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Impact Investing, and Social Finance Fall 2013

ES 644
Course Syllabus

Michael Gordon / mdgordon@umich.edu
meetings: by appointment


This course provides a survey of microfinance and other means of financing aimed
at social good and community betterment. It is intended for students who do not
necessarily have a background in finance.

Microfinance has become the fastest growing financial offering to the global poor
and, arguably, the most successful form of social enterprise. Successful for decades
but obscure as an industry, microfinance burst onto the global stage with the
awarding of the 2006 Nobel Prize to Muhammud Yunus, founder of Grameen Bank
in Bangladesh. Five MFIs have since become public companies, including
Compartamos Bank in Mexico, and SKS in India. Microfinance is estimated to be a
$50 billion industry.

While more and more individuals now have access to formal (rather than informal)
financial services, growth has also brought challenges. Largely unregulated,
microfinance has suffered a backlash, in part brought about by growth. The
entrance of new for-profit players raises concerns that the industry is losing its
social focus. Fears of over-indebtedness among the poor clients, rumors of
aggressive collection tactics, and a paucity of success measures have led to a pull-
back among funders and heightened scrutiny among regulators. The future of
microfinance, at least in the publics mind, seems cloudy.

Yet, on the ground, microfinance continues to grow. Compartamos Banks IPO
increased the number of similarly licensed banks in Mexico from around 50 to over
800 in just 2 years. Safaricom and Vodafone offer banking-type services, M-PESA, in
Kenya and elsewhere over mobile phones, while supermarkets and retailers (like
Metro Cash and Carry in India and Walmart in Mexico) provide variations on
microfinance through their bricks and mortar stores.

Impact Investing provides venture capital style funding for start-up companies
seeking a blend of high-growth, financial reward, and social outcomes. A broad
swath of individuals and institutionsfrom non-profit Draper Richards and
Omidyar Network to for-profit Elevar Capital and Bamboo Financeprovide capital
for hundreds of start-up companies every year like Kiva.org, Toms Shoes, and
Living Goods.

Impact investors take for inspiration the success of venture capital and
entrepreneurs in technology, biotech, and energy, hoping to harness this economic
engine for social change. While growing, the total capital deployed by impact
investors remains modest.

Social Finance aims to supply funding to support small-medium size local
businesses and to otherwise keep communities strong. A number of tactics,
including social impact bonds and various new kinds of markets and exchanges,
facilitate these ends. With the turmoil of late in our major financial systems, some
people believe that social finance will play an ever-increasing role in society, as
money moves from being a tool for speculation to one that supports truer value

This course will look at the structure, growth, and evidence of impact in these areas
of finance. The course aims to provide advice and best practices from successful
practitioners and institutions around the world as well as related activities targeting
poverty alleviation.

The course is designed for students seeking to learn more about microfinance and
related forms of finance and to inspire additional, deeper exploration. While this is
a course for students who are not intending to be practitioners in microfinance,
impact investing, or social finance, previous students with prior experience in these
fields have found this overview useful.


Monday 6:30 to 10:00ish. (Note: course officially runs to 10:30) R 1230


A selection of (mostly) brief articles focused on areas relevant to the weeks topic
and guest speakers is assigned for each class. These readings are all be available
online. We will not explore many of these articles as stand-alone documents. They
are for you to deepen your understanding. I suggest that each week that you read a
selection of the readings (ideally all). Depending on your level of interest, read more,
even if at another date. Take advantage of these readings; I reiterate: they will add
to your understanding even though we will not be typically use them as a basis for
discussion in class.


Weekly assignments: There are six weekly assignments for the course. I want you
to do three of them. To be counted, an assignment must be completed and
submitted, on time, using CTools | Assignments. 5 points each (15 Total).

In-class presentation: You will do one in-class presentation, in a team. Sign up at:
http://goo.gl/XJQ0TT (15 points)

Participation: In-class (and other ways): 15 Points

Final Paper due 12/13, 5 pm (60 Points)

With one other person, you are to write a 7-10 page double spaced paper on a topic
of your choosing related to the course. You may focus on an existing product or
service or a product or service that is not yet (generally) available. You may focus
on the underlying aims of microfinance (impact investing or social finance) or on
execution. You may focus on investment opportunities, impact analysis, or likely
future developments Your focus can be local, regional, national, or generic
(independent of geography). Again: a topic of your choosing related to the course.
Make it something that interest you.

What is non-negotiable is this: Your paper is to demonstrate your understanding
and insight by requiring you to blend your personal observations and
perspective4with a well-grounded point of view. By the latter, I mean that you are
to write a paper that makes liberal reference to what others have thought and
written about already. Please reference the articles and websites used in the class
as well as additional articles / websites that help you ground your article.

