Even as the global economic downturn continues to upend the financial sector, the Omidyar-Tufts Microfinance Fund (OTMF) has seen a solid streak of success, according to the most recent numbers.
Administrators and industry experts remain unsure, however, as to the economy's long-term effects on the fund and the microfinance industry in general.
Payouts to Tufts from the fund's earnings totaled $6.6 million in fiscal year 2008, significantly more than the $2.63 million and $1.38 million returned to the university in fiscal years 2007 and 2006, respectively, according to Director of Public Relations Kim Thurler.
Since half of the returns each year are reinvested in the fund, the OTMF earned a total of $13.2 million in fiscal year 2008, which represents a 12 percent return rate.
The OTMF began in 2005 with a $100 million donation to the university from eBay founder Pierre Omidyar (E '88) and his wife Pam (LA '89). Though the fund is part of Tufts' endowment, it was designed to be solely targeted toward the microfinance sector, which provides loans for entrepreneurs in the developing world in an effort to alleviate global poverty.
A blended fund, the OTMF invests in a variety of asset classes that carry a range of risk and potential return. All of its investments directly or indirectly benefit microfinance initiatives.
Joan Trant, the executive director of the International Association of Microfinance Investors, of which the OTMF is a member, said she is impressed by the fund's 2008 returns.
"The performance really speaks to the quality, the terrific work of [OTMF Director Tryfan Evans] and ... the investment committee," Trant told the Daily.
But Evans, who previously worked for the U.S. Agency for International Development (USAID), cautioned against comparing the OTMF's success to other microfinance funds due to its "unique mandate."
"The trouble is that it's really hard to compare us to those funds because we invest across all the different asset classes, some low risk-low return, some high risk-higher return," Evans said. "We, to our knowledge, are the only institutional investor that has gone out and developed this type of portfolio."
Evans was also wary of gauging the current success of the fund, noting that it would take at least five years to accurately determine its performance.
"I'm really uncomfortable characterizing our performance in 2008 as either strong or weak," he said. "It's really too early to tell. The investments that we make are generally very long-term investments. ... One-year numbers really don't have much information value."
He added that he would not know the full impact of the economic crisis on the fund's strength until the end of this year.
Evans' sentiments reflect a general uncertainty on the part of many within the microfinance industry.
"The jury is still out on to what extent microfinance will stay decoupled [from the economy]," Trant said.
The industry has already been affected by the downturn in a number of areas. On one end lies a lack of capital on the part of investors, who are increasingly unable or reluctant to support the financial sector.
"With financial markets tanking, people who wanted to put money into microfinance don't have the liquidity to do so," Trant said. "Even if [they] had free cash earmarked for microfinance, this environment has made everyone more cautious. Investors are seeking more information [and] need a lot more hand-holding."
Additionally, as loan availability declines, entrepreneurs in the Third World, who are the recipients of microfinance efforts, may not be as motivated or financially able to repay their benefactors as they have been in the past.
"There is a risk that micro-entrepreneurs may not be able to maintain the high 97-98 percent repayment rate which is unique to the microfinance industry," Trant said.
Still, there is some hope since loan recipients in the developing world operate on the "margins of the general economy," supplying necessary goods that are in high demand, Trant said. This may allow the industry to remain relatively unscathed by the economy.
Evans is optimistic that the fund will reach its long-term goal, which is to facilitate $1 billion in loans to entrepreneurs by 2015.
The fund is on track to meet this mark before the deadline, according to Thurler.
Meanwhile, despite its focus on the developing world, the fund has also had a substantial impact on campus, where returns are used to benefit both students and faculty in such ways as financial aid and research initiatives.
Each year, for example, the fund allows for $1,000 grants to tenured and tenure-track faculty members for research and conferences, according to University Provost and Senior Vice President Jamshed Bharucha.
Bharucha added that the OTMF's success has motivated investors who would not otherwise have turned their attention to the developing world.
"That, in turn, has a magnifying, amplifying effect on the benefits to poverty alleviation," he said.
