honestly I think those are just, I mean they're sort of, I call them good housekeeping work that it really, I think, begins with picking the stakeholders and having lots of conversations. That's the other thing, I mean one was here this morning and calls with people in Africa just talking through sort of how you get, how you do the work of a board. I mean a lot of it is interpretation, a lot of it is the whole famous adage that the real board work happens the dinner before the board meeting is very true and so and again it's not like this Machiavellian smoked room decision making, it's again it's interpretation. It's really understanding, okay here's this difficult complex situation where there's trade-offs. How do we do right by all of our stakeholders, our LPs? I mean I obviously one of our biggest inaugural LPs of our fund was TIA. My sister's a teacher so is my sister-in-law so I feel that whole risk-adjusted return means that my sister can retire. So it's not just, I have to also think about my LPs, they're our customer, every bit as much as my end customer. So all of these are important, right? And these are all, and again you try to find businesses, because you talked about business models too, and situations where everything is aligned and mutually reinforcing and you are with people when there are trade-offs that you feel like make good decisions and are very transparent about them. That's great, before we go to my right side, don't put the mic down yet. So you described some very practical things that you do, put some color on that, because that's after the bruised shins and the stubbed toes that you now have all of these rules. Give, so everybody gets a sense, give a sense of one time when it didn't work right, and how you learned that lesson just so we get some color, and so hopefully people in the audience don't repeat the same mistakes. So great, so I'll talk about, actually I was head of product at Compartamos, but I also was an observer on the board, and I was in the discussion where they decided, we had 50% ROE, which is phenomenal, and we had a decision, do we lower interest rates, and actually sort of share, or do we maintain interest rates scale quickly, so totally that pressure at Johnny said earlier about the pressure feeling like we need to get to sort of many secondary cities we weren't there, and develop new products, so that's your product development, and we chose the latter, and it was a big debate, and I will say only afterwards, I remember so clearly, front page of the New York Times, 2007, Aksyon was on the front page of the New York Times saying, how can, the second what you said, Jeff, how can you say you're helping the poor? How can you earn 50% ROE, and say you're helping the poor? That's phony, you're liars, and we actually chose to do a webinar. We invited every reporter, we did a global webinar, we said, here is every decision we made, here's the data that we had before us, and it was a really thoughtful, very cathartic process, and it was only in the discussion afterwards that I realized, we really weren't thinking about the optics, so that we weren't thinking about the optics, we weren't thinking about, well, could there be some, even minor adjustments in interest rate? I mean, I don't, because in Mexico, we had, back to your macro point, a great point, interest rates are high all over Mexico, I mean, typical microfinance, even today, is triple digit, so it really didn't occur to us that, wow, this is really high, it's not high for Mexico, but it's high for Latin America, I mean, in other countries, you have much more rationalized, there's a lot of reasons for that, but I don't think we were thinking broadly enough about this decision, I mean, it was a long discussion, but I think if we were to have the discussion a year later, it would have been a very different conversation. Great, thanks, Joanna. Sure, let me start with alignment, I just wanna say something, which is, I mean, at Alivar, we say we're human centered, because we really are thinking through all the stakeholders, and how that aligns, and one of the most important ones is the entrepreneur, and how you think about the entrepreneur, why they're doing that, and walking the field with him, and seeing his interaction with the client, and making sure that your long-term perspective is aligned, and the only thing I would add is actually it doesn't have to be an impact investor that could be aligned, some of our most aligned investors had actually been purely commercial, it is about the long-term perspective, and what's right for the business, and what's right for the client, so if you really take the client, and you put it in the middle, and you're really thinking about that, because at the end of the day, for us, it's all about the distribution, you're distributing a product, you want it as low margin as possible, because you wanna really gain volume, and if you just kind of follow that, then impact and financial return shouldn't be in conflict, but then you'd need a lot of alignment, and we've had less alignment sometimes with impact investors, than with commercial investors that do take that long-term view. I think where we've run into problems is when you start getting investors that are kind of maximizing valuation, or hedge funds that are really thinking short-term, and that's a bit what happened with SKS, right? Again, when you think about it, we lost our voice in the board, and that was, it was a $24 million fund, we started having board participation at the beginning, but the company raised hundreds of thousands of dollars at some point, we lost a voice in the board, and part of it is now making sure of, how do we ensure that there is that voice, whether it's us or someone else, that's really thinking about the client, and it's thinking through that. So one role that we really highlight, and today is key to us when we think about the board, one, we establish