Envest does not have a specific geographic focus. We lend to socially focused and financially solid MFIs that are creating economic opportunity for people with little access to credit and other financial resources. We are open to working with MFIs in any country in which the laws and social norms are conducive to our lending model. We have 21 MFI partners in 12 countries with about 60% of our portfolio in Latin America and 32% of our portfolio in Africa where we have partners in Uganda, Kenya, Rwanda and Zimbabwe. We envision significant growth for Envest in Africa, particularly in East Africa, in the near to medium term. Additionally, about 6% of Envest’s portfolio is in Central Asia (one partner each in Kyrgyzstan and Tajikistan), and 3% is in Europe (one partner in Moldova).

Envest specializes in lending to smaller microfinance institutions (MFIs) while many lenders tend to work only with large MFIs. This is due to a perception that small institutions are poor credit risks, and, as a result, tend to be served only by non-profit lenders. This perception reduces the pool of available credit to smaller MFIs while they are facing increased demand from individual borrowers that cannot be met. In the 15+ years of Envest’s existence, we have found that well vetted, small MFIs can be good credit risks. Not only have they proven their vital role in marginalized communities, but also their capacity to grow rapidly under the right conditions.

Loan officers and the credit committees serving each MFI determine the size of an individual’s loan.  Envest intentionally does not participate in the lending decisions of our MFI partners. Rather, we believe such decisions should be made exclusively by the professionals at each institution who are knowledgeable about their local market. Typically, the loan officers at each MFI determine the loan size based on a combination of the client’s needs and repayment capacity. Our rigorous due diligence process includes a mandatory visit of the MFI and their clients. This helps us identify MFIs that are responsible lenders and demonstrate a commitment to the communities they serve and the people who have been historically marginalized.

The primary factor driving interest rates charged to borrowers is the need for MFIs to cover their operational costs and generate a small surplus. Because these are small, local MFIs, their administrative cost of lending small amounts of money is very high relative to the size of the loan. A $500 loan requires just as much work as a $5,000 loan but generates a tenth of the revenue. Therefore, socially motivated MFIs that focus on lending to the poorest borrowers tend to have some of the highest interest rates, with 40% being common. These MFIs take great care to make sure the borrowers can afford the loan, and often offer technical assistance programs that help the borrowers expand both their businesses and their ability to repay the loans. Even with interest rates of 40%, profit margins generated by these MFIs tend to be modest. For more information read our Understanding Microfinance Interest Rates paper (2024).

Envest has similar operational challenges to the MFIs that we support. As a small for-profit institution, Envest does not have the economies of scale that larger international loan funds enjoy, nor is it subsidized by grants. Envest is able to cover its cost and pay its investors only after the MFIs have made a profit. The interest rate charged by Envest reflects the cost of operating a small microfinance investment vehicle.

Envest Microfinance Fund’s default rate of 2.30% compares favorably to peers that lend to much larger institutions. This is due to our team’s flexible risk assessment process that allows continued lending during periods of perceived elevated risk, such as the COVID-19 pandemic. Our practice of building trusting, long-term relationships with partner institutions has resulted in MFIs being willing to share unflattering information, resulting in lower information risk for Envest. Envest Plus has not experienced any defaults in its first year of operations.

Institutional risk represents the most significant source of risk in microfinance lending. A financially solid MFI with a high level of integrity represents the highest probability of getting repaid. Country risk is certainly a risk to consider in microfinance, but institutional risk is a much greater risk. Envest’s experience is emblematic of the international microfinance sector in that it has experienced defaults in countries deemed to have moderate sovereign risk while strong MFIs in countries deemed to have high sovereign risk have performed very well.

All loans from Envest Microfinance Fund are disbursed in US dollars. The currency risk is borne by Envest’s MFI partners. MFIs factor the currency exchange expense into the interest rate charged by borrowers. Some MFIs use locally available hedging instruments to insure against dramatic depreciation. As of the end of 2024, all disbursements from Envest Plus have been in US dollars. Up to 25% of the portfolio of Envest Plus can be disbursed in local currency via a proprietary loan product designed to share the currency risk between Envest and the MFI. We intend to explore the possibility of a local currency transaction in 2025.

Counterintuitively, natural disasters represent a minor risk factor in microfinance. The whole story, however, is more nuanced than that. MFIs commonly see a modest uptick in arrears immediately following a significant natural disaster. Strong MFIs usually see a decrease in arrears to normal levels fairly quickly. MFIs that were in a weak position before the natural disaster often experience significant disruption after the event. Most MFIs that decline significantly or cease operations after a natural disaster were in a weak position before the disaster event. Interestingly, it is common for strong MFIs to grow and strengthen after a natural disaster. Immediately after a disaster, there is often a spike in demand for credit to restore and rebuild. Strong MFIs are more likely to be in a position to lend to high performing borrowers and are often willing to do so even when the borrower’s house or business is a pile of rubble. The strongest borrowers of weak MFIs often turn to strong MFIs for their credit needs after a disaster because the weak MFI have little cash on hand to lend. Envest has a history of lending to strong partners immediately after natural disasters.

The vast majority of Envest’s partners navigated the pandemic very well. There was considerable uncertainty in the second and third quarters of 2020. Several partners requested all creditors to reschedule loans and pay interest only for one or two years. Envest participated in several creditor calls in which all creditors of an MFI met virtually to discuss the rescheduling of loans. International microfinance lenders were very collegial and cooperative during the restructuring process, which helped MFIs continue to operate in the early stages of the pandemic with minimal disruption. The impact of the pandemic varied greatly among Envest’s partners depending on the market and business model. In urban areas with strict lockdowns, lending activity decreased dramatically resulting in less demand for loans from creditors. In other markets supply chain disruptions, there was an increase in demand for local products and services, which resulted in more demand for loans from creditors. Envest experienced an overall decrease in demand for credit but a marked increase in demand from a few partners. Demand returned to pre-pandemic levels in late 2022. Two Envest partners ceased operations as a result of the pandemic; both MFIs entered the pandemic in a weakened state. In general, MFIs that entered the pandemic in strong financial condition with good teams navigated the pandemic quite well.

Envest charges interest on the loans to MFI partners. This interest revenue covers financial and operating expenses as well as the return to investors. We do not receive grants or donations.

When an entity accepts money with the aim of delivering a financial return, the entity is selling securities by definition. The entity must either register any securities offering with the U.S. Securities and Exchange Commission (SEC) and any relevant state regulators, or it must rely on an exemption from registration. Registration would be prohibitively expensive for Envest, so we rely on an SEC exemption which prohibits the sale of securities to non-accredited investors. The SEC defines an accredited investor as any natural person who: earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

Envest is supported by investors in 25 US states. Typically, investors are interested in making a difference in countries where people have difficulties accessing financial services and other economic opportunities. The average investment is about $130k and we have both individual and institutional investors. Many of our individual investors come through financial advisors. We have a great group of advisors we have worked closely with in the last 15+ years.

Envest is comprised of three legal entities: Envest Microfinance Cooperative (Envest Co-op), Envest Microfinance Fund, LLC (Envest Fund), and Envest Plus, LLC (Envest Plus). Envest Co-op serves as the manager of Envest Fund and Envest Plus. Envest Co-op was founded in 2006 and reconfigured as a cooperative in 2009.  Envest Fund was founded in 2012 and continues to use the same underwriting standards developed by Envest Co-op. Envest Fund lends to socially focused and financially solid MFI partners that provide economic opportunities to economically marginalized borrowers. Envest Plus was founded in 2023 to reach more microfinance institutions and financial inclusion activities outside of traditional microfinance.