Microfinance

Global Investor Focus 

Expert know-how for Credit Suisse investment clients May 2005 

MICROFINANCE 

Can microfinance create a more prosperous and peaceful world? // Jane Nelson 

Microfinance enters the mainstream // Christian Gattiker, Sylvie Golay 

Davos microfinance roundtable // Walter B. Kielholz, Giles Keating, Paola Ghillani, 

Jane Nelson, Hernando de Soto, Roshaneh Zafar 

responsAbility – and other ways to invest in microfinance // Klaus Tischhauser

A daily 

interest rate of 

20%: 

For every five pesos borrowed in the morning, 

six must be repaid by the evening – 

these are standard conditions set by 

loan sharks 

in the Philippines. 

Source: Consultative Group to Assist the Poor (CGAP) website

500 m 

450 m 

400 m 

350 m 

300 m 

250 m 

200 m 

150 m 

100 m 

50 m 

There are an estimated 500 million microentrepreneurs worldwide, but less than 10% of them 

have access to financial services. 

CMore information on page 8

How can USD 100 change an economy? // One 

small loan can change a family, but several 

can strengthen a community, and thousands could 

transform an entire economy. // 


Write-off rates of less than 2% for properly managed microfinance lending portfolios compare favorably to many 

traditional commercial bank portfolios. 

Microcredit 

98% of microloans are promptly repaid – with interest. 


GLOBAL INVESTOR FOCUS 

Microfinance—06 

Editorial 

The United Nations Organization has declared this year as the International 

Year of Microcredit 2005. The objective of the initiative is to 

make a noticeable contribution to reducing poverty over the next ten 

years. Numerous loans of small sums of money should help the poor 

to help themselves. 

This idea was already successfully applied in the nineteenth century, 

when Europe stood on the threshold between an agricultural and 

industrial society. The notion of microcredit emerged out of consideration 

for opening the door for small and microbusinesses to gain 

access to capital in order to free themselves from poverty. The success 

of this concept in Europe inspires confidence that herein lies one 

of the keys to broadly underpinned economic growth in the emergingmarket 

countries. The wealth of entrepreneurial imagination and the 

ideas that people create in these countries – as well as the energy 

that they expend to realize these ideas under adverse conditions – are 

quite impressive, in our view. The resoluteness with which these individuals 

work to enhance their standard of living can also be perceived 

in their high level of morality, guiding them to promptly repay these 

microloans – with interest. 

The conservatively estimated demand for microcredit exceeds the 

total amount of development aid provided by the Western world. Hence, 

sustained development can only be achieved through private investment 

in a sound economic system. Public-sector development aid is a prerequisite 

for building up such a system, of which functioning microfinance 

institutions and clearly regulated ownership rights are a part. 

Among our wealthy clients, there is an increasing number of 

investors who would like to invest some of their money in self-help 

projects. These clients have an affinity for enterprising people in thirdworld 

countries and feel the need to return something to society, 

making a valuable contribution to bridge the great divide between rich 

and poor. 

Credit Suisse, together with partner banks, has founded the company 

“responsAbility” and set up the corresponding responsAbility 

Global Microfinance Fund to try and fulfill the needs of its clients in 

this regard, thereby providing the requisite funding for microcredit. 

Additional important details surrounding the microfinance theme 

are available for investors in this debut issue of Global Investor 

Focus – the first of a series that will in the future provide investors 

with in-depth analysis of important longer-term investment themes. 

Dr. Arthur Vayloyan 

Member of the Executive Board of Credit Suisse Group 

Head of Private Banking Switzerland

p Glossary 

Bankable are those individuals or businesses deemed eligible to 

obtain financial services that can lead to income generation, 

repayment of loans, savings and build-up of assets. 

Group lending, also known as solidarity lending, is a mechanism 

that allows a number of individuals to provide collateral or 

guarantee a loan through a group repayment pledge. The 

incentive to repay is based on peer pressure: if one person in 

the group defaults, the other group members make up the 

payment amount. 

Individual lending, focuses on one client. The lending institution 

may ask for collateral or a guarantor. 

Microcredit is a small amount of money loaned to a client by a 

bank or other institution. Microcredit can be offered to an 

individual, or through group lending or community lending. 

Microentrepreneurs are people who own small-scale businesses, 

which are known as microentreprises. These businesses are 

usually family owned and operated. Typical microentrepreneurial 

activities include retail kiosks, sewing workshops, carpentry 

shops and market stalls. 

Microsavings are deposit services that allow people to store 

small amounts of money for future use, often without minimum 

balance requirements. Savings accounts allow households to 

save small amounts of money to meet unexpected expenses 

and plan for future investments such as education and old age. 

Some microfinance institutions require forced savings as an 

indicator for credit worthiness.

p Reference sources 

International Year of Microcredit 2005 

www.yearofmicrocredit.org 

Consultative Group to assist the poor 

www.cgap.org 

Microfinance Gateway 

www.microfinancegateway.org 

Microfinance Information eXchange (MIX) Market 

www.mixmarket.org 

The Virtual Library on Microcredit 

www.gdrc.org/icm 

Journal of Microfinance 

http://marriottschool.byu.edu/microfinance/ 

p Investment Community 

ACCION 

www.accion.org 

Oikocredit 

www.oikocredit.org 

Triodos Bank 

www.triodos.com 

BlueOrchard Finance 

www.blueorchard.ch 

responsAbility 

www.responsability.ch 

p Rating agencies 

Microrate 

www.microrate.com 

Planet Rating 

www.planetrating.org 

p Leading Microfinance Institutions and Networks 

ACCION 

www.accion.org 

Compartamos 

www.compartamos.com 

FINCA International 

www.villagebanking.org 

ProCredit Holding 

www.procredit-holding.com 

Women’s World Banking 

www.swwb.org



08 

Jane Nelson // Harvard University 

Harnessing the potential of microfinance 

Especially in developing countries, microenterprises lack access to 

reliable financial services, but the solutions are in our reach. 

Table of contents 

12 

Klaus Tischhauser // responsAbility 

Ecuador: The market, credit systems and clients 

One of the key success factors is the way the banking business 

has adapted to clients’ needs. A closer look at Ecuador. 

15 

Sylvie Golay, Ursula Oser // Credit Suisse 

Microfinance as an attractive business model 

Enhancing the productivity of millions of microentrepreneurs in the 

emerging markets can be financially rewarding. 

18 

Davos roundtable 

Is access to capital a key factor for development? 

Is access to capital a key factor for development and poverty alleviation? 

The role of microfinance. 

28 

Christian Gattiker-Ericsson, Sylvie Golay // Credit Suisse 

The microfinance market 

An increasing number of mainstream financial players are becoming 

active in the promising market for microfinance. 

30 

Philipp Jung // University of St. Gallen, Mike Imam // Credit Suisse 

Securitization of microloans 

Refinancing microfinance banks has the potential to generate significant 

benefits for both investors and microfinance banks. 

32 

Klaus Tischhauser // responsAbility 

Bridging the gap: The responsAbility Global Microfinance Fund 

Institutional and private investors’ access to financial returns and 

social benefits. 

34 

36 

Author index 

Imprint



How to give 500 million microentrepreneurs access to financial services // In 

the world’s most successful economies, small and microenterprises serve as a major 

engine of job creation and economic growth. However, those operating in developing 

countries often lack access to reliable financial services. This does not have to be 

the case. We have the solutions within our reach – and they include the creation of more 

inclusive financial markets that profitably serve these needs. 

Jane Nelson / Harvard University 

Harnessing the potential 

of microfinance 

One of the greatest economic and moral imperatives of our time is to 

develop innovative new funding mechanisms, technologies and business 

models that can empower small and microenterprises by providing 

them with reliable and commercially viable financial services and 

other business support. Expanding access to such services creates 

an unprecedented opportunity to unleash the spirit of innovation and 

entrepreneurship, as well as the untapped human capital and financial 

assets that already exist in millions of low-income households and 

communities all over the world. 

The renowned economist Hernando de Soto, for example, estimates 

that “the total value of the real estate held but not legally owned by 

the poor of the Third World and former communist nations is at least 

USD 9.3 trillion.” 1 Management strategist C.K. Prahalad speaks of the 

huge market potential of the four to five billion underserved people 

who live at the bottom of the world’s economic pyramid on less than 

USD 2 a day; people who are willing and able to pay for products and 

services that are affordable, accessible and available. 2 There are an 

estimated 500 million microentrepreneurs worldwide and less than 

10% of them have access to financial services, other than through the 

usurious rates of informal-sector moneylenders. In addition to ensuring 

better governance and institutions, which is primarily the role of government, 

the crucial challenge for corporate leaders, bankers and investors 

is to develop new financing mechanisms, technologies and business 

models that can serve these untapped markets in a manner that is 

profitable and sustainable. 

Successful track records 

In the case of microfinance – loans, savings, insurance, transfer services 

and other financial products targeted at low-income clients 3 – we 

already have successful examples that work. There are a growing number 

of microfinance institutions (MFIs) that serve as effective and increasingly 

profitable intermediaries between individual microenterprises and 

a range of commercial banks, development banks, donor agencies, nonprofit 

organizations, and socially responsible and commercial investors. 

Some of these MFIs have track records spanning more than ten years, 

with quantifiable results that show not only consistently high repayment 

of loans on time, but also clear economic and social benefits to 

the microentrepreneurs, their families, their communities and their



countries (please refer to page 12 for some case studies in Ecuador). 

There is growing political will to support the expansion of these MFIs, 

building on models that already work and experimenting with new 

approaches. Individual and institutional investors can also play a crucial 

leadership role, both on a for-profit basis – looking for a competitive 

financial return – and on a social investment or philanthropic 

basis. In doing so, they can be part of an emerging global agenda that 

has the potential to expand economic opportunity, alleviate poverty 

and transform the prospects of poor communities around the world. 

Access to microfinance can make all the difference 

As UN Secretary-General Kofi Annan has observed, “A small loan, a 

savings account, an affordable way to send a paycheck home, can 

make all the difference to a poor or low-income family. With access 

to microfinance, they can earn more, build up assets and better protect 

themselves against unexpected setbacks and losses. They can 

move beyond day-to-day survival toward planning for the future. They 

can invest in better nutrition, housing, health and education for their 

children. Microfinance is a way to extend the same rights and services 

to low-income households that are available to everyone else. 

It is recognition that poor people are the solution, not the problem. It is 

a way to build on their ideas, energy and vision. It is a way to grow 

productive enterprises and thus allow communities to prosper. Where 

businesses cannot develop, countries cannot flourish.” 4 

How can individual investors play a role? 