it right up front, and independent is key. We really, really push for independent board members that are really thinking about the company, and again, the customer, and I think part of that was, I don't think there was good independence in SKS, to tell you the truth, and at the end of the day, again, all these hedge funds start coming in, and you start losing that long-term perspective, and that was definitely one of the learnings. I will say on that, by the way, we thought we had baked into the business model, the guardrails to ensure that even if people came in with other intentions, that the business model and the product structure and everything else was such that we wouldn't be able to just jack up prices, because we would take it, it was the Walmart approach. We wanted everyday low prices at scale, so we were just trying to just low margins, but high, high volume, and so we were trying to be thoughtful, we were trying to be intentional, and it still didn't entirely work. I mean, it worked, but... No, I mean, they were state million clients, and again, I think, you know, once you look at that site, yes, it was over there, but there were half an impact. It was just, you know, once you get to a certain scale, again, you don't have as big of a poison. You know, the other thing that we did just quickly, which was extremely interesting, and I think was at the end of it, very impactful, is we actually transformed some non-profit companies to for-profit companies. We later learned that it was actually easier and more, it was better to invest in for-profit entities with really aligned entrepreneurs that knew what we're doing and really had the intention to serve the market segment, right? But at the beginning, we were... I was just gonna say, we called it, at the beginning there weren't any for-profit, weren't very many for-profit microfinance organizations, when they started propping up, do you remember what we called it? We called it Right From the Start. It was a little tagline, it was Right From the Start. Okay, we didn't say, we said we wouldn't do startups. Well, now we're gonna do startups, we're gonna do it Right From the Start. Because we learned, but when we were transforming non-profits for-profits, one thing that we did was actually when we were moving the assets, part of the assets stayed with a trust whose beneficiaries were the woman. And they had a huge stake on this for-profit entity and like a huge, at the end of the day, I mean, that was both again for this trust that the woman were representatives. I think one of the failures again was governance in people. And that's its learnings. What she's saying there, and I won't be too much more clear than she was, just before the IPO, some investors didn't think the women should have that much ownership or money should get that much of the profits. Let's just leave it at that and say there was some boardroom discussion, robust discussion about that. Governance, tell us what you've learned about governance. Often referred to as the 800-pound gorilla. Maybe not you, but the institution. Tell us your perspective on governance. That's one of the reasons I think we're still AAAs because of our ability to, I think, manage through this very complex issue, I think. And one of the best paths to navigating governance is firstly be very clear what we mean because I think there is a lot of concepts within governance that get confused. So one is, I think, the whole issue of alignment. I mean, the basic intentions of people why they're coming into the picture. And I think as somebody who's starting an enterprise, whether it's a micro-finance company on the one level or it's the investor micro-finance network or micro-finance private equity fund, you have to be very clear what kind of intentions lie behind and that's really a part of what we get paid to do is to really assess the intentions of people we are going to partner with. So that's the first part. The second part is then setting out with as much clarity as you can the expectations. I think, yes, you have made your best guess but nobody is perfect and your intentions and things can change over time within people. So you can't really assume that everybody who started with the same intent will remain the same way over the next five, seven, 10 years you're going to be partners. So I think setting up, I think, very clear expectations in writing. So as a practical matter, for example, many of our investments, we have something called statement of operating practices. So it's really a written statement saying, this is how broadly the company will behave. And then we also have a very clear understanding with all parties saying this is how the company would run. So at least the expectations are reasonably clear right from the outset that gives everybody a sense of comfort that at least going forward everybody's expected the business to grow and work in a certain way. Of course, obviously with the required amount of flexibility to deal with changing circumstances which will inevitably happen. And the third part is against structuring the arrangements to deal with situations when things will go wrong. When a difficult trade-off situation will emerge and somebody will say, we have a different view. And then as a participant in this from your individual perspective, you really need to have those protections where a radically different, unacceptable change of direction is subject to your veto. If you don't have that veto, then we walk away from the deal as simple as that. And I've had not microfinance, but multiple other financial institutions that I've worked on over the years, this has really saved us from a lot of trouble. It has led to stalemate sometimes because once you have a veto, you can stop things but you can't cause people to do things. But at least it has stopped us from getting into very bad situations in different parts of the world in different types of