Interview with Jed Emerson: Foundations: essential and missing in action
Thursday, April 27, 2006
–Could you give a couple of examples of recent innovations that you feel are really exciting?
One great example is Nurcha (National Urban Reconstruction and Housing Agency) in South Africa, which provides bridge financing for the low-cost housing sector. The Open Society Institute pledged a loan guarantee of up to $50 million. Using that as a catalyst, Nurcha began to guarantee loans from South African commercial banks to low-cost housing developers and contractors. A bank lending money to a Nurcha-supported contractor was guaranteed to recover at least 60 to 70 per cent of the loan if the borrower defaulted. Basically, the OSI guarantee made it possible for the banks to make loans to non-profit development groups that they wouldn’t otherwise have made. Those loans in turn made it possible for housing groups to expand the entire affordable housing industry in South Africa. I think that’s a perfect example of how you can leverage and marry capital.
Another really great example of creative financial engineering is where people are taking microfinance loans from funds and packaging them as securities which can then be offered to third party investors. By taking that debt off the books of the microfinance fund, it almost recapitalizes the fund so it can engage in more lending activity.
Read the full interview here.