There are at least five ways that individual investors can support the 

global expansion of microfinance: 

p First, they can invest in microfinance funds, such as the respons- 

Ability Global Microfinance Fund, which provide loans to microfinance 

institutions (MFIs), make equity investments in these institutions, 

and/or securitize their assets. There is growing evidence that such 

funds can provide investors with a reasonable financial return while 

also generating significant social benefits. 

p Second, depending on their risk profile, investors can choose to 

invest directly in microfinance institutions, especially some of the 

larger and more established institutions that operate on a global or 

national basis, by buying securitizations of microloans, bonds or equity 

stakes. 

p Third, they can make grants or philanthropic donations to microfinance 

institutions, nonprofit development organizations or academic 

institutes to support education, training, research and other activities 

that will help to expand microfinance. 

p Fourth, they can financially support and/or get personally involved 

in the wide range of workshops, conferences, project visits, research 

projects and media activities that are occurring under the umbrella of 

the UN International Year of Microcredit 2005. 

p Fifth, they can choose to target their investments or philanthropic 

support on institutions and initiatives that focus on a particular region 

or client group, such as female entrepreneurs or young entrepreneurs. 

Entrepreneurs as part of the solution 

Many individual investors have an impressive personal record or family 

tradition of wealth creation and innovation. What better way to continue 

to build private assets, while also leaving a broader public legacy, than 

to invest in the next generation of wealth creators and innovators, both 

at home and abroad? Many of these will be large companies, but there 

is also enormous potential to dedicate a percentage of investment 

portfolios and philanthropic donations to building the success of 

microfinance and microenterprises. In doing so, investors can effectively 

combine economic value creation with societal value creation, 

and private gain with public good. 

We have the means to alleviate extreme forms of poverty. We have 

the financial and technical resources to make a difference. What we 

need is the political will and the personal investment choices that will 

channel these resources in the right direction. This requires investments 

in innovative funding mechanisms, technologies and business models. 

It requires willingness to recognize entrepreneurs in low-income communities 

as key partners to reach a solution. Above all, it requires 

recognition that the spirit of social and economic entrepreneurship – 

combined with personal and corporate responsibility, and with good 

government – offers one of our greatest hopes for creating a more 

prosperous and peaceful world. 

æ 

1 

De Soto, Hernando. The Mystery of Capital: Why capitalism triumphs in the West 

and fails everywhere else. Basic Books, 2000. 

2 

Prahalad, C.K. The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through 

Profits. Wharton School Publishing, 2004. 

3 

United Nations. Microfinance and Microcredit: How can USD100 change an Economy? 

International Year of Microcredit, 2005. www.yearofmicrocredit.org 

4 

Speech made by UN Secretary-General Kofi Annan at the launch of the International 

Year of Microcredit, 18 November 2004.



The global microfinance landscape 

Microfinance activities have been emerging in almost every country around the globe. Still, the market 

structure may vary a lot. To illustrate the big differences in economic basis, microfinance markets and potential, 

this overview shows some examples from every region of the world. 

Source: The CIA World Factbook, MIX Market, company data 

Region Country Population 2003 GDP Per capita GDP 

(millions) (USD billions) (USD) 

Central America Mexico 105 941 9,000 

South America Peru 28 146 5,100 

Middle East /North Africa Egypt 76 295 4,000 

Sub-Saharan Africa South Africa 43 457 10,700 

Sub-Saharan Africa Kenya 32 33 1,000 

Eastern Europe Serbia and Montenegro 11 24 2,200 

Central Asia Russia 144 1,282 8,900 

Indian subcontinent India 1,065 3,033 2,900 

Asia Cambodia 13 25 1,900 

1 Definition of poverty line varies from country to country. 

2 All data are from MIX Market or company websites and the most up-to-date available.



% of population below poverty line 1 Name of MFI 2 Founded/licensed No. of customers Average microloan 

(USD) 

40% Compartamos 1990 309,637 294 

54% Bantra 1994 245,000 883 

17% Banque du Caire (MF Business Unit) 2001 45,000 311 

50% Teba Bank 1976/2000 160,000 1,117 

50% K-Rep Bank 1984/2000 45,400 456 

30% ProCredit Bank Serbia 2001 37,465 6,550 

25% KMB Bank 1992 32,178 780 

25% BASIX 1996 190,000 165 

36% Amret 1996/2000 105,283 77



A closer look at Ecuador reveals some of the different approaches used in the 

field of microfinance. 

Klaus Tischhauser ⁄ responsAbility 

Ecuador: The market, credit 

systems and clients 

Ecuador is one of the Andean countries in Latin America that hosts a 

diverse microfinance industry made up of banks, non-banking financial 

institutions, cooperatives and NGOs. The Superintendencia de Bancos 

supervises the entire banking sector, including the regulated microfinance 

institutions. In 2004 alone, these institutions posted a volume 

growth rate of 174%. With a total of USD 360 million in assets at the 

end of 2004, the microfinance industry accounts for just 6% of the 

entire financial sector’s USD 6 billion in assets. But the impressive 

growth rates indicate that the microfinance sector serves a segment 

of the market that is still largely underserved. 

The largest Ecuadorian bank, Banco del Pichincha, has now 

become a serious player in the country’s microfinance sector. Within 

a short period, through a specific microfinance program, the bank has 

attained a microfinance market share of close to 15%, which is already 

half the microlending volume of the former uncontested dominator 

Banco Solidario. In this so-called downscaling process, established 

traditional banks reach out to client groups that they had previously 

regarded as unbankable. In October 2001, German ProCredit Holding 

Group entered the market and opened a specialized microfinance 

institution called Sociedad Financiera Ecuatorial (SFE). Since then, the 

three players have shared nearly 60% of the Ecuadorian microfinance 

market. The good results achieved by the microfinance pioneers have 

finally induced mainstream banks to turn their attention to the majority 

of the country’s population. 

Village banking: The credit system to reach the masses 

On Friday, 3 March 2005, 14 women gather in a small grocery store. 

Situated on a side street in Ecuador’s capital city of Quito, every other 

week the tiny shop serves for an hour or so as a bank. All members 

of the group, including the shop owner, Fernando Garcia, are clients 

of FINCA Ecuador, an affiliate of the international microfinance network 

FINCA International, the pioneer of so-called village banking credit 

systems. The group is just one of nearly 2,000 throughout Ecuador, 

with a combined total of more than 40,000 clients. 

Today is a special day; a credit cycle comes to its end. On this 

occasion, the members not only repay the last installment of their 

loans (comprising principal, interest and a savings component), but 

also dissolve and reinstate their own “village bank.” Supervised,



trained and supported by their FINCA credit officer, Viviana Cruz, they 

elect a president, a vice president, a cashier and an auditor. After a 

short round of applause after each election, the necessary documents 

are signed and the group starts the banking business. Using computer 

output brought along by the credit officer, the cashier starts with 

a report about the group’s savings. Then a serious issue is immediately 

dealt with: a group member did not show up and has not paid 

her last installment. Soon, one of the group’s members leaves the 

shop to go and look for her. The group is understandably concerned, 

for if the money is lost, the group’s savings will be tapped first to 

cover the loss. Then each group member would be held jointly liable. 

This solidarity mechanism, coupled with the close contact between 

the credit officer and the group, is one of the main secrets behind the 

success of village banking credit systems. The group members know 

each other well; they normally live and work in the same street, neighborhood 

or village. So the ability to run a business successfully and 

the honesty and creditworthiness of each new member are assessed 

by those who are in the best position to do so. 

Discipline as a success factor 

After the meeting, the members walk away from the store – not far, 

sometimes just across the road – and go back to their businesses. 

Like Teresa Rosero, the owner of a small tailor’s shop right across the 

street. When asked why she had become a FINCA client, she replied: 

“It’s closer and more convenient than where I was before (she was a 

client of one of FINCA’s competitors), and I can do business with my 

neighbors who I know and trust.” Has she ever had difficulty repaying 

her loans? Never in the three years that she has been with FINCA, 

she says. Well, recently it has become a bit harder; the economy took 

a deeper turn for the worse, so her sales likewise declined. She 

therefore wants to be prudent and is postponing her plan to apply for 

an increase in her current loan of USD 1,000. 

The next group member, Maria Espinoza, runs her tiny business 

a few meters down the street. It’s not much more than just a box on 

wheels with an umbrella to protect against sun and rain. On top of the 

box there is an entire pig on display fresh out of the oven, “hornado” 

style (“horno” is the Spanish word for oven). She sells the delicious 

meat along with potatoes and herbs. Maria did not participate in 

today’s meeting because she had to look after her business, which 

was started on a USD 300 loan. Unless they have a good excuse, 

members must pay an absence fee for not personally participating in 

meetings. Discipline is a success factor not only for the management 

of microbusinesses, but also for the management of the village banking 

groups. That’s what FINCA’s credit officer told her group when 

the members asked to meet just once a month instead of biweekly so 

they could spend more time on their businesses. And it is her job to 

maintain FINCA’s excellent current credit repayment rate of close to 

98%. 

Individual lending: The credit system for growing needs 

The ProCredit branch Quito Norte attracts quite a crowd. Its bright 

and inviting new design chimes with the worldwide rebranding of the 

entire ProCredit network consisting of 19 microbanks in Latin America, 

eastern Europe and Africa. On the ground floor, a few seats accommodate 

new clients who patiently wait until they can move on to the 

desks where their personal information is entered or checked. > 

Ecuador at a glance 

Source: The CIA World Factbook, Institute of International Finance 

Capital Quito Currency (adopted in 2000) US dollar 

Government type Republic GDP per capita (purchasing power parity, 2003 estimate) USD 3,300 

Population (2004 estimate) 13.2 million GDP real growth rate (2003 estimate) 2.5% 

Population growth rate (2004 estimate) 1.03% Public debt (in % of GDP, 2003 estimate) 53.7% 

Median age (2004 estimate) 23 years Exports (goods, 2004 estimate) USD 6.6 billion 

Life expectancy at birth (2004 estimate) 76 years Current-account balance (2004 estimate) USD 125 million 

Population below poverty line (2003 estimate) 65% Inflation rate (consumer prices, 2003 estimate) 7.9% 

Literacy rate (population over the age of 15, 2003 estimate) 92.5% Unemployment rate 1 (2003 estimate) 9.8% 

Natural resources 

1 

Underemployment of 47% (2003 estimate) 

Petroleum, fish, timber, 

hydropower 

Labor force by occupation 

(2001 estimate) 

Agriculture (30%), industry 

(25%), services (45%)



Klaus Tischhauser: “It’s amazing to see how much entrepreneurial 

energy can be unleashed.” 

There are several tellers at the back of the room for cash transactions. 

Armed guards at the building entrance and next to the teller windows 

provide security for the bank and its clients. The two upper floors are 

filled with desks where credit officers interview loan applicants and 

analyze clients’ businesses. ProCredit banks use individual lending 

as its credit system of choice for micro and small business lending. 

The loan decision is not based on collateral, but rather on projected 

future cash flows and the ability of the client and the business to 

produce them. Although the handsome building and modern equipment 

are certainly important in attracting new clients, a key part of 

the credit officers’ work takes place outside the premises. To really 

get to know and understand a client’s business, a credit officer needs 

to spend a lot of time with clients in their own working environment. 

That explains the row of motorbikes in front of the bank and the helmet 

on each credit officer’s desk. 

Viviana Andrango is one of ProCredit’s loan officers for microbusinesses. 