However, I do not want you simply to summarize others opinions and findings. I
want you to complement such a synthesis with something original something that
is you; something that reflects the way that you grew by taking this course and that,
potentially, describes a novel way that you might apply what youve learned.

Please submit electronically via CTools | Assignments. If you want to also give
me a hard copy, Id appreciate it.

Alternative: Opt out of the in-class presentation. Then, instead of writing a 7-10 page
paper, write one that is 14-17 pages. You still will write it with one other person.
This will re-weight your points as follows: assignments (15); presentation (0);
participation (15); final paper (75).


(Guest speakers will be announced when they confirmed).


These articles give various perspectives on microfinance. The issues raised are ones
we will be re-visiting throughout the course. In general, try to read all Readings (and
watch listed videos). Websites included in readings are for you to examine to a
depth youd like. Additional resources are just that a means for you to explore
further. Please note: Assignments for the week are always at the bottom of each
weeks listing.

1) Article: Millions for Millions, Connie Bruck, The New Yorker, October 30,
2006. (14 pages)

2) Website: CGAP FAQ, http://www.microfinancegateway.org/section/faq

3) http://www.microcreditsummit.org/what-is-microfinance.html (watch

4) http://www.scribd.com/doc/123858637/Vulnerability-The-State-of-the-

5) Article: The Good, the Bad, the Ugly: The Deceleration of Microfinance.
2011. (1 page)

6) Article: India Microcredit Faces Collapse from Defaults, The New York
Times, 2010. (2 pages)

Additional resources:
1) Website: Microcredit Summit Campaign,
2) Dollar a day documentary trailer

Assignment: Complete Assignment #1 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.


This week the focus is on some of the factors that influence microfinance operations.
We will explore how this can create possible tensions that can be perceived to be
counter-productive to the goals of microfinance. Again (and the last time Ill mention
it): The weekly Assignment is listed at the bottom of this weeks entry.


1) Sam Daley-Harriss Tedx talk,
http://www.youtube.com/watch?v=t_LLCUQlB5E (in case you have not
watched it or were unable to attend the public lecture). He will meet with our
2) Case Study: Controlling Growth at a Mexican Microfinance Start-Up, Cases
for Management Education. (4 pages)
3) Article: Designing Staff Incentive Schemes, Martin Holtmann, MicroSave
Briefing Note #15. (2 pages)
(Download from this URL)
4) Article: A Failure to Communicate: Microcredit Confused. Chris Dunford.
2011. (3 pages)
5) Article: Variations in Micro-finance Design Jens REINKE.
http://www.gdrc.org/icm/govern/mfi-design.htmlWebsite: ACCION,

6) Article: A Fresh Look at Fighting Poverty. The New York Times. 2011. (1
page) http://economix.blogs.nytimes.com/2011/04/26/a-fresh-look-at-

Additional Resouces:
1) Website: Microvest www.microvest.com
2) http://www.microrate.com/media/downloads/2012/10/Luminis-White-

Assignment: Complete Assignment #2 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.


Microfinance may bundle additional services, such as health and education
offerings, in with its financial products. How might this be done? And is it a good
idea? In addition to the readings, please browse through 2-3 of the Additional


1) Article: Adding Value to Microfinance and to Public Health EducationAt
the Same Time, Christopher Dunford December 2003. (4 pages)
public-health-education%E2%80%94-same-time (Download from this URL)
2) Article: Micro-insurance: the next revolution? Jonathan Morduch, What
Have We Learned About Poverty? Oxford University Press, Updated June 1,
2004. (16 pages).
3) Article: Reimagining Microfinance, Alex Counts, Stanford Social Innovation
Review, Summer 2008.

Additional Resources:

1) Freedom From Hunger, http://freedomfromhunger.org
2) MicroEnergy Credits: http://microenergycredits.com/
3) Solar Mosaic: https://joinmosaic.com/
4) lumni: http://www.lumni.net/
5) Indian school Finance Company: http://isfc.in/

Assignment: Complete Assignment #3 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.

Week 4: Impact

This week there are several overlapping focuses. The first is: to what degree does
microfinance serve the poors needs? The second involves the use of capital markets
to raise money to help the poor, exemplified by Compartamos becoming a publicly
traded company after once being a nonprofit financial institution. Third: How does
impact investing (investing for good and profit, to different degrees) work, and to
what ends? The Additional Resources provide a wealth of material for you to
examine as you like: various ways to measure social performance (items 1-5); social
investment firms and terms (7-9); a comparison of different microfinance
institutions (mixmarket); and more.


