Microfinance

GLOBAL INVESTOR FOCUS
Microfinance—25
“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.
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