Her district is the Atucucho neighborhood on the outskirts of 

Table 1 

FINCA and ProCredit client base structure 

Source: Finca Ecuador, ProCredit Ecuador 

Finca 

ProCredit 

Total clients 42,676 20,760 

Village banking groups 1,878 — 

Average loan size USD 309 USD 2,098 

Total loans outstanding USD 13,179,000 USD 43,555,000 

Total client savings USD 2,671,000 USD 6,696,000 

On-time repayment rate 97.97% 99.39% 

Quito, where unemployed farmers from the countryside illegally settled 

some years ago in search of work. At that time, there were only dirt 

roads, no electricity and no water system. “I should have taken pictures 

back then. Incredible development has taken place here,” says Viviana, 

pointing at different shops that have all been her clients for some 

years now. She is particularly proud of her first and now biggest client, 

a store with a working capital loan of USD 10,000. The shop owner, 

César Crespo, started his business in a single-story building. Over 

time, his family has invested in additional floors – a visible form of 

wealth creation. The added space is being used as storage room, which 

allows the shop to purchase in larger quantities at lower prices. 

Personal relationships are key 

The business run by Gabriela and Sebastián Nieto with an outstanding 

loan of USD 800 is more modest. It sells menswear, and the owners 

would like to expand. Gabriela and Sebastián would be happy to take 

out a loan of USD 1,500, but Viviana argues that this is too big a step 

for a business with such seasonal fluctuations. 

The longstanding relationship that Viviana has with her clients and 

the level of mutual trust are essential for her work and for the individual 

lending system in microfinance in general. In many cases, 

Viviana is considered part of the extended family and gets invited to 

weddings and other such events. The depth of her relationship with 

her clients also becomes evident when she’s on holiday. Her clients 

would rather wait for her to return than speak to some other credit 

officer, a behavior more associated with private banking clients, who 

often demand permanent availability of their relationship manager. In 

the context of microfinance, this underscores the equally important 

roles that personal relationships and mutual trust play in forming the 

basis of the business. 

æ 

Note: The names of the clients mentioned in this article have been changed to protect 

their privacy.



How to achieve repayment rates of 98% // The current microfinance industry 

could grow into a USD 15–20 billion financial market in the coming years – if the microfinance 

industry is able to grasp the market potential. The industry’s profitability, 

with double-digit returns on equity as well as default rates below 2%, are encouraging 

aspects. 

Sylvie Golay, Ursula Oser / Credit Suisse 

Microfinance as an attractive 

business model 

The microfinance industry provides a wide range of financial services 

to microenterprises. Microenterprises are small businesses in urban 

or rural areas that are generally family owned and operated. They are 

active in the trade, service and production sectors, mainly in the socalled 

informal economy. It is estimated that there are about 500 

million microentrepreneurs in the world, with average microcredit of 

around USD 500. These estimates further indicate that today only 

10% of these microenterprises have access to reliable financial services. 

Microfinance is actually a high-growth industry, fueled not only 

by the size of its target market, but also by its profitability. The market 

is witnessing growth rates of 20% to 40%, with extensive diversity in 

structures and frameworks across the world. Concurrently, microfinance 

is maturing into a more transparent and regulated industry. In 

recent years, 250–500 commercially viable institutions, serving an 

estimated 50 million microentrepreneurs, have emerged from this very 

fragmented market place. They increasingly receive attention from 

regulators, auditors and ratings agencies. In many countries – e.g., 

Bolivia, Brazil, Peru and El Salvador – new types of financial licenses 

that are tailor-made for deposit-taking microfinance institutions have 

been introduced. 

Different types of risks 

Loan portfolio quality is one factor determining a microfinance institution’s 

specific risk since it is the basis for future cash flow in the 

absence of formal guarantees. Fostering a close relationship and 

mutual trust between loan officers and their clients is thus key for any 

microfinance institution. Leading institutions provide timely information 

on their loan portfolios. They report repayment rates of 98% for 

properly managed loans, which compares quite favorably to many 

traditional commercial bank portfolios. The payment behavior of microentrepreneurs 

is clearly superior to that of US credit card holders, for 

example (see Figure 1). Microfinance institutions are very solvent 

because credit risk is spread over thousands of microcredit borrowers 

who mostly have only their business as resource for financial survival. 

Importantly, rapid growth has not come at the expense of portfolio 

quality given the huge still-unserved client pool. Systematic risk is 

mitigated by the low correlation with political and economic conditions 

because the informal sector, by its very nature, is less directly linked 

to the formal economy. 

Institutional investors have standard practices for credit appraisal, 

which includes rating of investments. Microfinance ratings >



from specialized ratings agencies – e.g., Micro Rate – help to enhance 

investor confidence. The leading microfinance institutions should and 

do increasingly search for a risk appraisal by international rating agencies 

(S&P, Fitch or Moody’s). 

Financial profitability as a prerequisite for global success 

In terms of profitability, data compiled by Micro Rate suggest that the 

leading microfinance institutions are profitable companies, surpassing 

many domestic and international banks. Return on equity (ROE) for 

32 Latin American institutions averages 19%. Return on assets (ROA), 

another indicator of financial strength, averages 4.8%. At the same 

time, the operating expense ratio (operating expense divided by gross 

loan portfolio) has dropped to 21%, with the most efficient microfinance 

institutions in the region approaching 10%. Operation expense includes 

staff as well as administrative expense, making the ratio a measure 

of the overall efficiency of the respective microfinance institution. 

Since staff is the main cost factor, loan officers’ productivity in dealing 

with their clients is key for improving and maintaining efficiency. 

Some worry that excessive concern over profitability may compromise 

the social and development goals. However, given the everincreasing 

funding needs in this rapidly growing business, serving poor 

clients can only be secured by financially profitable institutions, which 

are able to grow their capital base. Charging unrealistically low interest 

rates would prohibit sustainable microlending. Indeed, microfinance 

institutions need to charge interest rates that are higher than “normal” 

bank rates because the administrative costs of making small loans 

are high in relation to the amount lent. 

Figure 1 

Typical default rate of microfinance loans versus 

US credit card business (2002) 

Source: Credit Suisse, CSFB European Securitization Research, MIX Market 

7 

6 

5 

4 

3 

2 

1 

0 

% 

Microfinance loans 

US credit card business 

Lending methodology 

Besides the cooperative model, several lending methodologies have 

been developed in order to adapt to client’s needs and constraints 

(see Table 1, page 17). Solidarity groups are one of them. In this type, 

three to ten clients form a group to get access to financial services. 

The group members are collectively responsible for the repayment of 

the loan. In contrast to the cooperative model, where the profits 

remain in the cooperative in the form of equity, or are distributed to 

the members, the earnings generated by solidarity groups are used 

to build up reserves or group funds. The ownership of these funds is 

often unclear. 

Village banking, which can be seen as a mix of the two previous 

models, has an autonomous structure that allows its members access 

to financial services also in remote areas. The village bank is created 

via savings or/and membership fees and is managed by a committee 

elected by the members. As for solidarity groups, repayment relies on 

collective pressure. Analogical to cooperatives, profits are used to 

increase equity or distributed to members. In addition to these partly 

microfinance-specific lending methodologies, a lot of microfinance 

institutions or microbanks, such as BancoSol in Bolivia, rely on traditional 

individual lending. 

Double-bottom line 

Experience has shown that while microfinance is a business per se, 

it is also a powerful development tool. Access to finance, even in the 

form of very modest loans, generates huge business productivity gains 

and contributes to alleviating poverty in the emerging markets. By 

enhancing the living standards of entrepreneurs and their families – 

and by empowering women – microfinance provides a significant



contribution to achieving the UN Millennium Development Goals. 

Many investors, especially private investors, who target the microfinance 

market, do so with social objectives. While anecdotal evidence 

and surveys conducted among the recipients of microloans provide 

evidence of the genuine social impact, no universally acceptable 

standards exist yet for reporting on the social performance. Initiatives 

are targeted in this direction, but more efforts need to be put into 

developing and reporting standardized measurements of social impact 

at a reasonable cost. 

æ 

Microfinance harks back to the Raiffeisen idea 

The concept of microfinance is frequently publicized in the media 

through accounts of the success story of the Bangladesh-based 

Grameen Bank and its more than four million borrowers. Grameen 

Bank was founded in 1974 by Prof. Muhammed Yunus for the 

express purpose of extending microloans to needy women to 

assist them in helping themselves and improving their families’ 

living conditions. In actuality, though, microfinance is not a novel 

invention. It is also no coincidence that the concept proliferated in 

western Europe in the second half of the nineteenth century. The 

Raiffeisen philosophy arose 150 years ago in Germany under difficult 

economic circumstances analogous to what one encounters 

today in many developing regions. On the cusp of industrialization, 

craftsmen and farmers suffered from a scarcity of financial resources 

because capital was being drawn to the higher returns promised 

by alternative investment opportunities such as railways and 

textile factories. 

The Raiffeisen model developed by mayor and social reformer 

Friedrich Wilhelm Raiffeisen was based on the self-help and solidarity 

principle. The farmers and craftsmen of individual villages 

banded together into cooperative associations. The members of 

each association declared their willingness to pledge their property 

as collateral for the cooperative’s liabilities. Since the members 

of the cooperative resided in an easily surveyable area, the 

character of the borrowers could be taken into account alongside 

their material property in the lending decision. The joint liability 

enhanced the creditworthiness of the cooperative members and 

gave them access to affordable business credit for the purchase 

of livestock, fodder, fertilizer and seed, and for their workshops. 

They also acquired a safe means of investing their savings. The 

Raiffeisen movement spread throughout the German-speaking 

world and beyond. The Union of Swiss Raiffeisen Banks was founded 

in 1902. In France, the same credit cooperatives go by the name 

Crédit Mutuel. And somewhat similar models emerged in other 

European nations such as Great Britain in the nineteenth century. 

Table 1 

Major lending methodologies in microfinance 

Source: Zeller, Manfred. Promoting Institutional Innovation in Microfinance – Replicating Best Practices is Not Enough. 

D+C Development and Cooperation, January 2000; Credit Suisse 

Cooperative model Solidarity groups Village banks 

Participation p The cooperative members are the owners p Ownership often unclear 

p 3 to 10 clients build a group 

Structure 

p Each cooperative is geographically limited 

p Joined support center exists (disbursement 

p Regional/central union 

of loans, collection of savings, etc.) 

Responsibility 

p Members vote/elected democratically 

p Support center makes decisions 

p Financial liability limited to own shares 

p Members collectively guarantee loan repayment 

p Equity capital build-up by members/the community 

p Highly decentralized 

p Ideally independent of any upper-level organization 

p Committee elected by, and among, members 

Profit sharing p Improve balance sheet or payout to members p Improve balance sheet; no distribution p Improve balance sheet or payout to members



Davos roundtable // Globalization is a powerful process, but it has not yet resolved the 

problem of widespread poverty in many parts of the world. Is microfinance a possible, 

sustainable solution for the promotion of business initiatives at the bottom of the social 

pyramid? Is there an untapped market for the creation of jobs and income? 