situations. That's another lesson we have learned that at least for the really bad outcomes that you worry about, you need to have a veto to protect them. Great, so on the governance side, there's two parts, character and guardrails and it's kind of art and science. Maybe we should come up with a good phrase. It's kind of like trust and verify, right? But you just need to be sure of the character of the people that you're investing in or with or through or whatever else. And that's vital. And some kind of guardrails, veto provisions or- I think I would add also just clarity of expectation. I think that's pretty fundamental. Without that, we can have good character, you can have good guardrails, but if the expectations are not there, then you'll end up in a fight. You may win it, you may lose it, you may be a stalemate, but it won't be the best outcome. Great, great point, thank you. We have about 15 minutes left. I'd like to keep the last five minutes for a quick thing we're going to do. But are there questions? Real quick show, just raise your hand if you'd love to ask a question in the next 10-ish minutes and have it answered. Okay, good. Now, so that's about 10 of you. Who is going to feel totally disappointed in their entire SoCAP experience if you don't answer the question? Okay, please. And there's a microphone in the back. This is being recorded. There's a microphone in the back. And we'll answer quickly so we can try to get through as many as possible. We'll limit ourselves to 10 words each. Okay, hold on a minute. So I will ask the next one. Someone over here said they'd feel hard. Why don't you go behind her so you can ask right after. Okay, so transparency, corruption, blockchain, Libra, anything that you can tell us about your experiences with microfinance and those things. Okay, great, please. You want to stack them or you want to answer that one? No, go ahead, please. Let's ask a few and then we'll try to go. So my question is it's great to hear about the lessons but lessons only have value if they're implemented, right? So you hear about the hype, you hear about how VC hedge funds came in, you need for governance, regulation and so on. That's why in the clock to 2019, right? Version 2.0, tons of money going into digital lenders. Way more hype, no regulation, no governance. It's all equity funded so there's no debt funded ecosystem here. And what we see is 1,000% interest rates. We see 90% default rates, very questionable impact. So where are the lessons being implemented when it comes to this new version? Let's do one more. She's going to start answering both of those. Let's do at least one more. Yeah, hi, thank you for the interesting conversation and I'm starting from the point that microfinance is really fitting the gap that the formal economy hasn't been able to respond. So let's start from that. Let's start to see that microfinance, its inception was very elegantly designed as a credit kind of facility and then like you currently see evolving this multiple product, we work in housing microfinance, it's a very complex issue. But my question is that you on the private side have been got all the lesson and now you're trying to regulate that. But there is another stakeholder that is a government and this is quite interesting, right? They can't solve this but when microfinance is doing, they say, okay, we regulate that. And I think from my perception in many times, in many occasions, the policy has been like not really aligned with what the real spirit of microfinance was, at least for India. I want to know what you think and what your agency are doing with the government on that. Thank you. Great, thank you. We'll pause there and start to answer the first three. You want to take the crypto fintech component? And also I think the phenomenal comment. I think I totally agree by the way with both comments and the questions. And I would say we are exactly where what Joanna and Jeff described earlier on. We are in what I call the storming phase where rush of activity, ton of alternative lenders. I mean, Libra, I mean, it's amazing the hoods buzz. I say the idea of someone who's coming and who was about to be accused of privacy violations and the Cambridge Analytic Guide is now launching a global payment system. But you know what? Again, if I look at it positively, I mean, one of my mentors, Michael Chu, the reason he got me to move from South Africa to Washington, DC in 1998 was he said, you cannot be patient with poverty. You cannot be patient with poverty. And as someone who's half-proven and lived through my family, a lot of different ups and downs that really spoke to me. So yes, we break a lot of glass, but we have to be careful. So I would answer the following way. In our first fund, we did not do one unsecured consumer lender for exactly the reasons you guys are pointing out. Because the default, we will not, if you look at the, we track NPLs, we track PAR at 30, 60, 90 days, so not even what's been written off, because to me, if you think about 25, 40, 50% PAR, what you're saying is, it's like saying you sell a product where half of your clients return it. Like that's a crappy product, right? It's not rocket science. And we know that some types of lending, you tolerate higher risk than others because that means more people get access, right? Again, there's no right answer. So what is too high? Is 10% too high? Is 15% too high? I mean, again, I don't have that answer, right? But I think the question is very valid. And so the way we manage that, the guardrail, there was something out of Compartamo. So three things where we used, where we netted almost $150 million, and we did three things with that money. We created the SMART campaign, which was client protection principles about responsible lending. We funded our, we financed our first fund, which was about how do you move beyond the new product, how do you move beyond microfinance and bring new products, and