Untapped Global

Investor Spotlight: Impact Investing with Gary Ford

By Fiona Njagi

This article was first published on https://untapped-global.com/

Gary Ford is an attorney, impact investor, and Chair of the Board at MCE Social Capital, a non-profit impact investing firm that uses a pioneering loan guarantee model to generate economic opportunities for hundreds of thousands of people, especially women and people in rural areas, in more than 35 emerging market countries around the world.

I sat down for an interview with Gary Ford to discuss his investment in Untapped Global and creating opportunities for economic development and empowerment in emerging markets.

How did you get into impact investing?

After college in 1972, we spent close to a year in Africa, hitchhiking and taking buses from Tanzania to Cairo, and spent about 6 weeks in each country along the way. It was one of the most amazing experiences I’ve ever had. I came back home to the US, started a career as a lawyer, and got married. My wife and I became an item while traveling in Africa on that trip.

In 2005, I had been a lawyer for some years. My law career was on track, and my sons were old enough, so I started looking around for something to do that I hoped related to Africa because I’d had such a positive experience there. I wanted to see what I could do to be helpful and give back. So I spoke to a career coach I knew who said, “Call ten people who know you, put no pre-conditions, and ask them what they think would be good for you.” The first person I talked to connected me to an entrepreneur starting a microcredit business catering to emerging market entrepreneurs, and he said, why don’t you help me? So I did. That’s how I got involved with MCE Social Capital, initially as the pro-bono general counsel, and then in 2010, I took over as CEO and served until last December.

MCE was initially entirely focused on small rural female micro-finance institutions that provided more than just credit savings. It included education and healthcare access. That was my motivation for getting involved in impact investing. At that time, the term ‘impact investing’ was used much less than it is now.

You mentioned that MCE was initially focused on female micro-finance institutions. Why were women your primary investment focus?

There were several reasons why we choose to invest in women. One is that women and children are often poorer and in need. They are less likely to have access to financial services than men. Another is that we believed that women are inclined to spend the money they made in a micro-enterprise on their children. Finally, women are excellent credit risks; basically, they paid the money back.

It’s also a place where a relatively small amount of capital could enable someone to make a significant difference in their life or family.

How do we bridge the gender investment gap for women in emerging markets?

Many local entrepreneurs, especially women, aren’t on the radar of investors in the US or Europe. So one needs to work purposefully at tapping into the group that may not have that international investor network.

One of the companies my wife and I invest in is a London-based fund that “factors” receivables of small enterprises in various countries around the world. They have found that just by being gender-neutral, they significantly increase the number of women investees compared to others in their sector. So that tells you that even simply putting on blinders and not paying attention to the gender of potential investees can make a difference.

Ultimately, I believe one should be more purposeful about bringing women into the circle of potential investees.

- Gary Ford

How has the parallel between impact investing and philanthropy evolved as impact investing has grown?

It’s been an exciting thing to watch. There’s a lot more interest in impact investing among investors in the global North. However, there are a lot of investments being marketed as impact investments that, in my view, don’t generate high impact. Also, some say they want to be impact investors but shy away from taking any risk.

I think there’s a disconnect in how people approach impact investing and philanthropy. They have no problem writing donor cheques for philanthropy, but they’ll get upset if they ever lose money on an impact investment. So, there is this disconnect that I think is cognitive, and part of that may be that social impact is hard to quantify accurately. The quantitative part of our brains is hungry for numbers. So, I think to the extent that one can meet that need to quantify the financial and social return, even roughly, people would latch on to it and say, hey, I’m still getting a good combined financial and social return.

How do we measure for social impact ?

I think that depends on the sector and what you’re trying to accomplish. For example, calculating the number of people vaccinated or reducing car accidents by fixing traffic circles is pretty susceptible to measurement. In other sectors, the measurement might not be so clear-cut.

Take the civil rights movement in the United States. Many years after the civil rights movement, if you had gone to a small southern town and asked, ‘Does everyone have equal rights? Have we broken down racial barriers?’- you would have gotten amorphous, hard to measure, and disappointing results. Still, nothing has been more important in the US in my lifetime than the civil rights movement.

Some things take a long time, and they’re harder to measure. And you often find you take three steps forward and one step backward. I think it depends on what you’re trying to accomplish how easy it is to measure it, but the fact that something is difficult and takes a long time to measure doesn’t mean it’s not important.

