Dear Unitus Supporters,
This is a follow-up to our July 2 announcement that we would redirect our efforts toward new poverty alleviation strategies and initiate no new microcredit acceleration projects. We want to keep you informed about what we’re doing to fulfill our commitments. This letter serves as a stewardship report from our board to you. We are dedicated to using your generous donations appropriately and in alignment with our core mission to help reduce global poverty.
Why We Are Changing our Focus
Unitus, Inc.’s mission is to reduce global poverty through economic empowerment and this is not changing. What is changing is our focus going forward.
Almost 10 years ago, Unitus, Inc. identified the potential to dramatically catalyze expansion of the supply of quality microcredit, and subsequently developed and deployed a methodology we called ‘microcredit acceleration’ to realize this opportunity. We saw ourselves as a catalyst for the microfinance industry, hoping that our methods and practices would be adopted throughout the industry. We are proud of the substantial, concrete, positive impact that we’ve been able to make with your support in the operations and scale of our 22 microfinance partners, in the industry overall – and ultimately, in the lives of nearly 15 million of the world’s desperately poor.
After considerable review, we concluded earlier this year that we had achieved our specific microfinance objective: to demonstrate the scalability and commercial viability of microfinance in such a way as to influence the flow of commercial capital toward this crucial poverty alleviation tool. Our decision to curtail additional microcredit acceleration projects was based on strong recommendations from Unitus staff and other respected microfinance experts that sufficient commercial capital was available in many regions to fuel microfinance growth, with additional providers continually entering the field. Understanding this, we felt that we should be very careful in how we would continue to commit precious donor funds to a strategy that had largely achieved its intent.
This realization then necessitated a very difficult decision. Not wanting to unduly spend donor funds on unneeded administrative overhead, we felt an important obligation to scale back our internal operations while still fulfilling our existing commitments and preparing for the next phase of Unitus, Inc. This was a painful decision because it involved laying off employees, winding down projects and closing a 10-year chapter of Unitus leadership in microfinance. Painful as it was, we believed then – and continue to believe now – that it was the right thing to do. All this being said, while we tried to make this change in a completely professional and caring manner, we realize that we made mistakes in the way our change was announced and implemented. We apologize for any ill feelings or misperceptions this may have caused to those within and outside the Unitus organization. We could and should have done better executing this organizational shift.
Our Progress Since July
We are pleased to report that Unitus, Inc. has made significant progress in professionally and carefully winding down our microcredit operations in the past five months. We also have begun researching new opportunities for Unitus, Inc. to make a further new and significant impact in reducing global poverty.
Fulfilling Partner and Program Commitments
Plans are in place to fulfill existing Unitus partner commitments. In some cases, Unitus, Inc. has completed the work already. In other cases, we will complete the work or transition the remaining work to be completed by other capable organizations.
MFI Acceleration Partners
Our strategy has been to focus our efforts on supporting the earliest-stage MFIs that are not yet at critical mass. We provided critical catalytic debt financing (funds they can lend to borrowers) and advisory services (technology, human resources, capital raising, marketing, product development, leadership development and strategic planning) to help MFI partners become more efficient and effective in expanding their operations to reach more poor families. In the past few months, we have:
- Completed multiple MFI partner engagements, including technology and product development in India and long-term planning and operational efficiency in Africa
- Completed our Kenyan MFI Growth Centre program (final event in September 2010)
- Developed final acceleration grants to propel these MFIs forward (some are completed; remaining grants in progress)
- Began the process of creating a new catalytic debt facility for an African MFI partner (targeting to complete by year-end 2010)
Social Performance Management Initiative
Unitus, Inc. has been a pioneer in helping to develop practical and innovative methods for measuring the economic impact of microfinance for poor families. This field research is giving MFIs new data to better understand how their financial products are working (or not working) to benefit their clients – resulting in improved product design and increased benefit to borrowers. In the past few months, we have:
- Completed social performance management assignments with three MFI partners
- Transitioned our social performance management program to a high-quality organization in India called MicroSave to take this initiative forward
Unitus, Inc. has also pioneered the development of new approaches to providing economic opportunity to those too poor for microcredit loans. Again, we’ve chosen to work through MFIs, encouraging a broad range of creative pilots in India and Southeast Asia, in order to demonstrate new models for economic engagement with this extremely vulnerable population. In the past few months, we have:
- Completed ultra-poor pilots in India & Southeast Asia
- Developed a plan to complete our ultra-poor project goals in 2011
Fulfilling Donor Wishes
We are committed to ensuring that donor intent is fulfilled. We’ve made the following progress:
- Worked directly with donors of restricted funds to complete the specific projects or to find other organizations to complete the work for us
- Worked with donors with unfulfilled pledges to address their concerns
- Initiated final grants to MFI acceleration partners (some have been completed; others are still in process)
- Initiated new grants to other non-profits that are completing Unitus commitments (some are completed; others are in process)
Scaling Back Internal Operations
We committed to right-sizing our operating costs while providing reasonable financial support to our departing employees to help with their transitions. Here’s what we’ve done:
Scaled back staff and other operational costs to much lower levels as commitments were fulfilled, reducing operating costs from an average of $600,000-plus per month for the first six months of 2010 by about 80 percent to about $120,000 per month for Q4 2010. (Note: Not including one-time items such as grants and end-of-year write-downs.)
