Calmeadow played an important role in the development and sponsorship of ProFund Internacional (ProFund), which was incorporated in 1995 as a for-profit investment fund. The fund, managed by Omtrix, Inc., from its headquarters in San Jose, Costa Rica, sought an appropriate return on investment for its shareholders while promoting the growth of regulated and efficient financial intermediaries whose main target market was the small and micro enterprises of Latin America and the Caribbean.
ProFund provided equity and quasi-equity resources to eligible microfinance institutions (MFIs) so they could expand and improve their operations on a sustainable and large-scale basis. Generally, ProFund’s shareholding in these entities ranged between 15 and 30% of their net worth. ProFund held the strong belief that MFIs are strengthened through the application of modern management techniques and entrepreneurial attitudes. Conversely, they weaken in the presence of protectionist practices, such as donations, subsidies and/or financing at lower than market rates.
Worldwide, microcredit was growing at an annual rate of 30%. In Latin America and the Caribbean alone, there were more than 50 million microenterprises employing over 120 million individuals, thus generating at least 60% of the region’s GDP. The market potential for financial services to micro-entrepreneurs was enormous and there was sufficient evidence that these services could be provided in a safe and profitable manner.
Despite the great potential that existed in providing financial services to small and micro entrepreneurs, there remained a notable lack of financial institutions supporting this sector. The estimated 2,000,000 microenterprises being served by specialized MFIs in the region was a significant number but represented only 4% of the overall market. ProFund attempted to address this challenge by using its knowledge of the region and the industry to invest in regulated financial intermediaries interested in satisfying the latent need for microfinance.
ProFund invested in twelve institutions in ten different countries and successfully provided oversight and governance in a rapid-growth and unstable environment. ProFund grew alongside the MFI market, benefiting from its position as one of the most important capital providers for financial institutions specializing in the microenterprise market. The financial institutions in which ProFund invested were financially stable, with a demonstrated ability to earn profits while serving the microenterprise sector. Through these investments, ProFund sought to obtain high yields for its shareholders by means of long-term capital appreciation.
As a closed-end fund, ProFund was liquidated after ten years according to the terms of its charter. Investee portfolios had grown to a total of over US$800,000,000 and were servicing the needs of more than 900,000 micro-entrepreneurs. ProFund, along with the MFIs in which it invested, successfully strengthened the industry and created a demonstration effect leading to the active engagement of the commercial financial sector. After ProFund’s successful trial, at least twenty similar equity funds were created around the world. This further underscores the long-term potential of the field of microfinance and the now more realistic expectation of financial services being broadly available for the poor within the next decade.
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