The other consideration on impact investing — and there’s a big appetite among impact investors for data — is that it has to be tailored to the ability of the local organizations to, at a reasonable cost, gather and provide the data an investor wants. There has to be a balance between harvesting data in a way that doesn’t require a startup entrepreneur to neglect her business while also meeting the social and financial data needs of impact investors and foundations.

There’s been a lot of interest from investors in the Sub-Saharan region. What has sparked this interest, and what are the opportunities?

Sub-Saharan Africa still has one of the greater concentrations of people in extreme poverty in the world. So there’s a need. There’s also tremendous growth rate potential and innovation in some African countries, such as using mobile money and cell phones for transactions. Though setting up the infrastructure for technology in Africa is challenging, it’s also an opportunity for others, such as what you have at Untapped — using technology in a practical and focused way to provide asset financing for small entrepreneurs. The entrepreneurs then generate revenue from these assets by leveraging technology, which I think is a good example of the promise of investing in Africa.

How do you as an impact investor evaluate companies for potential investment?

MCE social capital has two pools of guarantees as part of their guarantee model, one for financial institutions/inclusion and one for small and growing businesses. My wife and I are guarantors in both of those.

MCE has a staff of about seven investment professionals who work to scour developing countries for investment possibilities that meet specific criteria — that is, creditworthiness — that they are financially sound, and social worthiness — that they are enabling the micro-entrepreneurs, their employees, and their customers to improve their lives by their own efforts and to meet local needs.

That team of professionals does a rigorous review, working with people on the ground, going through their books, and talking to their customers to ensure they serve their needs. They have a threshold of requirements that apply. For example, on the small business side, it doesn’t have to be profitable yet, but it has to have a plan to break even. It has to have two years of audited financial statements with a certain amount of revenue and a certain number of employees.

Likewise, there’s an environmental and gender lens applied to every business MCE invests in.

The other basket is what my wife and I do directly just by ourselves, and there, we have been engaged with investment possibilities based most of all on the entrepreneurs. I think a lot depends on the commitment of the entrepreneurs to the people they serve and the ability of the entrepreneur to deal with the unexpected and the unknown, such as body blows from currency devaluation, regulation change or a pandemic. We look for financial resilience. Most of all, we look for entrepreneurs who we think have the skill, energy and commitment to adjust and come out stronger and better, and frankly, there’s a significant element of trust. If I know somebody who knows the entrepreneur and who can vouch for that person’s abilities, commitment and integrity, that’s also helpful.

We’ve invested in Copia, a Kenyan e-commerce and logistics startup that uses micro-entrepreneurs to bring retail goods to low and middle-income consumers who are unbanked, live outside major cities, and don’t have a street address. They now have tens of thousands of customers.

We knew one of the founders. We analyzed the business model, how it compares to what Amazon is doing, for example, and got comfortable about the distinction and their ability to make that work. They are now growing at a tremendous rate. Every time a customer, typically a woman, can go to a small, local stall and order a product rather than walking to a market, that can save hours, and the pricing is better on Copia.

The entrepreneur and the model made it an attractive investment from our end.

Any investment sectors of particular interest to you?

At MCE, we’ve focused on small businesses mainly in clean energy, clean water and sanitation, and the agriculture value chain.

The individual investments my wife and I have made have been sector agnostic.

How do you think impact investing will evolve in the future?

I suspect that one of the trends that I’m not crazy about will continue, which is more and more products labeled as ‘impact,’ which to my standards are relatively low on the impact side but are marketed by financial institutions at substantial fees and loads. It’s better than nothing, but it doesn’t move the needle all that much.

On the other hand, I think the sector has enabled greater market penetration and created opportunities for more entrepreneurs to access future investments. So I’m hoping this will supply a pipeline of more investible enterprises that lead to greater economic development and empowerment, especially for women and especially addressing the environment and climate change.

I’m optimistic about my most recent investment with Untapped because it can get productive assets into the right hands, and because of the potential to learn through patterns of use of the assets being financed, the identity of additional entrepreneurs — who can be supported, who may not have a credit history but are productively using these assets. I believe that motivates investors to increase the support for these enterprises and expands the pipeline of potential investees from the ground up.

To learn more about MCE Social Capital’s work visit their website

Untapped creates opportunity by connecting frontier market innovators to global investors.