Success Story: MCE Social Capital

Introduction – Calvert Impact Capital's history with MCE Social Capital

In 2006, Calvert Impact Capital made its first loan to MCE Social Capital (MCE), a nonprofit impact investing firm that works to generate economic opportunities for women and families in underserved communities across the globe. Our loan to MCE was the first loan that the organization had ever received and helped them jumpstart their model of deploying flexible, appropriately structured debt capital to meet the financing needs of high-impact MFIs and SGBs that serve clients, farmers, and communities around the world – a model they have perfected over the past 15 years.

MCE pioneered the use of a loan guarantee model which leverages the credit of high-net-worth individuals and foundations as guarantors, allowing MCE to borrow capital from US and European lenders, such as Calvert Impact Capital, as well as accredited investors. They then deploy this capital to two types of organizations:

1. Microfinance Institutions (MFIs) that help people living in rural areas gain access to credit, savings accounts, insurance, healthcare and health education, business education, and technical assistance; and

2. Small and Growing Businesses (SGBs) working in the agriculture value chain, water & sanitation, and renewable energy sectors, to create reliable jobs in rural economies, raise smallholder farmers’ incomes, and address basic needs in underserved areas.

MCE’s unique and innovative funding model, which relies on two guarantor pools, allows them to access capital in an impactful and cost-effective way. Their low borrower default rate enables them to attract more guarantors and expand the reach of their capital.

Calvert Impact Capital has continuously renewed and increased our loan to MCE over the past 15 years. Since our initial loan, MCE has grown their portfolio significantly. In 2005, they managed a few million dollars in loans to MFIs. By 2019, MCE’s microfinance loan portfolio had grown to $57.3 million in active loans to 45 clients, and their SGB portfolio had reached $5.6 million to 17 clients – for a total of $62.9 million in outstanding loans to 62 organizations across 35 countries.

This growth helped lay the foundation for their high-impact Global Economic Opportunity Note program, which offers accredited investors an opportunity to invest to support MCE’s lending, just like investors support Calvert Impact Capital’s lending through our Community Investment Note®. Investments in MCE’s Global Economic Opportunity Note provide invaluable support that strengthens MCE’s financial stability by lowering their cost of capital. In 2019 alone, MCE sold $11.5 million in Notes, ending the year with a $26 million total Note balance – the highest balance MCE has ever had to-date.

The strong capital raise gave MCE the ability to lower their cost of capital, enabling them to be more responsive to shifts in portfolio demand and to repay Calvert Impact Capital’s latest loan in fall 2020.

How did our loan have an impact at MCE Social Capital?

MCE highlighted three important aspects of Calvert Impact Capital’s financing over the years:

1. Signaling effect as they demonstrated the effectiveness of their model: As MCE’s first institutional lender, Calvert Impact Capital signaled to the rest of the industry that their model was viable and impactful.

2. The non-financial benefits of the relationship with Calvert Impact Capital: In addition to the signaling effect that Calvert Impact Capital’s loans provided, MCE was connected to the network of innovative and growing mission-driven organizations in Calvert Impact Capital’s portfolio. Many of our portfolio partners find new ways to collaborate and support each other, sharing their knowledge and expertise. MCE sees Calvert Impact Capital as more than a lender, but also a thought partner. Calvert Impact Capital staff have joined MCE’s Loan Committee to provide input on potential deals, and staff will continue to do so as an observer even after MCE repaid our loan, as we find great value in hearing MCE’s insights from their on-the-ground lending approach.

3. Benefits and stability of a long-term lending relationship: MCE values long-term lending relationships as it helps reduce the resource expenditure required for repeated, in-depth due diligence processes. Maintaining long-standing relationships, like the 15+ year relationship with Calvert Impact Capital as well as other strong lender relationships they hold, helped build the foundation for increased loan sizes and created more capacity for MCE to focus on furthering its mission rather than fundraising from a variety of new lenders.

Wendy Turman, MCE’s Managing Director and CFO, noted:

*"There is a ton of value in our relationship, even outside the loan. Calvert Impact Capital was MCE’s first lender, which was a huge stamp of approval for us. The network that goes along with Calvert is incredible — connecting with people at conferences and having these networks is a huge benefit for MCE. Calvert Impact Capital is clearly a leader in the field.” *

How did MCE Social Capital impact the communities they serve and the MFI/SGB markets overall?

MCE's guarantors, private investors, and institutional lending partners, such as Calvert Impact Capital, are critical to their model's success and enable them to deploy patient, catalytic debt capital to meet the financing needs of high-impact MFIs and SGBs that serve clients, farmers, and communities around the world.

Since Calvert Impact Capital's first loan to MCE, they have cumulatively disbursed $228 million in loans, helping:

• Provide financing to 8.9 million end clients, 75% of whom are women borrowers and 62% are in rural areas, working across 55 countries;

• Provide financial literacy or business training to more than 258,000 people;

• Support health education or medical services for over 74,000 people;

• Train more than 32,000 farmers on agricultural best practices;

• Support more than 2,100 jobs;

• Provide better access to clean water for 43,000 people;

• Provide increased access to clean energy to 2.3 million people.

MCE strives to both fund individual businesses and build out entire ecosystems, which they see as a powerful tool for change. For example, MCE funds organizations across the agriculture value chain, from input supply and production to processing, distribution, and commercialization. In doing so, MCE fills a long-standing SGB financing gap for businesses too large for microfinance yet too small for traditional financing, enabling farmers to improve their agricultural incomes through access to new markets, certifications, high-quality inputs, training on sustainable agricultural practices, and building the supply chain overall.

MCE also demonstrates strong leadership through its impact measurement and management processes, which guide how they gather data for each loan they make. For example, MCE gathers farmer-level data during due diligence, including prices paid, volumes procured, how and when farmers are paid, and price fluctuations. This data feeds into their proprietary SGB impact rating model, which measures SGB impact on several key dimensions such as scale, focus on women, social performance, environmental performance, and the additionality of MCE's loan. These tools allow them to better understand, and ultimately manage and optimize, their impact. However, while the impact data is valuable, MCE tries to avoid a fixation on numbers alone, as each SGB or MFI is unique and differs depending on their geographic and sector context.

What we can learn from MCE's success

1. The signaling effect that an experienced lender can provide for an emerging organization has invaluable implications for the organization’s ability to attract additional financing and grow over time;

2. Long-term and stable financing relationships can open up capacity for a borrower, allowing them to focus on long-term strategic growth;

3. Impact investing is not always about financing individual organizations, but also about improving the flow of capital across entire ecosystems and supply chains;

4. Impact data can be powerful in helping lenders understand and maximize their impact in communities, but context (sector, geography, etc.) is important. Quantitative impact data alone may not tell the full story.

Calvert Impact Capital’s portfolio strategy is to help our borrowers build, grow, and sustain their operations and impact: building up a track record over time, scaling their impact, and accessing capital from a variety of sources to sustain their impact. We have seen MCE Social Capital advance through each of these stages over the last 15 years – from serving a small, MFI-focused portfolio reaching a handful countries to managing an expansive MFI and SGB portfolio across the globe—and also offering an investment product and co-investment services. MCE’s strong growth and expansion helps to validate our portfolio strategy and provides lessons to the industry on how lenders can support growth, scale, and impact for more than a decade.

We are proud of the powerful impact that our relationship with MCE has had in communities around the world and share these learnings in hopes that they can be useful to other impact investors.