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24 Feb 2005: Hello Magazine — Mathilde and Maxima Make Some New Friends in Africa
24 Feb 2005: The Jakarta Post — Government To Launch Microfinancing Year
21 Feb 2005: Dorothy Nakaweesi — Dutch Royal Leads Trade Delegation
02 Feb 2005: The Banker — Microfinance Joins the Mainstream
17 Feb 2005: The Wall Street Journal — Tsunami Lending In Sri Lanka, Loans Take On Key Role In Disaster Relief
12 Feb 2005: Faryal Mirza — Switzerland jumps on microfinance bandwagon
   
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Mathilde and Maxima Make Some New Friends in Africa
Hello Magazine

International Year of Microcredit Campaign Launched in China with the Visit of UN Emissary, HRH Princess of Belgium

Two of Europe's favourite princesses have being doing their best to bring a little hope to the people of Africa. Belgium's Princess Mathilde was continuing her tour of Mali in the west of the continent this week, while The Netherlands' Crown Princess Maxima was meeting local women in Uganda.

Both women seemed to be thoroughly enjoying their visits, though they weren't there solely to have fun. A svelte-looking Mathilde, who was pictured enjoying a ride on a traditional "pirogue" boat, was in Mali to assess how best to help its beleaguered economy.

She also paid a visit to a hospital in N'Gomi, where she chatted with women and children about the difficulties they face in their day-to-day lives. Education, health and women's affairs are being given top priority by the Belgian government in its efforts to help the country.

Maxima was meanwhile enjoying the company of local people as she did her bit to promote the International Year of Microcredit. The Netherlands' future queen, who is well-known for her work with the United Nations, met up with some of the artisans and entrepreneurs who have already received a helping hand to pull themselves out of poverty.

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Government To Launch Microfinancing Year
The Jakarta Post
Thursday, February 24, 2005
Reporter: Muninggar Sri Saraswati

The government is set to kick off the Year of the Micro Business and will allocate Rp. 50 trillion (US$5,4 billion) to empower micro, small and medium enterprises nationwide, a minister says.

"The official announcement on the national campaign will be made by President Susilo Bambang Yudhoyono in a ceremony on Saturday," Coordinating Minister for the Economy Aburizal Bakrie said on Wednesday. Aburizal said 99.9 percent of the 42 million businesses across the country were either micro, small or medium enterprises.

The government hoped the fund, which was created in line with a United Nations-led program for small businesses, could help reduce the poverty rate from 16.6 percent to a target of 8.2 percent and the unemployment rate from 9.7 percent to 5.1 percent. State Minister of Cooperatives and Small and Medium Enterprises Suryadharma Ali said small-scale businesses in the country faced five main problems - access to financial institutions; a high-cost economy; lack of capacity in technology; lack of good management and entrepreneurship; unfair and stiff competition from larger competitors; and a lack of industry associations. "The government has prepared four strategies of developing the micro, small and medium enterprises, supporting system for the enterprises, empowering the businesses and exploring the market," he said.

The campaign chairman, Bank Republik Indonesia (BRI) President Director Rudjito, said an exhibition by 170 micro, small and medium enterprises taking part in schemes by the State Minister of State Enterprises and regional administrations would makr the year's official beginning. "The campaign will be held continuously in 12 host cities," he said.

Separately, a representative of the INdonesian Business Development Services (BDS) in Aceh, Nuzul said that 60 fishermen in Leupeung, Aceh Besar, and 30 snack producers in Lampaseh, Banda Aceh, would need about Rp. 40 million to reconstruct a coastal pond, which supplied their businesses. "And they will probably also need about Rp. 30 million to buy 20 small boats."

Speaking at a workshop held by BDS and Save the Children, Nuzul said many Acehnese survivors could not afford their daily expenses because they still lived in refugee camps. SME ministry official Muhammad Taufiq said the office had allocated about Rp. 80 billion for the redevelopment of SMEs in Aceh. "We are encouraging financial institutions to work together to create employment in Aceh, especially in the real sector, and to help increase the purchasing power of the local people," he said. Taufiq also said that in an effort to help surviving SMEs, banks should solve problems related to existing non-performing loans. "The Central Bank is studying the possibility of refinancing SMEs, rescheduling their debts or even writing them off," he said.

