Agents of Impact | February 2, 2015

Grassroots Business Fund: Building Businesses With More Than Money

The team at


caseIt’s something many investors don’t want to hear: Businesses that provide economic opportunity for low-income people in challenging markets around the world require a lot of expensive hand-holding.

Harold Rosen, founder of the Grassroots Business Fund isn’t afraid to tell them.

“What we do is often an unsexy, underdeveloped enterprise. We are helping a lot of people make a living. Those enterprises are not going to sell for multiples,” says Rosen, a longtime development banker with the International Finance Corp., an arm of the World Bank. “It is pretty uninspiring, except for the social impact.”

Rosen’s fund, with offices in Nairobi, Lima and New Delhi, makes equity and debt investments in agricultural and artisanal businesses and other micro-entrepreneurs in order to improve the livelihoods of low-income people. In five years, GBF has invested more than $35 million in 28 companies in 11 countries via debt, quasi-equity and preferred equity investments.

Rosen says anybody hoping to succeed in impact investing in tough emerging markets need to cultivate and develop the enterprises far more intensely than traditional private-equity fund structures allow.

He tells investors to expect returns in the mid- to high-single digits, far below what other emerging market funds promise — but rarely deliver, Rosen says. What GBF does provide so far is a positive cash yield, generated by the generally positive repayment record of its portfolio companies.

Rosen has a no-nonsense attitude to collecting payments. “We may only be talking about $15,000, but we know how to go after a client. If we let go a little bit, people may mistakenly feel that we don’t have to be repaid.”

GBF estimates that members of its investment team spend up to 30 percent of their time, or about 50 hours per month, on what the fund calls “business advisory services.” The fund also provides its portfolio companies with outside consultants in agribusiness, financial management and environmental practices.

When GBF was introduced to Jaipur Rugs in 2009, the artisanal rugs manufacturer in India was in need of working capital to finance its accelerating growth. Founder Nand Kishore Chaudhary’s had turned his loom weaving business – named after the capital city of his home province of Rajasthan – into India’s largest producer and exporter of hand-knotted rugs.

But 40 percent year-over-year growth brought its own challenges. Even before it invested, GBF advised the company in financial planning, corporate governance and hedging of its currency risk in its export operations. Two years later, GBF invested $1 million in debt and preferred equity. Jaipur Rugs is now the largest company in GBF’s portfolio, with annual revenues of more than $25 million in annual revenues that support a network of more than 21,000 weavers and wool spinners.

The Grassroots Business Fund is a spinout from the IFC, where Rosen launched a Grassroots Business Initiative in 2003. The IFC provided an initial $15 million and GBF closed its $49 million first fund at the end of 2012. Backers included the Overseas Private Investment Corporation (OPIC), DEG and FMO (German and Dutch government owned investment agencies), Omidyar Network, the Calvert Foundation, Deutsche Bank and European development banks along with 30 individual “angel” investors.

Since the cost of technical assistance serves to depress returns, fund managers must scramble to find other ways to pay for it. GBR raised an additional $11.5 million in grant funding to support the business advisory services, such as those provided to Jaipur Rugs. Supporters such as the law firms Akin Gump and Arnold & Porter provide pro bono legal and other services.

GBF is diligent in tracking key financial metrics like repayment rates, client revenue growth, shareholder income and cash yield, on the premise that viable businesses are the essential precondition for social impact. It reported that its portfolio companies grew revenues an average of 20 percent in 2013. In the fund’s first year, GBF reported its portfolio investments were meeting their financial expectations. All were repaying their loans and had generated a cash yield of 8.5 percent.

For Rosen, social impact is the ultimate metric. In 2013, GBF estimated that its portfolio companies delivered $37.3 million in economic value to 7.4 million people. Jaipur Rugs, for example, provided nearly $6 million in direct income to its network of artisans.

Compared to traditional emerging markets private equity, he says, such investments are “not a trade-off at all.”

[seperator style=”style1″]Impacts[/seperator]

GBF’s companies reported average annual revenue growth of 20 percent in 2013.


Grassroots Business Fund’s portfolio companies delivered $37.3 million in economic value to 7.4 million people in 2013.

[seperator style=”style1″]Disclosure[/seperator]

One of a series of impact profiles produced in conjunction with the Case Foundation’s new publication, “A Short Guide to Impact Investing.”