Effects of Microfinance

1) Article: Does Microfinance Really Help the Poor? R. Rosenberg, CGAP
Focus Note, Jan, 2010 (8 pages)
2) Article: Microloan Sharks, Jonathan Lewis, Stanford Social Innovation
Review, Summer 2008. (4 pages)
3) Article: Beyond Good Intentions: Measuring the Social Performance of
Microfinance Institutions, Hashemi, S., Foose, L. & Badawi, S., CGAP, May
2007. (12 pages)
http://www.cgap.org/publications/beyond-good-intentions (Download
from this URL)
4) Measuring the Impact of Microfinance: Taking Another Look, Kathleen Odell,

Microfinance goes Public -- Compartamos

5) Article: A Letter to Our Peers, Carlos Danel & Carlos Labarthe, June 2008.
(11 pages) http://goo.gl/qj6kHn
6) Article: CGAP Reflections on the Compartamos Initial Public Offering, CGAP,
June 2007. (15 pages).
Download from: http://www.cgap.org/publications/cgap-reflections-

Venture Capital / Impact Investing

7) Article: How Venture Capital Works. Bob Zider. Harvard Business Review.
Nov. Dec. 1998.
8) Report: Investing for Social and Environmental Impact. Monitor Group.
2009. http://monitorinstitute.com/downloads/what-we-think/impact-
9) Report: Coordinating Impact Capital. Kohler, Kreiner, Sawhney, 2011.
10)Blog: 8 Lessons for creating an Impact Investing Fund. Wallsten and
Alvarez. Next Billion. 2011.
11)Blog: The Trouble with Impact Investing, Kevin Starr. Stanford Social
Innovation Review, 1/24/2012
art_1 Three part article. All links at this URL (in box).


12)Profiting from the Poor? Vikram Akula and Dr. Mohammed Yunus, Clinton
Global Initiative, 2010

Additional Resources:

1) Website: CGAP Social Performance Resource Center,

2) Website: B-Corp www.bcorporation.net
3) Sample report: Lumni
http://www.bcorporation.net/community/lumni-chile (summary)
report/2012-08-24-000000 (full report)

4) Questionnaire: GIIRS assessment http://giirs.org/about-giirs/how-giirs-
5) Sample IRIS report: Banco Si http://iris.thegiin.org/report/banco-si

6) Website: Skoll Foundation Entrepreneurs.

7) Sample term sheet. Download from:


8) Website: http://www.toniic.com/ See especially Toniics Deal Criteria,
9) Website: LeapFrog Investments, http://www.leapfroginvest.com/

10)Website: The Mix Market, www.mixmarket.org

11)From Blueprint to Scale: The Case for Philanthropy in Impact Investing, 2012

12)Report: Impact Investing in Emerging Markets, Responsible Research,

Assignment: Complete Assignment #4 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.


This is an eclectic set of topics, all aimed at delivering inclusive financial services

Mobile Money

1) Designing Mobile Money Services: Lessons from M-PESA Mas and
2) Poor People Using Mobile Financial Services. Morawczynski, 2009.
3) 10 Things Your Thought You Knew about M-PESA, Alexandre


4) Eight Crowdfunding Sites for Social Entrepreneurs. Thorpe, 2012.

5) Skoll Social Entrepreneurs Challenge, Oct. 2013.


Asset-based Finance:
6) http://www.juhudikilimo.com/
Alternative Currencies:
7) http://www.berkshares.org/
Kiva Zip:
8) https://zip.kiva.org/
Pre-Payment Finance and Guarantors
9) Root Capital: Overview: Short-term trade credit and Pre-Harvest loans
10)MicroCredit Enterprises: http://www.mcenterprises.org/ Review: The

Assignment: Complete Assignment #5 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.


This week, we will explore new means for using financing to build strong
communities and promote deserving causes. This is leading-edge stuff.

Social Finance

1. RSF Social Finance: http://rsfsocialfinance.org/

Social Impact Bonds

2. http://www.socialfinanceus.org/sites/socialfinanceus.org/files/small.Social
3. https://www.dropbox.com/s/o860dre13ocyh2z/SIB-NYC.pdf
4. http://www.americanprogress.org/issues/2012/04/pdf/sib_fact_sheet.pdf

Mission Markets

5. http://www.missionmarkets.com/

Local stock exchange

6. http://mosaicfund.org/local-stock-exchanges-to-create-local-economies-by-

Guerilla Funding Strategies

7. Michael Shuman, video (45mins):

Assignment: Complete Assignment #6 on CTools | Assignments. Please note due
date on CTools, and use CTools | Assignments to submit it.