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Dutch Royal Leads Trade Delegation
By Dorothy Nakaweesi, Kampala

Her Royal Highness, Princess Maxima of the Netherlands, will this week spend time visiting Small and Medium scale Enterprises in East Africa. Princess Maxima, a member of the advisory group for the International Year of Micro credit, will pay a working visit to Uganda and Kenya from tomorrow till Friday.

According to a release issued to The Monitor, Princess Maxima's visit will coincide with that of the Dutch minister of Development Cooperation, Ms Agnes van Ardenne, who arrives tomorrow and leaves on Wednesday. The two will meet the Minister and officials of Finance, Planning and Economic Development, the Central Banks, Micro Finance Institutions, women entrepreneurs and politicians.

Discussions with various groups will centre on development of the financial sector and how finances can be made more accessible to a larger segment of the population through legislation. Micro credit refers to the financing of small-sized businesses in developing countries.

This year, the Advisors Group will focus on finding solutions to the acute shortage of small-scale financial services in developing countries where many millions of people are still excluded from the financial sector, and are therefore frustrated in their efforts to achieve economic independence
and development.

The United Nations General Assembly designated the year 2005 as the International Year of Microcredit, in the hope that governments, banks, businesses and non-governmental organisations will make a great leap forward in this field, thus contributing to achieving the Millennium Development Goal to halve global poverty by 2015.

Ms Ardenne and the director general for Foreign Economic Relations, Mr Dirk Bruinsma, will lead a business delegation to seek out business contacts and potentials especially in industrial and domestic waste management, shipping, consumer construction (Hotels and Estates), among others.

A business meeting between the delegation and Ugandan businesses is scheduled for tomorrow and Wednesday at the Speke Resort Munyonyo.

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Microfinance Joins the Mainstream
The Banker

In the International Year of Microcredit, the UNDP's Mark Malloch Brown encourages more commercial banks to take up microfinance.

Microfinance is helping to transform the lives of millions of people, helping to build businesses, create jobs and lift men, women and children out of poverty.

It has a critical role to play in global development efforts, not least in achieving the internationally agreed Millennium Development Goals.The focus in the past two decades has been to expand microloans to support the economic activities of the poor. Now, given the scale of development challenges, the broader concept of microfinance — encompassing a range of financial services, including lending, savings and insurance — will be critical.

The aim of microfinance is to help poor and low-income clients to meet their basic needs and invest for the future according to their own priorities. With microfinance, poor people are better able to build their income and assets, manage their household expenses and insure against the risks they face. With access to micro-insurance, the poor can cope with the sudden expenses associated with serious illness or loss of assets; with access to banks for transferring funds, workers can send money home so that relatives can cover expenses and even start businesses. And with sustainable access to credit and savings, poor households can invest in housing, healthcare and education for their children.

Restricted access

Potentially, about 500 million people could benefit from microfinance services today, yet only 6% have access to such services. An inclusive financial sector should offer the vast majority of the population sustainable access to a range of services suited to their needs. Such a sector should be characterised first by household and micro and small enterprise access to a full range of financial services (savings, short-term and long-term credit, mortgages, insurance, pensions, remittances and leasing) for production as well as for family insurance. Secondly, the sector should be characterised by the sustainability (cost-effective provision) of these services.

In the International Year of Microcredit, the greatest challenge is to build inclusive financial sectors that serve the interests of the poor, helping them to work their way out of poverty and generate the kind of economic growth that is vital to human development.

