Loans without borders for nascent media

By Thomas Crampton International Herald Tribune
Monday, August 22, 2005, Paris

Most venture capitalists follow the progress of their investments through stock markets or financial reports, but for Sasa Vucinic, it is usually human rights watchdogs who provide him with his first heads-up that there may be problems.

"Just yesterday, Reporters Sans Frontières condemned the Serbian investment minister for verbally abusing and threatening a journalist from B92 radio station," Vucinic said by telephone from Massachusetts last week. B92, a radio station in Belgrade, is among the clients of Vucinic's Media Development Loan Fund, which finances independent media companies in nascent democracies. Such media are on the radar screens of human and civil rights groups for the harassment they encounter, from the government and other quarters.

Perhaps more unexpected, the loan repayment rate for the media fund is 98 percent, with only three failed ventures and one case of fraud in the $42 million disbursed by the fund to 45 media companies in 17 markets since 1995.

Founded by Vucinic, a former journalist from Serbia, and Stuart Auerbach, a former journalist from The Washington Post, the New York-based fund was started with seed money from George Soros but has grown to include a list of donors from around the world, from the Swedish International Development Cooperation Agency to the U.S.-based MacArthur Foundation.

Now entering into a partnership with the World Association of Newspapers, the fund expects a rapid expansion in both the number of projects and the amount of interest from investors.

"This is a totally unique model in the world," said Timothy Balding, director general of the association, based in Paris. "They have managed to combine supporting independent media with a highly sustainable business model."

Novi List, a daily newspaper with a circulation of 70,000 across Croatia, has had a series of loans from the fund over the past decade, including two loans of $700,000 to finance an updating of the editorial system and a loan guarantee of 1 million, or $1.2 million, for a new printing press.

"The financial expertise was almost as important as the loan," said Zoran Borcic, general manager of Novi List. "They have know-how and experience with similar projects."

Another 1 million loan, to help restructure the newspaper's ownership, is the only one still outstanding.

The repayment rate, Vucinic said, shows that an independent media outfit can be financially successful, even in an emergent democracy.

"We don't lose money very often because these guys are not in business to run away with cash," Vucinic said. "These are people dedicated to improving their communities, and they never want to sully their good name."

In fact, clients have occasionally gone to extremes to repay debts, including in 1999, when the newspaper Vjesti in Montenegro offered to carry cash through the rain of NATO bombs to make a payment.

"They told us the banks no longer worked, so they would bring the cash to Budapest," Vucinic said. "We told them they were crazy and that repayments could wait until after the bombing."

And when the Indonesian rupiah collapsed in 1997, the $150,000 loan denominated in dollars to radio station 68H in Jakarta shot up in value in local currency terms. The radio station and the fund renegotiated the loan.

The fund finances its operations through the rate difference between the amount it borrows and the rates at which donors receive the money, but interest rates are low and repayment schedules remain flexible.

"We never look for a return that would put a media company facing difficulty out of business," Vucinic said. "We try to figure out how much the company will profit from our investment and share those profits."

The fund's strategy is to offer five-year loans, and only to journalist-owners. "Only when the journalists have a substantial chunk of ownership will you help sustain independent media that can actually be a business," Vucinic said.

The most effective time for the fund to enter a country, Vucinic said, is during the transition to democracy.

"We want to be in places like Peru after Fujimori or Georgia after Shevardnadze, in the crucial months when a free expression can become institutionalized before the government gets annoyed," Vucinic said. "That is when capital is crucial and when the country is most in need of an independent media."

Even on different continents, small independent media companies face similar problems, and Vucinic encourages an exchange of ideas by gathering all the fund's clients in one place every two years.

Another important piece of know-how is basic accounting and finance, a discipline that is forced on some publishers for the first time by the monthly reports the loan requires.

"We are more proud of their journalistic achievements than their financial achievements," Vucinic said. "We want to help them create profitable and established media, not personal riches."