Ernst A. Brugger / The Substainability Forum Zurich 

The following is an edited transcript of the roundtable discussion that took place in Davos, Switzerland on 28 January 2005. 

Is access to capital a key 

factor for development? 

Ernst A. Brugger // Globalization is a powerful process, but it still 

excludes a majority of the world’s population. Is it correct that out of 6.5 

billion people in the world, globalization has not yet reached about four 

billion people? Is there a hidden, huge market, neglected by statistics, 

business and politics? 

Jane Nelson // I think that’s the right picture in terms of up to 

4 billion people residing at the bottom of the so-called economic 

pyramid. In terms of funds, access to credit and other basic resources, 

they need development, not only in economic terms, but also in terms 

of basic human development. The potential for micro- and small-scale 

businesses is huge. To me, the big challenge is how to deliver products 

and financial services to that potential market in an efficient and 

equitable way. 

Hernando de Soto // We’ve got some detailed figures for some 

countries. In Mexico, for example, after working there for about a year 

at the request of President Vicente Fox, we’re talking about six million 

enterprises that are outside the legal system, most of which are familyowned 

microbusinesses. This corresponds to roughly 40–50 million 

human beings out of a population of 100 million. 

Ernst A. Brugger // And what kind of hidden value do they 

produce? 

Hernando de Soto // These people – i.e., the extralegal sector 

– actually own around 11 million plots of land or buildings that cover 

a total of about 134 million hectares. Now, we also have additional 

statistics that tell us that 49% of the population of Mexico is employed 

full-time outside the legal sector. What the extralegal sector has in 

assets is the machinery and equipment in the six million enterprises, 

the 134 million hectares of land and the buildings valued at about USD 

315 billion that are situated on this land. This is equal to seven times 

the value of Mexico’s oil reserves. We use this comparison because 

we say the greatest resource that a country has is actually its people, 

and these USD 315 billion correspond to 31 times the amount of 

foreign direct investment that Mexico has received – mainly from the 

United States – since the Mexican Revolution. There is a lot of potential 

tied up there. 

Ernst A. Brugger // Why does this extensive extralegal market 

really exist? 

Hernando de Soto // What we do is not only size up what we 

call the extralegal sector, but also find out why it’s outside the system. 

Basically, it is about bad rules of law. And the next thing that we want 

to find out is how to bring the extralegal sector inside. And one >



Ernst A. Brugger 

The Sustainability 

Forum Zurich 

Roshaneh Zafar 

Kashf Foundation 

Roshaneh Zafar: A lot of women are actually providing income for their families in the microbusiness sector, but they are not recognized. 

There is no training and no support. That’s why we offer access to microcredit.



Walter B. Kielholz 

Credit Suisse 

Paola Ghillani 

previously CEO of 

Max Havelaar 

Paola Ghillani: We may have scope for cooperation with microfinance institutions to serve our suppliers.



“The most important element that we can 

contribute is to put projects out in the marketplace 

where people can see that this is a real 

investment and that investors have a genuine 

interest in microfinance.” // Walter B. Kielholz 

of the ways, of course, to bring the extralegal sector inside is for the 

government to make a proposal clarifying quite clearly that this sector 

has to conform to the rules of law. One of the things you add to the 

package is, how does the sector access the sizeable benefits? How 

can people operating in the extralegal sector obtain credit? How can 

they get electricity? So this is starting to give the informal sector all 

the benefits that everyone who lives in the formal sector enjoys. 

Ernst A. Brugger // Let’s take the example of Pakistan. Does 

that country also have a huge informal sector? 

Roshaneh Zafar // Actually, 65% of the country’s current 

employment is in the informal sector. I actually don’t like using the 

term “informal sector.” I prefer to call it the micro- and small-enterprise 

sector, because once you talk about an informal sector, you are basically 

saying it’s a tertiary economy, which it isn’t. It’s a primary economy 

really; if we are saying “informal sector,” we’re not recognizing the 

input – the fact that these businesses provide employment in the 

country. If you look at job creation, every year there are 3.1 million 

people entering the market in Pakistan looking for jobs. Over 75% of 

them find jobs in the micro- and small-enterprise sector. That’s why 

it’s a major source of employment for people in the country. My perspective 

on this is a woman’s perspective. If you look at the labor force 

participation rate in Pakistan, it’s 24% right now – that’s the official 

rate. But when we turn to the informal sector, the percentage rate is 

up in the high fifties. The reason why I’m providing this backdrop is to 

talk about the impact that a microcredit program especially for women 

would have. The government does not recognize women as active 

economic elements in the country. Why? There are two reasons. One, 

because the government does not record these businesses; they’re 

really not within the spectrum of taxable income brackets, so they’re not 

licensed, they’re not registered, there is no counting, they’re very 

informal in the way they do business and they’re really not recognized. 

And two, a lot of women are actually providing income for their families 

in this sector, but they do not receive support, there is no training, there 

is no opportunity and no access to credit. They’re huge numbers. The 

overall population of Pakistan is 140 million at present, and if we turn 

this around and look at the demand for microfinance in the country, 

the estimate is that there are 5.6 million households that require access. 

If we look at the market penetration of the largest microfinance providers 

in the country, they do not even cover five percent of the market 

demand. Which means that 95% of the market is underserved. 

Ernst A. Brugger // Walter Kielholz, when you listen to these 

numbers, are they a big surprise to you, or do you think this is a reality 

that is well known in the international banking system? 

Walter B. Kielholz // Well, the banking industry knows that something 

is going on below the top ten percent of the economic pyramid. 

The informal sector seems to be so important and has its laws and 

rules as to how it works, and it must have a way to allocate resources. 

People must be very smart, because otherwise the sector wouldn’t 

survive. There is indeed a market in the informal sector – and it 

works. 

Roshaneh Zafar // But it has major constraints; it’s not a value 

proposition for the household. I agree it’s a market that functions, but 

it’s not an efficient market, and it must become more efficient for the 

people. The majority of our clients (we have 70,000 clients now) still 

need the moneylenders as much as the popular lottery because my 

organization cannot actually offer them full service, including savings 

accounts, because it’s not a fully organized bank. 

Ernst A. Brugger // So the informal market is a huge, but inefficient 

market with high transaction costs. 

Roshaneh Zafar // It’s very heavy on transaction costs. 

Ernst A. Brugger // Hernando, do you agree? 

Hernando de Soto // Well, the constraints that you were mentioning 

are important. Looking at the United States, we know that 

85% of all employment there comes from small enterprises. And most 

of these small enterprises in the United States obtain their start-up 

capital from mortgages used as collateral. The question is: Can you 

mobilize your collateral? So to give you an idea, in the case of Egypt, 

if you want to formally open a bakery, it takes about 549 days working 

eight hours a day. The result is that you do not have any legal bakeries. 

Which means you do not have the documents to identify your assets, 

you do not have the documents to identify your collateral, and you do 

not have efficient access to credit. 

Ernst A. Brugger // Why does it take so much time to formalize 

a bakery? 

Hernando de Soto // Because you have to comply with government 

rules; you have to report to 33 different government offices. 

The average time it takes to formally establish a business in Egypt is 

between 300 and 400 days. It’s red tape and it’s also corrupt bureaucracy. 

I repeat: To go into the bakinvg business there are 33 government 

offices; there are 29 different offices that you have to apply to 

if you want to get into real estate. In the case of Mexico, to give you 

an idea, forming a limited liability company takes a minimum of 17 

months working eight hours a day; and if you want to close a mortgage 

it takes 16 months; if you want to open a mortgage it takes about 

20 months. >



Ernst A. Brugger // Your life is over by then… 

Hernando de Soto // That’s right. So the result is the creation – 

and we also don’t like the word “informal” – of the extralegal market. 

But anyhow, a big part of the problem is constraints, and they’re 

absolutely useless. In other words, it’s simply government disorder. 

It’s collateral damage to a great extent – a result of the fact that the 

government churns out about 28,000 ordinances a year. That’s about 

106 a day, and nobody knows whose hand is in whose pockets and 

which law is really effective. Viewed from the perspective of the poor, 

which is what we’re trying to do, there is a grass-roots base from 

which we can create a constituency for change. It’s no longer an 

imported American issue (or neoliberal program), the poor themselves 

want to do it. It’s something that stifles the poor, and so you create a 

constituency for change that every politician should like. Anyhow, the 

idea is that, yes, you’ve got this other system that we were talking 

about, you’ve got all these other rules. The problem with these other 

rules is that it’s not one system of rules, it’s a thousand systems of rules: 

each community has one, you can go three blocks, you can go fifteen 

blocks, each community has it’s anarchy. But anarchy is not chaos, 

anarchy means a variety of little systems as you had in Switzerland 

before Eugen Huber put all these things together. 

Walter B. Kielholz // It sounds very familiar; all industrialized 

countries were developing nations at some stage and have gone 

through this process at some time. 

Giles Keating // You’re talking about collateral, but mind that 

at times a lot of microfinance is being done on the basis of trust and 

a kind of peer pressure. 

Roshaneh Zafar // That’s a good point. It’s actually the way the 

market is created. You have poverty lending programs in Asia that usually 

have loan sizes of up to 300 to 500 dollars. Lending in Latin America 

goes up to 1,000 or 1,500 dollars. When you’re talking about poverty 

lending programs, mostly these are based on credibility. How is credibility 

gauged? There are several models that work. There are so-called 

solidarity lending programs, where you build groups and these become 

the unit of transaction. There are many reasons behind this: one is to 

lower the cost of transaction, which means, for example, that we use 

25 women as one unit of transaction, which means all their loans are 

recorded as one, and that cuts down on supervision and monitoring. 

Ernst A. Brugger // Do you also do individual lending? 

Roshaneh Zafar // Our organization does solidarity lending and 

individual lending. It depends on the loan size: when loan sizes increase 

to USD 800, we begin to look at collateral. How do you do collateral 

with poor people? 

Since there is no efficient market mechanism for collateral, we 

take co-guarantors. These are people who actually have income tax 

statements or are salaried workers. We use them as proxy collateral. 

And the next thing we do is also look at property titles. And as 

Hernando pointed out, people didn’t want property rights. When we 

told them that we were willing to transfer title to them, that we would 

walk them through the process and negotiate a transaction for them, 

they were still not interested. They didn’t want to get caught up in the 

tax net and didn’t want to be documented. And, of course, there are 

good reasons for that, because there is corruption, there is nepotism, 

there is collusion, there are other transaction issues, and the poor are 

scared. These are crucial problems in my part of the world. Litigation 

is very common. It’s a very litigious society, and litigation usually centers 

on two things, property or personal feuds, family feuds. Those 

are the two reasons. People are very scared of the law. 

Hernando de Soto // We must remember, they reject the legal 

system, not the property rights, because the system is what takes 17 

months to enter, it’s what requires 549 days to register a business. 

So, of course they don’t want it. It’s the fact that none of these various 

property titles helped you to get into the formal economy to begin with, 

so they make no sense. If the title is just for taxing, but titleholders 

are not connected to the banks, then why should they want titles. 