- Provided severance and extended medical benefits to employees being laid off
- Closed down Nairobi office and reduced office space in Bangalore
- Actively attempted to sublet Seattle office space
The SKS IPO Proceeds
As part of our microcredit acceleration strategy, Unitus set up a private, first-of-its-kind microfinance investment fund called Unitus Equity Fund (UEF) in 2006. Fundraising was difficult, because no one had ever produced commercial returns from this type of investment. In order to demonstrate commitment to the concept, board members led the way, through investments by affiliated charitable and proprietary organizations. Most who invested had significant doubts of any return – or perhaps of even receiving a return of their investment capital – but were committed to the concept of pioneering a new category of social investment. So they took the risk. Overall, UEF raised ~$23 million from investors who were supportive of our social impact mission. UEF then invested in promising, high-risk, early-stage MFIs, primarily in India. Earlier this year, UEF was able to sell some of its shares in SKS Microfinance’s initial public offering (IPO) in India, resulting in a return to UEF investors.
After an investment of ~$187,000 and 4 1/2 years of active investment management of UEF, Unitus Investment Management (a non-profit subsidiary of Unitus, Inc.) has received ~$2.8 million back in distributions. Charitable and proprietary organizations affiliated with Unitus, Inc. board members invested ~$1.6 million in UEF and have received ~$2.5 million in distributions – a total gain of about 56 percent (i.e. about 12 percent per year).
The charitable investors affiliated with Unitus board members are, and have been from the outset, legally required to devote all their gains from the UEF fund investments to their charitable missions. The one proprietary investor affiliated with a board member has committed to redeploy all gains from the UEF fund investments to poverty reduction and economic development purposes. That is, no portion of the return from the recent SKS market events has been or will be used for personal gain of any Unitus board member. All returns to Unitus, Inc., its board and affiliated organizations have been and will continue to be redeployed in poverty alleviation efforts.
Some have asked whether the SKS IPO influenced the timing of our decision to redirect our efforts. It did not. Our decision has been driven exclusively by the broad pattern of improvement in access to commercial funds in the microfinance industry.
Remaining Cash and Financial Commitments
As of 9/30/2010, Unitus, Inc. cash on hand was ~$4.3 million, down from ~$11.8 million at the beginning of the year. As forecasted in our board-approved budget, funds were used for operating expenses, operations scale-back expenses, repayment of loans, payment of a MFI loan guarantee, grants to program partners and return/re-granting of restricted funds. While we research our new focus and strategies, we have been doing very limited donations and grants fundraising resulting in contributed revenue being well below our historic level. As of 9/30/2010, Unitus Investment Management (UIM) cash on hand was ~$2.5 million. All Unitus, Inc. and UIM resources will continue to be used for mission-related charitable activities.
Our New Focus Research
Unitus, Inc. has been actively researching opportunities for our new focus. We have been consulting with many experts in the poverty and economic development sectors to understand what’s working and what’s needed.
We’re setting a high bar for ourselves – seeking a focus where we have the potential to bring economic opportunity to millions of global poor families.
We are currently exploring an area we’re calling “livelihood development,” which involves identifying and backing entrepreneurs who are creating opportunities for poor men and women to significantly increase their earning capacity. While microcredit has provided working capital to millions of micro-entrepreneurs to increase their income, it only goes so far. We are increasingly excited that innovations in livelihood development could be the next big opportunity that Unitus can leverage to dramatically impact global poverty. We hope to be able to provide more details on our new focus and strategies early in 2011.
Unitus, Inc. will continue to be an organization that looks for gaps in existing market structures. Such gaps create roadblocks for the natural flow of free market capitalism. It is those at the bottom of the economic pyramid who suffer the most from these roadblocks. We take risks and are willing to try things that have not yet been tried, knowing that we might fail in our efforts to bridge the gaps. This is the approach we used in 2001 when we created our microcredit acceleration model. We have great faith in the power of new ideas and small teams of highly motivated people who can get things done.
As we embark on this new chapter, we want to recognize that Unitus’ 10-year success in accelerating access to quality microcredit would not have been possible without your generosity, together with the dedication of our partners, staff, volunteers and board.
Thank you once again for your support of our work.
Unitus, Inc. Board Treasurer and Interim Executive Director
Unitus, Inc. Co-founder and Board Chair
Unitus, Inc. Co-founder and Director
Unitus, Inc. Co-founder and Director
Unitus, Inc. Co-founder and Director