Microfinance

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GLOBAL INVESTOR FOCUS <strong>Microfinance</strong>—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 >
GLOBAL INVESTOR FOCUS <strong>Microfinance</strong>—19 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.
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