Roshaneh Zafar // And so, in our case, credibility is built over 

time. It’s like credit-card operations. As I see it, microfinance is very 

similar to a credit card; you have a limit, you repay a loan, your limit 

is raised. In some ways we are documenting these people. And 

recently in Pakistan we decided to set up a credit bureau for microfinance 

institutions. The government is not doing it. So we decided to 

engage with the private sector, and we emulated, for example, the 

case of the Bolivian market, where a credit bureau does exist. So in 

some ways people are documented, but again, it’s not formal. 

Hernando de Soto // But it’s a logical first stage. It gradually 

evolves to encompass those who are more adventurous, other types 

of legislation, and then later you start doing the formal lending. So 

there is always this 20- to 30-year period before you actually get to 

the formal sector in the developing countries. 

Walter B. Kielholz // I wanted to come back to this element of 

trust or credibility mentioned before. It is actually nothing other than 

the sole criterion for a successful allocation of capital. Why? Otherwise 

what are the criteria? There are no files, no numbers, no collateral, 

and so on. The only thing is trust. That’s why I think the question in 

microfinancing is about the front side and the cost involved. 

What’s important is that the individual decision at the front end is 

right, because if that decision is wrong, the system is corrupted and 

the money flows into the wrong channels. 

Hernando de Soto // May I just add something there? One of



“The existence of the extensive extralegal 

market is the result of constraints 

because of an improper system. It’s 

simply government disorder. It works 

against the poor. So you have to create a 

constituency for change.” // Hernando de Soto 

the ways to look at the issue is that to a great degree it is based on 

trust, reflected in the fact that the English word credit comes from the 

Latin word “credere,” meaning “I believe in you because you have something 

to lose.” We found out that a lot of the poor do have assets, have 

something to lose, but it doesn’t mean that they can use them as collateral. 

It means that they possess an asset that can be developed, but 

until you dismantle all these extralegal, dispersed structures that allow 

people to deal with each other at a local level, trust cannot be fostered. 

Ernst A. Brugger // Let’s continue with this important train of 

thought. Two questions: First, how do you ensure that you make the 

right decisions at the front end? Second, isn’t it the case that poor 

people cannot afford not to pay back a loan, because if they don’t repay 

they risk falling into this really illegal sector with its very high costs? 

Roshaneh Zafar // I will answer the first question. If I were a 

bank and wanted to lend to the poor, my biggest problem would be 

asymmetry of information. How do I know who’s credible and who isn’t? 

The way we do it, and it’s something that has been tested, you let the 

community decide. It’s a principle of involvement and participation and 

the principle of self-selection. If you’re running a solidarity lending 

program, what you do is let the group decide who comes into the 

group. Then you have a second way to verify. We use what engineers 

call a triangle of information: you collect the same data from three 

different points. I think any researcher would do that too. So you first 

let the community decide, then you go to their houses and you see 

that they are genuinely credible and actually live there, and the third 

person you go to is someone from the community who is not linked to 

them. Usually you would go and check that information with the local 

grocery store. Because that’s where they have lines of credit. And 

you know instantly who’s been paying their credit and who hasn’t. 

Ernst A. Brugger // So it’s like social engineering… 

Roshaneh Zafar // Absolutely. We are basing our entire credit 

decision on the person’s reputation. We’re not basing it on the business 

proposition. 

Ernst A. Brugger // And the result? 

Roshaneh Zafar // In our case, and in most microfinance 

instances, if it’s done right, the recovery rate is above 99%. So obviously 

we are doing something right with the principle of self-selection. 

That’s if you’re talking about credibility or solidarity in generating social 

capital; you can’t do it without ownership. Now, coming back to the 

issue of costs. You know the transaction cost or the cost of delivery 

becomes very important, and that’s a big challenge. If you look at the 

alternatives on the market, there is another option: it’s the moneylender. 

We’ve done a lot of research to discover what moneylenders 

do right. They’re the tougher ones. They provide the client immediate 

access. The moment you need money, they will put it in your hands. 

But they are charging something like 200% or 360% interest per year 

on their loans. It is completely outrageous. 

Walter B. Kielholz // The important part is the decision-making, 

and that’s why it has to be done properly. The moneylender is actually 

spending a lot of money trying to recollect the loan, by all kinds 

of means. 

Roshaneh Zafar // That’s right. But if you compare their pricing 

with our service charge or interest rate of 20%, the household finds 

this to be very economical. At the same time, we have to charge that 

rate because it costs us on average 15%. For every dollar that we lend 

in the market, it costs us 15 cents to recover the money. So it’s a very 

labor-intensive, cost-intensive service because it’s small tickets and 

high volume. And because you are offering service delivery; you are 

going to the client. 

Ernst A. Brugger // So it’s about efficiency and professionalism in 

microcredit. We have about 5,000 microfinance institutions in the market, 

and I would place only about 10% of those in the top tier of professionally 

managed financial institutions, which probably serve around 50 

million people. The rest are largely working in a development-aid mode, 

subsidized by aid money. Jane, would you agree with these estimates? 

Jane Nelson // That’s roughly correct. My sense is that there are 

obstacles to overcome in learning the best practices of the more commercially 

oriented and sophisticated microfinance institutions. I think 

part of the reason probably is that there have been more aid-driven 

initiatives and fewer major commercial banks coming through. 

Ernst A. Brugger // Can you imagine, Walter Kielholz, that this 

could become a mainstream banking business? 

Walter B. Kielholz // Maybe one day, but it will take a very long 

time. I think there was a monetization in society in the nineteenth 

century which took place because there was a rural exchange community 

here in Switzerland. It took a very long time. It’s principally not 

a funding problem, but rather a question of how to bring it to the 

forefront. It reminds me really of the Raiffeisen movement. 

However, the increasing demand for financial services in developing 

countries will further advance this development. That’s also the 

reason we have joined with other financial institutions to provide a 

platform for microfinance investments for our clients. Of course, this 

is only a small step, but it shows that there are possibilities to act as 

a financial intermediary and to contribute to bridge the gap between 

the financial markets and developing countries. >



Jane Nelson 

Harvard University 

Hernando de Soto 

Instituto Libertad y 

Democracia 

Giles Keating 

Credit Suisse 

Giles Keating: We should bring microfinance into the mainstream, to have it as something that is regarded as natural and into which 

investors want to put their money.



“Around four billion people live at the 

bottom of the economic pyramid. 

So, the potential for micro- and smallscale 

businesses is huge.” // Jane Nelson 

Giles Keating // As a bank, we would like to take some of the 

existing microfinance portfolios and securitize them and then market 

the securitization. We want private clients to assume the risk, and we 

think they will be happy to do that, particularly in view of the high 

quality of the portfolio. I spoke to a couple of clients in Asia a couple 

of weeks ago, and the people there said there is immense interest 

among our big private clients who’ve contributed charitably to the 

tsunami relief, and now they’re interested in helping in the medium 

term. One of the ways that they’re interested is that microfinance 

can help. 

Walter B. Kielholz // That’s indeed an interesting role for us, 

because it’s commercial and not pure charity. 

Roshaneh Zafar // It can be a commercial value. The return on 

assets alone, right now, is 10%. The good organizations are financially 

viable. They would be able to pay out a return to investors. Interestingly, 

there are only two microfinance securitization vehicles in the world, 

the one by ICICI Bank in India and the other by BlueOrchard together 

with OPIC. So there are only two in existence so far, which is surprising. 

But I know why. Because the banks don’t trust us. It took us ages; 

it took us ten years as an NGO to get a loan from a local bank. If we 

talk about credibility, it’s not just the credibility of the poor, it’s also 

the credibility of the NGOs and microfinance institutions. 

Ernst A. Brugger // Is it because of a lack of professionalism 

on the part of microfinance institutions? 

Roshaneh Zafar // We are a high-volume, small-ticket business. 

Professionalism is crucial. How will we use technology to cut 

down costs, how do we make it more efficient? It has happened in 

Latin America with ATMs, for example. If you look at Bolivia, Indian 

women in the remotest village have an ATM machine and fingerprint 

technology to get credit. It can be done. 

Giles Keating // How about equity capital. What’s the vision 

here? 

Roshaneh Zafar // If you’re first an NGO, it’s donated equity. 

When you transform into a commercial enterprise, you license yourself 

into a bank, which we are hoping to do in the near future. So that is when 

you need equity investors who are like-minded. Because once you’re 

licensed, your transaction costs will change, the returns will change, the 

whole business will change, and the market will change. So you need 

the initial capital and you need people who invest in microfinance. 

Ernst A. Brugger // Jane, how do you see the role of big banks 

in the market? 

Jane Nelson // Take the perspective of Credit Suisse or any bank 

that wants to get into this. It seems to me that there are four ways in 

which you can become engaged: through commercial products and 

services, through portfolio securitization or equity capital or whatever, 

and through philanthropic venture capital projects. And then, fourthly, 

through activities to influence the policy dialogue for better framework 

conditions. 

Ernst A. Brugger // Paola, you are a commercial buyer. Max 

Havelaar is one of the leading commercial agents for socially and 

ecologically responsible products in Switzerland, and you are the CEO 

and have brought the company up to an impressive level that was 

unimaginable some years ago. How do you treat your suppliers, the 

small agribusinesses? Do you extend them credit? 

Paola Ghillani // No, I’m not a specialist in microcredit. We do 

fair trade labeling, and our mission and task is to open the market to 

disadvantaged producers and workers from developing countries 

under fair trade conditions. And we control and certify the products 

they sell to importers and retailers in our country. 

Ernst A. Brugger // And no links to microfinance institutions? 

Paola Ghillani // No, not yet. But our discussion shows that we 

may have scope for cooperation with microfinance institutions interested 

in serving our suppliers. I would be interested in exploring this 

idea and in experimenting with some concrete projects. 

Ernst A. Brugger // That leads directly to my last question to everybody 

in the round: What would you say is the most important priority 

for developing this microfinance market? One priority or one wish. 

Roshaneh Zafar // Scale. Scale up, we have to do that. 

Paola Ghillani // I think it’s about systemization and efficiency 

in the evaluation process. 

Jane Nelson // Scaling up the existing microfinance institutions 

and creating many more. 

Walter B. Kielholz // I think the most important thing that we 

can contribute is to put projects out in the marketplace where people 

can see that this is a real investment and that investors have a genuine 

interest in microfinance. 

Giles Keating // Bring microfinance into the mainstream, to 

have it as something which is regarded as a business that clients want 

to put money into. 

Hernando de Soto // I agree with all of you, but none of this is 

going to happen if you don’t have the rule of law – a rule of law that 

everybody obeys. Because uniform laws are going to give you the 

standards that give you the scale. 

æ

Microfi nance as an attractive asset class 

Low correlation with business cycles 

Low return volatility 

Dexia Micro-Credit Fund (in USD) versus US equity and bond indices 

1998 2005 

140 

Dexia Micro-Credit Fund (NAV) 

100 

60 

140 

S&P 500 Index 

100 

60 

140 

LUCI-CSFB US Investment Grade Corporate Bond Index (price return) 

100 

60 

Since its launch in 1998, the Dexia Micro-Credit Fund – the fi rst commercial investment fund designed to refi nance 

microfi nance institutions – showed low volatility, low correlation with US equity and bond indices, and consistent growth. 


