Ex-Toledoan runs firm in India giving microloans
31.08.2008 08:02
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- Source: toledoblade.com
WHEN FORMER Toledoan Eric Savage graduated from Duke University in 1992, he wanted to join the Peace Corps or some other group working in underdeveloped nations.
“No one would hire me because I didn’t have business experience,” Mr. Savage said during a visit this month with family and friends in Toledo.
But now, after 12 years as an investment banker in Hong Kong and a master’s degree from Harvard University’s John F. Kennedy School of Government, he is running a financial advisory firm in Bangalore, India, that secures funding for microloans — some less than $100 — for Indian entrepreneurs, shop owners, and farmers.
Along the way, Mr. Savage, 38, gave up his lucrative career as head of Citigroup’s Asia Power Investment Banking group to become a co-founder of Unitus Capital and managing director of the new firm’s Asian operation.
“I took about a 90 percent pay cut,” said the graduate of Gesu school and St. Francis High School.
“I was fortunate to save up enough money to do what I want to do, to have the biggest impact on poverty. … This kind of work is more satisfying, meaningful, and fun.” His new firm is part of a growing trend toward microfinance that got the world’s attention when Muhammad Yunus won a Nobel Peace Prize two years ago for helping give credit to millions of developing countries’ citizens too poor to get traditional bank loans. Mr. Yunus, who started the microlending trend with his Grameen Bank in Bangladesh in the 1970s, is often called the “father of microcredit.”
Mr. Savage, who met Mr. Yunus at a conference this summer, calls him “a bit of a rock star” in the microfinance industry.
The industry is certainly growing. According to a study last year by Deutsche Bank, about $25 billion is lent to the unbanked worldwide by microfinance institutions.
That study found that $250 billion is needed by an estimated 7,500 to 10,000 institutions.
Mr. Savage’s firm is a go-between, helping many of those institutions get financing from dozens of global banks, church-backed organizations, and wealthy social investors.
His new for-profit firm was launched last month as a spinoff from the nonprofit Unitus Inc., an international group that says it has helped 4 million working-poor families in Argentina, Brazil, Cambodia, India, Indonesia, Kenya, Mexico, and the Philippines. Its goal is to reach 15 million by 2010.
Unitus Capital’s U.S. offices are in Seattle. Mr. Savage runs the five-person Bangalore office that he said could double soon thanks to $5.5 million in seed money from several backers, including Robert Gay, chief executive officer of H&G Capital Partners in Palo Alto, Calif.; William Price III, founding partner of TPG Capital (formerly Texas Pacific Group) in Fort Worth; and WEGA Support GmbH, of Germany.
Mr. Savage said his office in Bangalore — a city of 5 million in the southern tip of India, about 150 miles inland from the Bay of Bengal — is arranging funding of $1 million to $25 million for each of five microfinance institutions wanting to borrow money and of $3 million to $25 million for each of five others seeking stockholder investors.
“Half of the world’s population doesn’t have access to financial institutions,” said Mr. Savage. “They borrow from loan sharks at high interest rates.”
Interest rates of 10 percent daily and 300 percent to 3,000 percent annually are not uncommon in the Third World, he said, but most of the finance institutions lend to farmers and small businesses at interest rates ranging from 22 percent to 28 percent a year.
Generally, the microlenders meet with groups of about 30 prospective borrowers, and loans are granted to smaller groups of perhaps five people at a time. “Loans generally start at about $100, and after they’ve proven the ability to repay, they can increase to $300 to $400,” said Mr. Savage.
Group lending works best, said Guy Stuart, one of Mr. Savage’s professors at Harvard’s Kennedy School. “This puts the burden on the group, whose members have good local knowledge, to screen who receives a loan and who does not, and to reinforce repayment,” he said.
Nonperforming loans amount to less than 1 percent of the total, Mr. Savage said.
Muhammad Yunus believes highly in the ability of the poorest of the poor to repay loans. He told the Wall Street Journal recently: “Our banking [at Grameen] is sub, sub, sub, sub prime,” with no collateral, no insurance, and no great amount of paperwork. And yet, he added, “Our repayment rate is very high. Like 98 or 99 percent.”
Mr. Savage has seen some of the successes from microlending, such as bicycle-repair shops, traders who were able to purchase their inventory, and a goat farmer who was able to increase his herd from two to 25 and to buy a house.
There are many microlending success stories, said Mamta Bharadwaj, spokesman for India’s SKS Microfinance, one of Unitus Capital’s clients.
She cited several examples. Saalibai Kondapur, a tribal woman from the village of Kondapur — one of the poorest communities in India — borrowed $25 to buy manure to fertilize her land, repaid the money, made enough profit to buy a small house, and later borrowed $75 to buy a water buffalo.
Another borrower was Lakshmi Bandaru, a 38-year-old mother of three children in Suryapet, who borrowed $225 to set up a business of buying and selling garments made in a nearby village. Later she took out another loan of $310 to buy cloth and now has an income of more than $600 a month.
SKS’s Ms. Bharadwaj relayed this comment from Ms. Bandaru to The Blade: “Thanks to the loans … I was able to give my children a decent education. Today, people respect our family, and I am grateful.”
Mr. Savage met his wife, the former Phyllis Fang, while working in Hong Kong. She is the daughter of the late Chin-Yen Fang, a diplomat from Taiwan, and she was educated in the United States.
Mrs. Savage was a correspondent for CNBC in Hong Kong and also worked for a time for the Reuters news service in India. They have three children — 3½-year old twins Gabriel and Trinity, and year-old Amelia.
He said he never even considered working for Savage & Associates Inc., the large Toledo financial-services firm founded by his father, Robert Savage, and his uncle, the late John Savage, because “we were expected to make it on our own.”
Instead, after college, he went to work for the Wall Street firm of Salomon Brothers, and after a couple of years was transferred to its Hong Kong office (now part of Citigroup’s empire).
“Eric was a hard-working guy,” recalled James Crisanti, his first boss at Salomon. Mr. Crisanti, now an investment adviser for a wealthy family in Pittsburgh, said he knew that Mr. Savage had an interest in public policy and he was perfectly suited “to move to India and work at the grass-roots level to raise the standard of living over there.”
Mr. Crisanti said he wasn’t surprised when Mr. Savage left investment banking. “Even in our own group of less than 20 people, we’ve had people leave Salomon
Brothers to become ministers, movie producers, Army officers, beach or ski bums, titans of finance, etc.,” he said.
Mr. Savage declined to say what he made as an investment banker or his current salary. “I’m not comfortable discussing that,” he said.
However, it’s clear he left a substantial income behind. The U.S. Bureau of Labor Statistics reported last year that the average pay in investment banking is 10 times that of other private-sector jobs.
Harvard’s Mr. Stuart said that Mr. Savage “didn’t have to tell me he wanted to save the world. … I take it for granted that [students] are here to do good. My assumption is they made a sacrifice to come to the Kennedy School.”
Out of the 204 students in the class, Mr. Savage was one of nine recipients of the program’s top honor, the Lucius M. Littauer Fellow Award.
Mr. Savage’s wife said the family is adapting to life in India. However, she lamented, “Eric said this would mean more time with the family. But [so far] it’s the same [long] work hours.”
Contact Homer Brickey at:homerbrickey@theblade.comor 419-724-6129.
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