how do you move into new countries? And that SMART campaign, which we've now helped transform into, it's called the Responsible Digital Finance. It's a multi-stakeholder effort, which involves DFI's, impact investors and private investors on how do you do digital finance responsibly? So the answer is there are lots of digital lenders that I would never invest in. I mean, it's true. I mean, just the way there are a lot of actors who do, you know, who are in education, that I would never, I mean, Trump has a school, right? I would never support that, but there are a lot of good schools, right? So just because there are bad actors in a category, doesn't mean the category's bad. You figure out how do you find that positive example and help scale it, give it financing, help it grow. So again, happy to, it's a longer answer. I don't have to talk about the specifics, but absolutely there are things that are scary and frightening, but it doesn't mean we're not gonna try to back the good digital lenders that are out there. Anything else on fintech crypto components? Yeah, so I think I should make a disclosure here, firstly, that in addition to advising IFC, I'm also advising Mastercard. So, and I think it's a very exciting time and like any new exciting inflection in any industry, including finance, there's going to be some form of gold rush or the other and there will be experimentation and there is certainly a regulatory response. So I don't think it's correct to say that regulators are sleeping. I think they're all alive and alert to this and depending upon, and there are various levels of comfort where some countries are ahead of the others and many have established what are called regulatory sandboxes for people to experiment and play in a controlled fashion and then see the outcome and then we have a, hopefully we have a sort of approach that is actually informed by the lessons of microfinance in the future because again, as I said in my opening remarks that we are in the process of creating financial institutions and financial institutions among other things have a very important systemic risk. You know, if a normal cement company goes down, the economy doesn't go down, but if a series of financial institutions go down that sort of erodes the confidence in the financial sector, then the regulators and the government has a real issue and therefore I think it's extremely important for the regulators to have a very, very strong fix on what's going on. So I do not subscribe to the theory that this is totally unregulated. I think people are watching the size of this sector and actually being equity funded is actually pretty good thing because, you know, people are playing with their own money so to speak or their investor's money, whether they're charging usurious rates and all that, that's really a matter, not so much of a financial sector regulators point of view but more of a consumer protection law issue and I think if there is weak consumer protection, that's a separate issue and I think it's certainly an important issue but needs to be looked at and it looks, it needs to be looked at from the investor standpoint. I mean, if I'm an investor in a digital lender and if I think it's making money using my equity by, you know, sort of predatory lending practices, certainly it's not, it's really incumbent on me to make that, you know, moral decision. Should I go and support that kind of investor, digital lender or not? But that itself does not invalidate the digital lending proposition. Who had the governance question or the government question? Was that helpful? Do you want more? Helpful enough, can we go on? Is that okay? Okay, please. Thank you. The discussion so far has really been focused on international microfinance and to build on the question about digital, I'm wondering if you see you, would you have a role to play in a domestic non-profit digital microfinance organization that wanted to provide affordable capital? Okay, great, thanks. All racist. Hi, my name is Gideon. I'm working with EGUR. We're making role last mile distribution in India radically scalable. And I just want to thank you all for a very refreshing panel. There were a lot of conversations I had this week with people who seemed to prefer not to do anything rather than take the risk of actually having some negative side effects when you really scaling impact. And my question is beyond microfinance, you know, at Eleva, at Corona, at Cicero, what other sectors are you excited about right now that way you see the same or similar kind of potential for scale? Thank you. Let's do the last one. Go ahead. Thank you. Thank you. At some point in the near future, let's say about five years from now when developing countries become fully digital financially right out to the village. So everything can be done electronically, including having a transaction history for potential borrowers. What kind of impact will that have on the microfinance industry? Okay, great. So we have the domestic non-profit microfinance opportunities where we see other scaled impact opportunities and everybody everywhere online, what does that mean about microfinance? Do you want to go first? Sure. Let me take to other sectors. I'll just tell you a little bit about what we're doing. And at Eleva, one of the first investors that actually moved away from microfinance, and this is back in 2008 or so, we realized there was all this money coming into microfinance valuations were going up. We actually exited SKS in 2009 before the IPO because we were seeing some other things on the ground that were happening. So we moved into other financial services. So we've done tons of other financial services. You name it. And through financial services, our view has evolved. So we've gone into, for example, financing education. We have a company that finances affordable schools in India. We have a company that finances students in Mexico. And once