The microentrepeneur 

is not 

a charity recipient, 

but a client, 

generating revenues for the 

microfi nance institution



The microfinance market 

Today, most investors active in the 

microfinance market are development 

agencies, foundations and nongovernmental 

organizations (NGOs). However, 

an increasing number of mainstream 

financial investors are becoming active in 

this promising market as interest 

from high-net-worth individuals and 

pension funds grows, and innovation 

provides simpler investment vehicles. 

Christian Gattiker-Ericsson, Sylvie Golay / Credit Suisse 

1 

Goodman, Patrick, “Microfinance Investment Funds: Objectives, Players, 

Potential,” KfW, 2004 

2 

Ivatury, Gautam and Abrams, Julie, “The Market for Microfinance 

Foreign Investment: Opportunities and Challenges”, KfW, 2004 

3 

Brugger, Ernst A. and Duggal, Bikram, “Microfinance Investment Funds: 

Looking Ahead”, KfW, 2004 

The United Nations Organization’s declaration of 2005 as the 

International Year of Microcredit, among other things, has recently 

drawn the attention of the mainstream investment community 

to microfinance. Participation by foreign commercial investors has 

begun, though it is still at a low level. The major contributions 

emanate from development agencies, foundations and NGOs. 

According to a survey on foreign investments in microfinance 

conducted in 2004, about USD 395 million has been invested in 

microfinance investment funds up to now, with roughly USD 222 

million in inflows expected in the first quarter of 2005, bringing 

the total amount to USD 617 million. In addition, development 

agencies, foundations and NGOs have invested heavily through 

grants and subsidized loans. 1 Figure 1 depicts the different market 

participants and processes through which investors allocate 

their funds to the microfinance industry. 

The launch of microfinance funds by large investors such as 

Dexia and Deutsche Bank in the late 1990s, or more recently by 

Credit Suisse in collaboration with other major financial investors, 

should soon persuade other mainstream investors to enter the 

market. The share of commercial investors should thus increase 

significantly. 

Debt funding predominates 

Analyses have shown that nearly 70% of foreign investment in 

microfinance is provided through debt funding. This is mainly 

explained by the large proportion of loans provided by development 

banks and other development agencies 2 . With the increase 

of commercial funding, the share of debt should stay high since 

commercial investors will primarily find opportunities through 

direct participation in securitization of loans and in investment 

funds, which mainly refinance the credit portfolios of microfinance 

institutions. Because of the lack of symmetric information as well 

as other factors such as currency risks, equity investments should 

stay limited until the local markets adopt higher transparency and 

governance standards, but thereafter reach critical mass. 

Potential demand 

It is difficult to estimate the ultimate potential demand for microfinance 

investment by commercial investors, but our view is that if it 

were to broadly follow the magnitudes invested in community investments 

in the USA, it could, over time, reach a figure of some USD 

15–20 billion worldwide. Although investment in microfinance is very 

unlikely to ever reach the large sums invested in hedge funds, its 

performance to date has illustrated some similar characteristics – 

notably consistent returns and low correlation to major capital markets 

– and for this reason microfinance is likely to become increasingly 

favored as one component in a well-diversified portfolio. 

The limited data available on socially responsible investment 

(SRI) help us to estimate investors’ demand for microfinance 

products. The Social Investment Forum and its European branch, 

EuroSIF, estimate the size of the respective US and European 

SRI markets at USD 2.164 trillion and EUR 336 billion. Altogether, 

the global market for SRI amounts to approximately 

USD 2.5 trillion. However, a major part of these assets is 

defined as SRI simply by screening for criteria such as the 

exclusion of the tobacco industry from portfolios. In the USA,



community investing – the sole SRI strategy that embraces a 

development purpose by providing capital to communities that 

are underserved by traditional financial services – represents only 

0.65% of the total assets invested in SRI. In contrast to other 

forms of SRI, growth in community investing remained positive 

between 2001 and 2003 (up 75%), while other SRI strategies 

showed declining growth. This reinforces the often-mentioned 

business-cycle resistance characteristic of microfinance investment 

– a characteristic that plays an important role for the diversification 

potential of an asset class. 

With the help of these figures, most studies have assumed 

some growth in the potential demand for microfinance investment 

products. Thanks to increasing promotion by some large financial 

investors, this demand could soon amount to the aforementioned 

around USD 15–20 billion. Taking the current volume of foreign 

investment of less than USD 1 billion, this would mean a surge in 

demand for microfinance investment. With worldwide need for 

microcredit estimated at USD 100 billion, 3 the market saturation 

point would hardly be reached. However, microfinance institutions 

are presently unable to absorb such an inflow of investors’ funds. 

Innovation and standardization should therefore play a crucial role 

in improving the cost structure and enhancing the decision-making 

process of microfinance institutions. In this way, they will be 

able to build up the size of their profitable microentrepreneur client 

base. With the financing needs of these lending institutions 

growing, investors will be able to enter this still-confined market 

via the different investment vehicles. 

Investment vehicles 

A few microfinance funds were created in the late 1990s to early 

2000s. All these investment funds are relatively small compared 

with the minimum size (USD 20–30 million) for a traditional fund 

to be considered sustainable. In addition to this size effect, the fixed 

costs are spread among a relatively small investor base. Assessing 

small microfinance institutions tends to be more costly than 

analyzing mainstream investments, so management fees are 

often higher than for traditional funds. However, as the microfinance 

industry matures, microfinance funds will be able to reach 

their “commercial” critical mass. 

European legislation sets criteria that have to be met before 

microfinance funds can be actively sold to the general public. For 

example, open-end funds must publicly disclose the results of a 

regular valuation of their assets: i. e., the net asset value (NAV). 

The Dexia Micro-Credit Fund and the responsAbility Global Microfinance 

Fund are the two funds that currently fulfill such requirements. 

Many other funds undergo an irregular valuation assessment 

due to the difficulty of valuing the underlying assets. 

Leading microfinance institutions, such as Mexico-based 

Compartamos and Bolivia-based Banco Sol, have been issuing 

bonds in their domestic markets. In July 2004, BlueOrchard 

Finance – in collaboration with the Overseas Private Investment 

Corporation (OPIC), a US government development agency – provided 

the first large international microfinance bond offering, 

channeling USD 40 million worth of securities on the US capital 

market, thus paving the way for using financial structuring to 

create a diversified range of securities catering to different investor 

risk profiles. Looking ahead, financial structuring as well as 

loan securitizations should play a crucial role in expanding the 

choice and enhancing the appeal of microfinance investments to 

a broad investor base. 

Portfolio implications 

There are no authoritative figures on the number and performance 

of the microlending institutions or their respective funds. The performance 

figures from one of the few aforementioned established 

microfinance funds (see also page 26) cannot be extrapolated 

and applied to the whole microfinance universe. From a portfolio 

standpoint, the lack of key data, such as historical returns, volatility 

and benchmark performance, currently makes optimization 

of exposure to microfinance vehicles difficult. 

æ 

Figure 1 

Microfinance market participants and fund-allocation process 

Source: Goodman (2004), Credit Suisse 

Development institutions 

p Private donors (foundations, NGOs, etc.) 

p Development agencies 

Socially responsible investors and commercial investors 

p Private individuals 

p Institutional investors 

Microfinance investment vehicles 

Grants, 

subsidized loans 

Equity/loans 

at or close to 

market conditions 

Equity/loans 

at market conditions 

Microfinance institutions 

Microentrepreneurs Microentrepreneurs Microentrepreneurs Microentrepreneurs Microentrepreneurs Microentrepreneurs



Securitization of microloans 

Providing commercial funding for microfinance 

banks means developing a 

financial product that can attract mainstream 

investors. Refinancing microfinance 

banks by securitizing microloans 

has significant potential to generate 

numerous benefits for both investors and 

microfinance banks. 

Philipp Jung / University of St. Gallen 

Mike Imam / Credit Suisse 

1 

A special-purpose vehicle (SPV) is an instrument specifically designed for the 

respective transaction. It is not actively managed, but administered by a trustee that 

strictly follows the documented procedures. 

The securitization principle … 

The securitization of balance-sheet assets is one of the key innovations 

introduced by banks in recent years. In such transactions, 

illiquid assets (e.g., loans) can be converted into tradable capitalmarket 

products. For originators (owners) of such illiquid assets, 

securitization can be an instrument to tap capital markets for 

funding purposes – and to free-up regulatory capital as assets 

are transferred off balance sheet. The terms of the funding 

mainly depend on the quality of the assets to be securitized: i.e., 

on the expected losses. Generally, a portfolio of assets is transferred 

from the balance sheet of an originator (e.g., a bank) to a 

special-purpose vehicle (SPV) 1 . For refinancing and compensating 

the originator for the asset transfer, the SPV issues notes 

(asset-backed securities) to investors. The SPV repays interest 

and principal of the issued notes to the investors out of the cash 

flow of the acquired assets. These notes often include separate 

classes of different seniority, meaning that losses in excess of 

the most junior tranche are absorbed by the subsequent tranche 

and so on. Consequently, the most senior tranches bear only a 

relatively remote possibility of being affected by defaults in the 

underlying reference portfolio. 

… applied to microloans 

Microloans have a strong potential to be established as a new 

asset class for securitization transactions. In spite of the oftenabsent 

collateral for backing microloans, default rates have consistently 

been at low levels, and the excess spread is significant. 

Securitization of microloans refers to a transaction in which an 

SPV buys (parts of) the microloan portfolio of a microfinance bank. 

The microfinance bank will still act as servicing entity (i.e., the 

microloan borrower is not affected by the sale). All proceeds of 

this asset transfer to the SPV are paid to the microfinance bank, 

which also keeps an equity tranche (the so-called first loss piece) 

of the SPV. The first loss piece (FLP) provides incentives for 

efficient servicing of microloans, while allowing the microfinance 

bank to still participate in the revenues of the loan portfolio 

it has sold. This participation in the cash flow of the 

microloans is nonetheless subordinated to the payments to the 

investors in the SPV (interest and principal of investor notes). Due 

to this structure, investors are exposed only to limited credit risk, 

which is reflected by a corresponding rating of the respective 

investor note. 

Existing securitization transactions … 

This concept of securitization of microloans has not been seen in 

the market as such. However, in a somewhat revolutionary move, 

Blue Orchard structured a transaction that first applied the securitization 

principle to microfinance institutions. Several bonds 

issued by microfinance banks were repackaged and sold to capital 

markets. A similar structure was later also applied by Deutsche 

Bank Foundation’s Global Microfinance Consortium and others. 

This has marked the beginning of linking capital markets with 

microfinance banks. Noteworthy is, however, that such transactions 

do not represent securitization of microfinance banks’ assets 

(microloans), but of bonds issued by microfinance banks and held 

by an intermediary.



