Behind the Scenes of Microfinance
Featured Content
May 2010
Craig Meland was on his way to Sunday services at his church in Hinsdale, Ill. when a sign on a bulletin board caught his eye: “Microfinance.” Rather than proceeding into the chapel for the sermon, he followed signs to the adult education class his church was hosting on the topic.
For the next hour, Meland, a banking and finance partner in Baker & McKenzie’s Chicago office, listened to a lecture on microlending — giving small loans to the poor in Africa, Asia, Eastern Europe and Latin America to lift them out of poverty by helping them become entrepreneurs.
It’s a concept that has gained public attention in recent years, particularly after Bangladeshi economist Muhammad Yunus and Grameen Bank, the microfinance institution he founded, won the Nobel Prize in 2006 for championing the practice.
“I had heard of microfinance before,” Meland says. “But I had no idea who the big players were and how to get into it.”
Today, Baker & McKenzie represents some of the biggest players in microfinance world, helping organizations such as Opportunity International, which provides microloans in 28 countries, and Kiva, a website that matches individual lenders with poor entrepreneurs seeking loans for supplies and equipment.
Meland, tax partner Mike Donovan and associates Nate Walker, Carmela Hernandez and Diane McDonald help Opportunity International, Kiva and others navigate the behind-the-scenes, technical aspects of microlending: loan agreements, exchange controls, guarantees structuring, letters of credit and tax exemptions.
In 2006, they represented Opportunity International in negotiating a loan agreement with the Bill & Melinda Gates Foundation, which wanted to lend $10 million to the organization to finance microloans in five countries in Africa.
Meland and his team helped Opportunity International understand the terms the Gates Foundation was asking for and made sure they could meet them, such as lending only to people who live on less than $2 a day and have no other access to capital.
“There’s always a clause with a requirement that certain things happen with the money and certain things not happen with the money, which is no different that any other credit agreement,” he says.
What is different about microfinance is it involves money flowing in and out of developing countries that may have weak judicial systems, corrupt governments and volatile economies.
Meland and his team advise lenders on how to protect themselves in the event of disputes, default and currency devaluations. Some countries are simply too risky.
“Even when you’re trying to do good things for people, you can’t go into the situation with complete innocence,” says Ron Norgle, director of finance at Opportunity International. “To know that the Baker name is on some of our deals is a real asset.”