NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, February 4, 2015

It’s something many investors don’t want to hear: Businesses that provide economic opportunity for low-income people in challenging markets around the world require a lot of expensive hand-holding. Harold Rosen, founder of the Grassroots Business Fund (GBF), isn’t afraid to tell them. And, the hand-holding can be worth it.

“What we do is often an unsexy, underdeveloped enterprise. We are helping a lot of people make a living. Those enterprises are not going to sell for multiples [in other words, lots of money],” says Rosen, a longtime development banker with the International Finance Corp., an arm of the World Bank. “It is pretty uninspiring, except for the social impact.”

Rosen’s fund — with offices in Nairobi, Lima and New Delhi — makes equity and debt investments in agricultural and artisanal businesses, as well as other micro-entrepreneurs, in order to improve the livelihoods of low-income people. In five years, GBF has invested more than $35 million in 28 companies in 11 countries via debt, quasi-equity and preferred equity investments.

Anybody hoping to succeed in impact investing in tough emerging markets needs to cultivate and develop the enterprises far more intensely than traditional private-equity fund structures allow, Rosen says. He tells investors to expect returns in the mid- to high-single digits, far below what other emerging market funds promise — but rarely deliver. What GBF does provide is a positive cash yield, generated by the generally positive repayment record of its portfolio companies.

Rosen has a no-nonsense attitude to collecting payments. “We may only be talking about $15,000, but I know how to go after a client, because once we let go a little bit, people will see that we don’t have to be repaid.”

GBF estimates that members of its investment team spend about 30 percent of their time, or about 50 hours per month, on what the fund calls “business advisory services.” The fund also provides its portfolio companies with outside consultants in agribusiness, financial management and environmental practices.