Microfinance

GLOBAL INVESTOR FOCUS
Microfinance—18
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 >