Microfinance

GLOBAL INVESTOR FOCUS
Microfinance—08
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