… and how to further develop them 

The Swiss State Secretariat for Economic Affairs (SECO) is currently 

financing a feasibility study that is supported by Credit 

Suisse and other institutions such as the European Investment 

Fund (EIF) and MicroRate (a rating agency specialized in microfinance 

institutions). For the first time, this project aims at setting 

up a platform enabling securitization of the actual assets (microloans) 

of microfinance banks. The platform could provide a structure 

that mitigates the political risk through diversification and 

sophisticated insurance mechanisms, pools microloan portfolios 

of different originators, and provides standardized procedures and 

documentation. The transaction is structured to apply a direct 

securitization principle: meaning that individual microloans are 

directly securitized (and not a portfolio of bonds issued by a microfinance 

banks). The benefits of such an approach are potentially 

lower funding costs for microfinance banks (due to the asset 

isolation of the microloans), regulatory capital relief effects for 

microfinance banks and correspondingly increased loan volume, 

and direct integration of microfinance banks in global capital 

markets. In other words, mainstream investors are offered a structured 

product that is ultimately backed by microloans, but can be 

viewed as a conventional securitization transaction, in which the 

investor buys rated notes and is paid a corresponding spread – a 

private-sector approach that could strongly increase commercial 

refinancing for microfinance banks. Hence, an initial pilot transaction 

should be implemented at some time. 

æ 

Figure 1 

Simplified structure of the concept 

Source: Credit Suisse, University of St. Gallen 

Asset side 

Capital market side 

Microfinance bank 

(asset seller) 

proceeds (funding) 

SPV 

(asset buyer) 

proceeds 

Investors 

microloan portfolio 

sale of microloans 

investor notes 

loan-servicing agreement 

cash flow generated by microloans



Bridging the gap: The responsAbility 

Global Microfinance Fund 

Investors interested in microfinance will 

currently find a situation that is barely 

comparable with the established markets 

in which they normally invest, reflecting 

the origins, development and particularities 

of this emerging industry. Moreover, 

selecting and monitoring investments 

pose additional challenges, considering 

the fact that microfinance, by its very 

nature, is a global industry operating in 

the more distant or less connected 

corners of the world. However, adaptable 

and innovative investment concepts can 

overcome these challenges. 

Klaus Tischhauser / responsAbility 

Providing access to microfinance investments 

The small but growing number of investment vehicles providing 

individual and institutional investors with access to microfinance 

have developed innovative ways to overcome the challenges of 

bridging the gap between microentrepreneurs and investors. 

These vehicles offer not just access, but also diversification and 

a certain degree of liquidity to investors. 

A recent and innovative example is the responsAbility Global 

Microfinance Fund, an open-ended mutual fund, launched in 

November 2003. The fund’s investment advisor is Switzerlandbased 

responsAbility Social Investment Services Ltd., a company 

founded by a group of Swiss banks, including Credit Suisse. This 

fund offers investors access to all segments of the microfinance 

markets worldwide. 

Financing outreach 

The fund invests mainly in debt securities issued by microfinance 

institutions in order to refinance their growing credit portfolios. 

The institutions in the fund’s portfolio realized an average 67.7% 

growth rate in their credit portfolios in 2004 and increased the 

number of clients by 47.1%. The fund invests in established institutions 

as well as in newer and smaller institutions if they have a 

solid growth plan showing potential for reaching out to new areas 

and more clients. 

Participating in growth 

Equity investments in microfinance have so far always been private 

equity investments, which are hardly accessible for investors. 

The responsAbility Global Microfinance Fund offers investors 

convenient access to this form of investment. But due to their 

poor liquidity, the share of such investments in the fund is limited. 

The fund is currently a shareholder of the ProCredit network, a 

microfinance network comprising 19 microbanks in Latin America, 

Central Europe and Africa, with a combined 275 branches, a 

high-quality credit portfolio of USD 1.2 billion, and 411,000 clients 

as well as persistently strong growth. 

Flexible investment approach 

Today’s microfinance investment landscape is characterized by its 

low degree of formalization of securities, limited access to existing 

investment vehicles, lack of secondary markets, generally 

heterogeneous investment objects and still-limited market size 

and depth. The responsAbility fund uses a flexible investment 

approach in order to offer investors the best know-how, expertise 

and market proximity – and at the same time keep the flexibility 

to adapt to the changing needs of the microfinance market place. 

It comprises the ability to invest in various forms of securities and 

vehicles. Hence, the fund can invest in securities with a low grade 

of formalization as well as in bonds, and can participate in securitizations 

and invest in other microfinance investment vehicles. 

Best partner concept 

The microfinance industry is partly driven by some globally active 

microfinance networks. Managed centrally with a strong local 

presence, these networks combine market know-how and the



ability to promote, for example, best practice, standardization and 

product innovation across their affiliates. The responsAbility fund 

has established partnerships with such networks in order to 

facilitate investment and refinancing. The fund currently provides 

access to three networks that are quite distinct from each other: 

Figure 1 

responsAbility Global Microfinance Fund: 

monthly performance 

Source: responsAbility Social Investment Services Ltd. 

% 

USD 

p FINCA and Opportunity International, both reaching very low 

segments of the market with their credit technology, involving 

microloans. 

p ProCredit, which offers individual lending in the microfinance 

segment up to the small business segment, where larger amounts 

are involved. Other types of partners include independent finance 

companies specialized in microfinance such as the aforementioned 

Geneva-based Blue Orchard or Brussels-based Alterfin. These 

partners identify, propose and monitor microfinance institutions. 

1.00 

0.75 

0.50 

0.25 

0 

01/04 

02/04 

03/04 

04/04 

05/04 

06/04 

07/04 

08/04 

09/04 

10/04 

11/04 

12/04 

01/05 

02/05 

03/05 

103 

102 

101 

100 

99 

Financial returns 

The responsAbility fund’s objective is to produce consistently 

positive monthly returns, with total returns exceeding those at the 

US-dollar money-market level and with low volatility. In the 16 

months between its inception in December 2003 and March 

2005, the fund’s net asset value (NAV) increased by 2.23%. The 

annualized portfolio yield at the end of first-quarter 2005 was 

3.56%. Half of the portfolio is invested in Central and South 

America, and a quarter in Eastern Europe and Central Asia. Africa 

and Asia account for slightly more then 10% each. More than 

80% of the fund is invested in fixed-income instruments, using 

to a large extent floating interest rates. 

Social benefits 

The responsAbility Global Microfinance Fund follows a clear 

reporting policy about social benefits. Besides standard fund data, 

the monthly reporting includes some key social impact indicators. 

A Social Performance Report is published on a yearly basis, providing 

more insight into the social dimension of the investments. 

As a rule of thumb, each investment of USD 1,000 in the fund can 

be expected to reach between two and three microentrepreneurs, 

who, in turn, provide support for more then 20 household members 

and create several jobs. The more detailed yearly analysis 

uses the UN Millennium Development Goals as a reference model. 

Most thorough studies about the fund’s portfolio of companies 

show the positive impact that microfinance has on the position of 

women in society, on hunger and health, on poverty and risk, and 

partly on education, as also conveyed elsewhere in this issue of 

Global Investor Focus. 

æ 

Figure 2 


geographical distribution 


Africa 10% 

Rest of Asia 10% 

Central Asia/Eastern Europe 35% 

Figure 3 


asset allocation 


Equities 10% 

Money market/cash 10% 

Growth in net asset value (NAV) measured in USD ( l.h. scale) 

Net asset value (NAV ) in USD (r.h. scale) 

Latin America 45% 

Fixed income 80%


Authors—34 

Jane Nelson // Harvard University . . . . . . . . . . . . . . . . . . . . . . . . . 8–9, 18–25 

Jane Nelson is Director of the Corporate Social Responsibility Initiative and a 

Senior Fellow at the Center for Business and Government, at the Kennedy School 

of Government, Harvard University, and a Director of the Prince of Wales International 

Business Leaders Forum. A former banker with Citigroup, she has worked 

in the office of the UN Secretary-General, Kofi Annan, preparing a report for 

the UN General Assembly on partnerships between the UN and the private sector, 

and written extensively on the role of the private sector – from multinational corporations 

to small and micro-enterprises – in helping to achieve international 

development goals. 

She is co-author of a recent book entitled ‹Profits with Principles: Seven strategies 

for achieving value with values› and has co-authored the World Economic 

Forum’s four corporate citizenship reports since 2002. She has lived in Africa, Asia, 

Europe and North America, and worked throughout these regions and also in 

Latin America and the Middle East. 

Klaus Tischhauser // responsAbility . . . . . . . . . . . . . . . . . . . . . . . . . . .12–14 

Klaus Tischhauser is a co-founder and Managing Director at responsAbility Social 

Investment Services Ltd., Zurich, Switzerland. Klaus is an economist by training 

with a post-graduate education in ecology. He has more than 10 years of professional 

experience in the financial sector. After 8 years with Credit Suisse in the 

Foreign Exchange and Money Market divisions and with Credit Suisse Asset 

Management in the investment funds division for Retail, Private and Institutional 

Banking, he joined SAM Sustainable Asset Management where he was instrumental 

in building up the company which is today on of the world’s leading asset 

managers for sustainable investments. 

After almost two years of cycling through the African continent from Zurich 

to Capetown between 1999 and 2001, Klaus founded responsAbility Social Investment 

Services Ltd., a Social Investment platform in the Swiss financial market with 

a strong focus on developing countries. 

Giles Keating // Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18–25 

Giles Keating is a managing director at Credit Suisse Group, where he is Head of 

Global Research and a member of the Investment Committee in Zurich, which is 

responsible for setting investment strategy for the bank’s discretionary clients. An 

economist by profession, Giles started his career with the Confederation of British 

Industry where he was Head of the Economic Forecasting Department. In 1981, 

he was a research fellow at the London Business School, Centre for Economic 

Forecasting in London. Mr. Keating joined Credit Suisse First Boston in 1986 and 

held various posts including Chief Economist, Global Head of Fixed Income 

Research and Economics, member of Global Fixed Income Management Committee 

and Co-Head of the Pensions Advisory and Structuring Group. In 2004, he 

became Head of Global Research at Credit Suisse in Zurich. 

Giles Keating graduated from Oxford University with a BA in Philosophy, 

Politics and Economics and holds an MSc in Mathematical Economics and Econometrics 

from the London School of Economics. 

Ernst A. Brugger // The Sustainability Forum Zurich . . . . . . . . . . . . . . . . 18–25 

Ernst A. Brugger is a founding partner and the president of BHP – Brugger and 

Partners Ltd, a consulting firm specialized in sustainability strategies for private 

and public organizations. He is also the chairman of Sustainable Performance 

Group, Switzerland’s largest sustainability mutual fund, a member of the executive 

committee of the International Red Cross, the chairman of SV Group, the chairman 

of the board of Blue Orchard Finance (Geneva-based microfinance asset manager 

and advisor), the vice president of the board of Henry Dunant Center for 

Humanitarian Dialogue, and a Professor at Zurich University. 

