MCE Social Capital, investment with a social focus
MCE Social Capital was founded in 2006. It is a non-profit impact investment firm that uses a pioneering loan guarantee model to generate economic opportunity for women and families in underserved communities throughout the developing world.
They seek to ensure that all people have the opportunity to improve their lives through access to knowledge, resources and capital. Since their inception, they have pioneered the use of loan guarantees to mobilize capital and make targeted, high-impact investments with this vision.
Their innovative model is driven by a growing community of impact investors, foundations, financial institutions and philanthropists united by their unwavering commitment to improving the lives of families living in poverty throughout the developing world.
Today we will learn more about this company from one of its employees, Renaud Duverger.
“The companies we invest in have to have a positive impact on people’s lives”
What do you do at MCE?
MCE is an impact fund, that is, a fund that manages a portfolio of loans. A company that invests in projects with a social focus; the companies in which we invest must have a positive impact on the lives of people, of their clients. The project has existed since 2006 and we have a portfolio of around $60 million. We are based in San Francisco, Barcelona, New York, Washington, DC, Denver, Atlanta, and San Diego; and each of the individuals that make up the different teams manages a portfolio of between ten and twenty clients.
As for the profile of the clients, most of them are microfinance institutions, which are entities that lend microloans to entrepreneurs in developing countries. The specificity of MCE is that it lends to institutions in 5 continents, we work in between 35 and 40 countries more or less.
You work mainly with two types of companies, MFIs and SMEs…
Exactly, MFIs are the microfinance institutions that represent approximately 35% of our portfolio. It is a market that does not exist much here in Spain, but in developing countries it is obviously much stronger because there are many more people with few resources, much less formal employment, so people have to ‘invent’ their own work.
On the other hand, we also invest in SMEs, which is a more direct way of investing. We work mainly with companies in the agricultural sector; we also work with entities, especially in Africa and Latin America, which work closely with farmers who have very specific means and who try to have fair practices, with more ecological and sustainable methods.
Do you work only at company level or do you also have freelancers or individual clients?
No, we work only with companies that have a minimum of $200,000 in annual sales, and with some that are a little more sophisticated that reach $20M per year in sales.
“There is a lot of risk and the banking sector does not dare to lend to these people without having guarantees, which is something that costs a lot to obtain especially if you are a company that is trying to develop with its own resources.”
What are the main differences between the continents?
Well, working in developing countries means that you have a lot more risks with the currency, which can vary a lot; there is also a very high political risk, because at any moment a conflict can break out related to who you work with and it can affect you.
So it is much more complicated to work in these environments and it requires knowledge of the area.
And the other big difference is that for these companies it is much more complicated to find financial resources than for companies located in Europe, for example; because the financial system is much less developed, it is more complicated to find investors who can take risks and who can understand what you are doing.
There is a lot of risk and the banking sector does not dare to lend to these people without guarantees, which is something that is very difficult to obtain, especially if you are a company that is trying to develop with its own resources.
What role do your partners play in the process?
A very important challenge for us is to find financial resources at a relatively low cost. Obviously, if we finance ourselves at a high cost, we will not be able to offer good conditions later on.
We work a lot with the United States Agency for International Development, which provides us with resources; we also collaborate with foundations that can help us with shares or that can also lend us at interesting rates, allowing us to finance the companies we work with in the right way later on.
The specificity of the MCE model is that a good part of the resources we have come from individuals who are relatively wealthy, who are part of a network in California, and who have a lot of resources and put those resources to cover and/or guarantee any losses that we have. Although we try to avoid losses as much as possible (laughs).
What do you do specifically as Associate Portfolio Manager?
I am part of the investment team, there are six of us in total. We have three ranks which are Analyst, when I joined I had this role; Portfolio Manager and Chief investment officer.
In my case, I have a portfolio of about 15 clients focused on South America and West Africa. I work on new deals to create loans for those entities, I follow up on the portfolio to see how everything is developing….
You are present during the whole process, from when they start with the investment until they are already a little bit further along, right?
Yes, part of the job is also to research and find these types of companies, which is not at all easy. You have to find companies with a good level of development to be able to produce financial documents.
What does the process of finding companies consist of?
There are different ways. One is by references, since we work in a very small sector, many people know each other. For example, in Madrid there is another company that does the same as us, Gava Capital. We communicate with them and if we see that a company is good and has a need we can refer them.
Also, industry-specific conferences, especially before the pandemic, were a way for us to meet clients and for them to meet each other as well.
We also get contacted by companies when someone tells them about us or our services. It’s a reciprocal system.
In terms of connections in CREC Coworking, what profile do you think would be interesting for MCE?
We work on something very specific so it can be complicated at times, but any company that has a social focus would be ideal, to see how they see things and how they work. Companies whose main objective is not simply to make money, but to improve some aspect of people’s quality of life.