If global finance applied the same rules that microfinance applies in lending to the poor – in terms of regulations and transparency – then we would not have this crisis. Subprime is a good example of the worst of microfinance as conducted by global finance. It was crazy loans and predatory practices that created this crisis.
Economist Jacques Attali has never been afraid to speak his mind, though he does so in a polite, articulate voice laced by a distinct French accent. Founder and former president of the European Bank of Reconstruction and Development, Attali mixes in influential circles where his polymath abilities are valued.
Former right-hand man to President Mitterrand for a decade, Attali recently served as an advisor to President Sarkozy. The report he delivered in January,
300 Decisions for Changing France, to correct the ills besetting the French economy, while brave, seems destined to gather dust on the bedside tables of government ministers. But Attali is not here to discuss that. Instead, the topic is microfinance, for which he is a passionate advocate.
President of PlaNet Finance (since 1998)
Founder and first president of the European Bank for Reconstruction and Development (1991 to 1993)
Special adviser to the president of France (1981 to 1991)
Author of more than 40 books, including Noise:
The Political Economy of Music, A Brief History of the Future and A Man of Influence
Microfinance provides small loans to individuals, particularly in developing countries, who would otherwise have no access to finance. Ultimately the goal is to help people escape poverty by starting small, profitable businesses. Individuals form an association, which is jointly responsible for approving loans to individuals, and peer pressure ensures capital is repaid.
For Attali, microfinance is not only a way to alleviate poverty in a time when public development aid has plummeted, it is also a template for how global finance could be – should be – conducted. Microfinance, he says, is the most efficient development assistance instrument available. And, he argues, it is based on ethics, which are sorely lacking in traditional finance cycles.
“Microfinance considers finance as a tool for the development of employment and economic activity. Microfinance is not there to make profits through deals, which is exactly the contrary of the finance industry. Finance is there purely and simply to make a profit. It doesn’t support industry and business, except incidentally.”
rooted to the real economy
Attali experienced enlightenment on microfinance visiting Bangladesh during the international response to the disastrous floods of 1989. There he met Professor Muhammad Yunus and saw the work of the Grameen (village) Bank. Grameen has disbursed $8 billion worth of loans to 7.8 million borrowers, 97% of which are women. The reimbursement rate is 98% – causing the envy of other bankers. Together with Yunus, he created
PlaNet Finance, an international nonprofit organization that provides support, advisory and rating services to microfinance institutions worldwide.
“When we started PlaNet Finance in 1998, there were 7 million beneficiaries of microfinance and microcredit in the world and five of the seven were in Bangladesh. Today there are 1,000 microfinance institutions worldwide and 150 million beneficiaries. Within three years, microfinance could be supporting 300 million families worldwide to escape poverty, and the potential is there for it to support 1 billion.”
Yunus recently claimed microfinance has been unaffected by the financial crisis. “The simple reason is because we are rooted to the real economy – we are not paper-based, paper-chasing banking. When we give a loan of $100, behind the $100 there are chickens, there are cows. It is not something imaginary,” he wrote. While microfinance has proven to be markedly resilient, Attali suggests the crisis is now having an affect, particularly in Africa.
Allianz works with PlaNet Finance on a commercial basis in Egypt, as well as sub-Saharan African countries, to introduce simple micro-insurance products to provide a social safety net for poorer people.
“The crisis is moving from the north to the south and the first people hit are the middle class. These are the clients of the micro-entrepreneurs, those who use the services and agricultural products that micro-entrepreneurs provide, and their markets are shrinking. There is the beginning of a shock for microfinance, but it is still not pronounced. However, it means there is greater need than ever for microfinance to counter the increase in poverty caused by the crisis.”
Private and institutional investors, including the Dutch pension-fund All Pensions Group (APG) and the US-based asset manager TIAA-CREF, have made equity capital commitment to microfinance as interest in this alternative asset class has grown. TIAA-CREF launched a $100 million Global Microfinance Investment Program in 2006, making it the first large asset manager to commit funds to microlending. Recently both APG and TIAA-CREF were anchor participants in the $82 million DWM Microfinance Equity Fund. Other institutions with commitment to microfinance include Austria’s Bonus Pensionskassen, French fund management group Axa and Geneva-based specialist BlueOrchard.
Microfinance is estimated at $30 billion worldwide, a drop in the bucket of worldwide finance, but with potential to grow. Interesting equity propositions exist to entice pension funds to enter the field and help it grow, believes Attali. He sees the main beneficial use for both microlenders and investors now is investment in capital and not in terms of credit lines.
For Attali, the arguments for microfinance are compelling. Poverty is a prime cause of social unrest, political instability and decline of democracy in the world. Currently, nearly a quarter of humanity survives on less than $2 per day. By World Bank figures, in 2050 half of humanity will be living below this poverty line. This will have dire consequences for peace, stability and world order unless it is addressed.