In his role as co-founder and CEO of The Sustainability Forum Zurich and in his 

project work, he advocates the implementation of long-term strategy, sustainability 

and good governance in business and politics. Over the past 20 years, he has 

carried out numerous consultancy tasks for various Swiss and international companies 

and institutions in Europe, Latin America, Africa and Asia. 

Hernando de Soto // ILD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18–25 

Hernando de Soto is currently President of ILD – headquartered in Lima, Peru – 

considered by The Economist as one of the two most important think tanks in the 

world. Time magazine chose him as one of the five leading Latin American innovators 

of the century in its special May 1999 issue on “Leaders for the New Millennium,” 

and included him among the 100 most influential people in the world in 2004. 

Furthermore, Forbes magazine, in its 85th anniversary edition, included him among 

15 innovators “who will reinvent your future.” Entwicklung und Zusammenarbeit, 

the German development magazine, in its January 2000 issue, regarded Mr. de Soto 

as one of the most important development theoreticians of the last millennium. 

He has served as an economist for the General Agreement on Tariffs and 

Trade, as President of the Executive Committee of the Copper Exporting Countries 

Organization (CIPEC), as CEO of Universal Engineering Corporation (Continental 

Europe’s largest consulting engineering firm), as a principal of the Swiss Bank Corporation 

Consultant Group, and as a governor of Peru’s Central Reserve Bank. 

Today, as his principal activity, Mr. de Soto, together with the ILD, is designing 

and implementing capital formation programs to empower the poor in Asia, Latin 

America, the Middle East and former Soviet nations. He has been called by many 

heads of state, most of whom he is (or will be) working for directly. 

Roshaneh Zafar // Kashf Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . 18–25 

Ms. Roshaneh Zafar is the CEO of the Kashf Foundation, which is based in Pakistan. 

The organization has grown from a mere 15 female clients in 1996 to 62,000 clients 

today. It is one of the fastest-growing MFIs in the country and the first one to 

achieve financial self-sufficiency, continuing to have a portfolio at risk of less than 

0.3%. Kashf was also the first NGO-MFI to broaden the scope of microfinance by 

introducing insurance services, and has recently started pilot research for introducing 

individual lending in order to target the “missing middle” in the microfinance 

market. In 2002, the Kashf Foundation was awarded the Microfinance Excellence 

Award by the Grameen Foundation USA for its groundbreaking innovations in the 

field of microfinance in Pakistan. 

Ms. Zafar founded the Kashf Foundation – the first specialized microfinance 

organization in Pakistan – in 1996 after a chance meeting with Professor Muhammd 

Yunnus of the Grameen Bank. Prior to this, she worked with the World Bank in 

Islamabad in the Water and Sanitation department for several years. Ms. Zafar was 

one of the first Ashoka Fellows in Pakistan and was recently selected as a Social 

Entrepreneur by the Schwab Foundation. She represented the Social Entrepreneurs 

at the World Economic Forum in January 2004 and spoke at the Opening Plenary 

of the WEF along with UK Foreign Secretary Jack Straw, President Obasanjo of 

Nigeria, Carly Fiorina of Hewlett Packard and Mr. Wolfenson of the World Bank, 

responding to the theme Partnering for Security and Prosperity. She is also the 

founding member of the Pakistan Microfinance Network and is a member on the 

board of several NGOs in Pakistan. Ms. Zafar is a graduate of the Wharton Business 

School University of Pennsylvania in Finance and Economics. She also holds 

a Masters in International and Development Economics from Yale University. 

Walter B. Kielholz // Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . 18–25 

Walter B. Kielholz studied Business Administration at the University of St. Gallen, 

and graduated in 1976 with a degree in Business Finance and Accounting. 

His career began at the General Reinsurance Corporation, Zurich. After working 

in the USA, the UK and Italy, he assumed responsibility for the company’s 

European marketing. In 1986, he moved to Credit Suisse, Zurich, where he was 

responsible for client relations with large insurance groups in the Multinational 

Services department. 

Walter Kielholz joined Swiss Re, Zurich, at the beginning of 1989. He became 

a member of Swiss Re’s Executive Board in January 1993 and was Swiss Re’s 

Chief Executive Officer from January 1997, to December 2002. A board member 

since June 1998, the Board of Directors of Swiss Re appointed him Vice-Chairman 

with effect from 1 January 2003. 

Since 1 January 2003, Walter Kielholz has been Chairman of the Board of 

Directors of Credit Suisse Group. He was originally appointed to the Board of Directors 

of Credit Suisse Group in 1999.


Authors—35 

Paola Ghillani // Previously with Max Havelaar . . . . . . . . . . . . . . . . . . . 18–25 

Paola Ghillani is a member of the International Committee of the Red Cross (ICRC). 

A pharmacist by profession, she started her career in the pharma industry at Ciba/ 

Novartis. After spending the first part of her career in multinational companies, in 

1999 she became CEO of the Max Havelaar foundation – a fair-trade organization 

active in Switzerland and abroad. During the same period, she was appointed 

member of the board of FLO International (Fair Trade Labelling Organizations) and 

subsequently elected president and chairwoman of the board, a post she held from 

2001 until 2004. Ms. Ghillani is on the advisory board of different organizations, 

among them diverse ethical funds. 

Paola Ghillani graduated with a degree in pharmacy from the University of 

Lausanne. She completed her business background at the IMD in Lausanne, with a 

degree in International General Management and the International Program for Board 

Management. In addition to her many achievements, Ms. Ghillani was selected as 

Global Leader of Tomorrow (GLT) at the World Economic Forum in Davos, Switzerland 

in 2000. 

Sylvie Golay // Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . 15–17, 28–29 

Sylvie Golay is a Credit Analyst in the Credit Suisse Fixed Income und Credit 

Research Department. She joined Credit Suisse as an economist in the Economic 

Research Department, where she conducted regional studies with focus on the 

Swiss economy. 

Sylvie Golay holds a Master’s Degree in Economics and Finance from the 

University of St. Gallen (HSG), where she graduated in 2002. She expanded her 

financial knowledge garnering experience in the Equity Research department at 

Pictet & Cie, in Asset Management at BNP Paribas and in the investment banking 

industry at Credit Suisse First Boston. 

Christian Gattiker-Ericsson // Credit Suisse . . . . . . . . . . . . . . . . . . . . . 28–29 

Christian Gattiker-Ericsson is a director at Credit Suisse, where he is Head of Global 

Equity Strategy. He began his career as a member of the economics department 

of Swiss Bank Corporation in 1995. At the beginning of 1998, he moved to one of 

the major Swiss investor relations agencies, where he served two years as a consultant 

for stock-market-listed companies in Switzerland and Europe. Christian joined 

Credit Suisse in January 2000 as an equity analyst for capital goods, pulp & paper 

and steel sectors. Since June 2001, he has additionally taken over the role of Swiss 

Equity Strategist, heading the Swiss market team. 

He received an MA in Economics and Political Science from the University of 

Berne in 1995. Christian Gattiker-Ericsson is a CFA charterholder. 

Ursula Oser // Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15–17 

Ursula Oser was Global Credit Strategist at Credit Suisse from August 2004 to 

April 2005 and additionally responsible for thematic research. She started in 

Credit Suisse Private Banking at end-1998 as Global Strategy Analyst in the 

Investment Research Department, developing quantitative models for the asset 

allocation decision-making process. In 2001, Ms. Oser was appointed as Head of 

Macro and Fixed Income Research and subsequently Head of Fixed Income and 

Credit Research. 

Ursula Oser studied economics at the University of Constance in Germany as 

well as the London School of Economics and was holder of a scholarship to the 

Friedrich-Ebert Foundation. Ms. Oser earned a doctorate degree in applied econometrics 

from the University of Constance. 

Mike Imam // Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30–31 

Mike Imam is a staff member of Credit Suisse Group. Due to his various assignments 

within the group, he has extensive product structuring and business project 

knowledge. He is currently based in Singapore and serves as Head Asia-Pacific 

Business Projects within the Private Banking International Division. In his capacity, 

he is responsible for implementing business expansion projects within the Asia- 

Pacific Region. Previously, he worked on business and product development 

projects in China, Taiwan, Luxembourg and Zurich. 

With regard to his academic career, he holds a Master’s Degree in International 

Relations from the University of St. Gallen (HSG), and has written a PhD 

thesis in economics on the implications of China’s WTO entry on the Chinese 

banking system – to be awarded in 2005/2006. 

Mike Imam was born in 1974 in St. Gallen, Switzerland. Throughout his professional 

and academic career, he has shown a big interest in developing economies 

and capital-market development in general. He is fluent in German, English and 

Chinese (Mandarin) and has excellent knowledge of French. 

Philipp Jung // University of St. Gallen . . . . . . . . . . . . . . . . . . . . . . . . . 30–31 

Philipp Jung has conducted a feasibility study on securitization of microloans and 

subsequently prepared a blueprint for a pilot transaction for such a transaction, both 

mandated by the Swiss State Secretariat for Economic Affairs (SECO) and supported 

by Credit Suisse. Philipp Jung works for the Swiss Institute of International 

Economics (SIAW-HSG) and as a consultant for the European In-vestment Fund 

(EIF) in Luxembourg, where he has been working on guarantee and securitization 

transactions – among others, also on microfinance-related projects. 

Philipp Jung holds a Master’s Degree in Economics and Finance from the 

University of St. Gallen (HSG), where he graduated in 2004 and is currently enrolled 

in the PhD program in finance. He has gathered experience in the Finance and IT 

department of Great Lakes Chemical Corp, Hoffmann-La Roche and as a research 

associate with the Institute of Empirical Economics at the University of St. Gallen. 

In addition, he was enrolled in the trainee programs of the United Nations Capital 

Development Fund (UNCDF) in New York and at the European Investment Fund 

(EIF) in Luxembourg.


Imprint—36 

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Alternative investments, derivative or structured products are complex instruments, typically 

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Furthermore, investments in foreign currencies are subject to exchange rate fluctuations. 

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Publisher 

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Global Research 

P.O. Box 300, CH - 8070 Zürich 

Director: Giles Keating 

Editor 

Christian Gattiker-Ericsson 

Sylvie Golay 

Editorial deadline 

April 2005 

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Bernhard Felder 

Design and concept 

Arnold Design AG 

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Monika Isler (Planning and execution) 

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Translations 

Robert Anderson (E), Beatrice Eigenmann (G), 

Mark Rabinowitz (E), Stefan Bersal (G), 

Regula Zweifel (G), Andreas Weber (G), 

Übersetzer Gruppe Zürich (F/Sp) 

Alleva Übersetzungen (I) 

Language editors 

Robert Anderson (E), Beatrice Eigenmann (D), 

Übersetzer Gruppe Zürich (F/Sp), 

Alleva Übersetzungen (I) 

Photographs 

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Barbey/Magnum, Gueorgui Pinkhassov/ 

Magnum, John Vink/Magnum, David Alan 

Harvey/Magnum, Susan Meiselas/Magnum, 

Martin Parr/Magnum, Ian Berry/Magnum (3), 

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Rainer Heubeck/Das Fotoarchiv (15), 

Martin Stollenwerk (21, 22, 26) 

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