we get the view of that sector and really understand it, right? Again, entering through one of our, what our core is, which has been financial services, then we start investing in other sectors like education. So our last fund, we've done investments in ed techs, companies that again are doing school in a box for affordable schools or skills for adults and employability. And all of that really comes in through really focusing again on the end client and what their needs are. We've also financed Agri in India. Learned a lot about how that process works, how the supply chain works, and then it got other investments into Agri and delivery, right, aggregation. And I think all of those have a ton of potentials. The needy's there. I mean, whether you're in Mexico, you're wherever you are in the world and you talk to a client, education is key, right? Having kind of financial services, businesses, right? The SME perspective and increasing the productivity gap of the SME. All of this are just themes that are consistent across geography. So you have to just focus on the client, understand what the demand, how they're using their wallet, right? And again, if you really kind of can tap into that and build very business models that really target that and again are affordable, because I do think that's a key word, then you can have massive scale. We only focus on countries that are big enough for that. So yeah. We're at time. Let us use as close to 10 words as possible in our answers. Gideon, I'll add one thing there. We're currently investing at the intersection of rising demographics, urbanization and a rising middle class, where those trends converge in a country or a sector. Then we're investing in essential products and services for the middle class and the poor households that will be, we anticipate to be rising up. So education, health care, water, et cetera. I'll take the US nonprofit AXION. We do only emerging markets as Kona, but AXION actually is the largest microfinance lender in the United States. It is primarily through nonprofits. We actually are going through a process right now of consolidating because they've operated very locally in independent states and they're actually now consolidating, emerging with another Silicon Valley-based alternative lender and to bring technology to help reduce costs. So I have to talk more about that, but I think the US is a very important market as well. Where can she get more information on that? If you go to axion.org and AXION USA, there is great information and of course always free-field, email anyone at Kona we can point to the right person. Last slide. Yeah, so I think the other sector we see huge scale is in the whole business of removing friction from the business lives of smaller microenterprises. I think that's one of the biggest constraints to success of multiple economies around the world. And with the advent of technology in particular, I think there's an enormous opportunity to actually make this goal which has been central to all of us for the last so many years ever since we started microfinance and how do you remove the friction from the operating business lives of our customers? I think now I think we have an opportunity to actually make it happen. I think we will see a lot of scale in that. And quickly on your question about digitalization and everything, data needs to be there. And I think there's a lot of data that's interesting happening in Latin America is one of the leading countries in voice, digital invoice and everything you can do around that. But when you look at the client, there's still a lot of questions whether you have the right data to do all of it online. So what we've actually learned and we do have a lot of fintech and everything, there is a part where our companies have to go offline as well, right? The client still manages cash, the SME still goes through their networks and informal networks, not through looking at the web and finding a lender that's gonna give $100,000. So we've actually see that right now, at least for the clients that we're targeting, you have that offline online world and you really need to work on both to make it successful. That's been our learning. Where's our room facilitator? Do we have this room for any longer? Do we need to vacate? Anybody wanna stay for a little bit longer? Anybody have more questions? No? Okay, so we'll quickly then wrap up. What are you excited about what you're seeing? You have maybe three words to answer this question. What are you excited about in impact investing based on what you've learned from microfinance? What are you excited about the trends you're seeing or if there's anything you're nervous about? But few words. Let's go ahead. Same answer for both. I would say I am excited about crypto and technology to radically change the physics and unit economics of the businesses that we're familiar with. And concerned at the same time. Concerned at the same time for the very good reasons that were laid out in the audience. I'm excited about like the attention. I mean, it came into the first soak up and how it's changed. Now, how many people are interested in the sector and how many young people call me and say, how can I get into impact investing? Like I'm really excited. And also has called the attention of money, right? Capital and you use that capital to really democratize. So I'm excited about that. But then, you know, the attention and kind of just making sure that you're aligned and everything is important. I think that hype is not over-hyped. Yeah. Yeah, so I think I agree with both those comments. I'm excited about both. I guess coming from IFC and now MasterCard. I think I'm still continuing with both the right type of institutions, which I think are central to both these trends, which I'm both excited and extremely nervous about as well. Great. Thank you all. Thanks for being here. And thanks to the panelists. Thank you, Jeff.