Citi hopes a little loan will go a long way
You may not be as glamorous Angelina Jolie or be able to rally the masses like Bono, but if you're a wealthy entrepreneur looking for ways to join these stars in the latest charity craze of microfinance, there's a new product out there for you.
Microfinance means lending small amounts of money - typically US$40 to US$100 - to entrepreneurs in developing countries, allowing them to start businesses and work their way out of poverty.
It has become the hot new cause of civic-minded celebrities and the nouveau riche and Citi has two new funds to ride the wave of popularity.
'It's definitely trendy,' said Melanie Schnoll-Begun, managing director of philanthropic services for Citi's family office services.
'But if we can embrace microfinance, we can have fewer conversations about philanthropy being about donations and turn it into a for-profit business. It can empower people and get people to help themselves.'
Citi in April introduced the Citigroup Global Microfinance Investment Fund, and in June it launched the Citi Gift Microfinance Donor Fund. Both funds make money available to microfinancing institutions around the world, which then make funding available to entrepreneurs.
The money could end up helping an Indian farmer process his crops or finance the equipment needed by an Indonesian artisan.
The investment fund requires a minimum contribution of US$250,000 and it locks up the money for 2? years. It targets returns of 1 per cent over Libor. It will make investments in qualified for-profit microfinance institutions, with an expectation that the money will eventually be repaid. Citi has kicked in US$10 million of its own cash to start the ball rolling and the fund will remain open until the third quarter.
The donor fund is a bit more charitable, requiring a minimum contribution of US$50,000 - and the money is a gift not to be returned.
This fund will offer grants of up to US$500,000 to less established microfinance firms, and although the money is expected back, there's less chance of a financial return since the non-profit recipients may include start-ups that can't get credit elsewhere. The fund will be open until the third quarter of next year.
Citi isn't launching these funds out of the goodness of its heart; it is charging fees to put your donations to work. The investment fund comes with fees of about 2.25 per cent, while the donor fund charges 1.1 per cent.
While the funds are being pitched to clients globally, Ms Schnoll-Begun was in Singapore and Hong Kong last week to meet prospective donors.
Giving to unknown recipients is not the traditional way of charity among rich Chinese, who normally give their money to causes in their ancestral villages or institutions that are well known to the family.
'The money is not going to your community university or hospital or to an individual person, which is the typical approach of our Chinese clients,' said Ms Scholl-Begun. 'But this allows clients to reflect on where they started their own businesses, since many of our clients started out with nothing.'