Grassroots action

During the past 25 years, thousands of microfinance non-governmental organisations (NGOs) have been established, particularly in Asia, Africa and Latin America, providing hundreds of thousands of people (individuals and groups) with microloans. Many of these institutions have been remarkably successful. The world's largest NGO, BRAC (formerly the Bangladesh Rural Advancement Committee), has played a central role in extending small loans, mainly focused on women, with more than $2bn in micro credit loans disbursed, and a 98% repayment rate. And the ASA institution in Bangladesh is one of the most efficient microfinance NGOs in the world, with an adjusted return on assets of 12%.

Across the world, experience has demonstrated that microfinance institutions can provide microloans to poor people in an efficient and financially sustainable way. Microfinance has fared well in good times and bad, with returns uncorrelated with those from other asset classes. At the height of Indonesia's financial crisis in 1998, for example, the portfolio at risk at Bank Rakyat, Indonesia's Unit Desa microfinance village banks with more than three million microfinance clients, was less than 6%, while the level of non-performing loans in Indonesia's banking system at the same time was more than 60%.

Increasingly, therefore, microfinance is being seen less as a charitable function and more as part of building an inclusive financial sector that is dedicated to meeting the financial needs of poor clients in a responsive and profitable manner. In other words, it is becoming a mainstream business model. An approach that recognises the important roles of both regulated and unregulated institutions in the microfinance system is essential. Grassroots savings and credit groups, and microfinance NGOs, along with universal commercial banks, finance companies, co-operative banks, regulated microfinance institutions (MFIs), insurance companies and wholesale financing institutions, all have a critical part to play in extending financial services to all sections of society. This endeavour will require new forms of partnership and dynamic and creative ways of working.

The role of commercial banks

In the past five years, a number of private mainstream commercial banks, finance companies and insurance firms have entered the microfinance sector as retailers or wholesalers. Banks have provided refinance facilities to NGOs, linking them to financial markets, and have launched retail microfinance operations. As a result, they have moved microfinance to the mainstream, using better technology and more sophisticated risk management and information systems. Many of these institutions see the large potential market for microfinance, and most of them employ senior staff who are motivated by community concerns as well as profits. These traditional financial institutions have learned from MFIs and pioneer banks how to reduce the high transaction costs of microlending.

Some government banks have also established large, efficient and profitable microfinance operations — breaking from the tradition of low efficiency, low profitability, low repayment and subsidy approaches to lending to the poor.

The benefits for commercial banks are clear. Most mainstream financial institutions are not resource-constrained: they have established broad-based savings mobilisation and are fully integrated into domestic financial markets. Major coverage in microfinance can therefore be achieved with a small percentage of a bank's assets.

Microfinance has caught the attention of some of the world's leading financial institutions, both international and domestic. Internationally, Citigroup, Deutsche Bank, Santander, ING and ABN AMRO are seeing microfinance as a profitable opportunity. Socially responsible banks and funds have also targeted this huge market. Oiko Credit and Triodos Bank, both in the Netherlands, are finding ways to extend local currency loans to high performing microfinance institutions around the world. Blue Orchard Finance in Switzerland has launched the first international asset-backed securitisation deal, issuing US dollar-denominated microfinance bonds with a guarantee from the Overseas Private Investment Corporation; the proceeds from this offering are expected to help 40,000 micro-entrepreneurs in Latin America, Asia, Africa and eastern Europe.

On the domestic front, commercial banks are developing relationships with microfinance banks through wholesale lending, supporting bond issues and securitisation. There is evidence that microfinance institutions are increasing their leverage in domestic capital markets where there is still significant capacity for microfinance institutions to access bank funding, provided that local capital market conditions are favourable. Retail banks are also expanding their client base by offering microloans. ICICI Bank in India has been at the forefront of funding microfinance institutions that show promise and it is exploring ways of developing its own retail capacity. Bringing poor clients into the fold can be a way of building loyalty that will pay off over the years.

Today, there is a clear shift in the microfinance industry away from donor funding and toward commercial sources of funding, including the mobilisation of domestic savings. Microfinance NGOs are therefore scaling up their activities and becoming regulated financial institutions, while larger commercial banks are downscaling their operations to reap the benefits that this emerging asset class has to offer. This brings real promise to the goal of building inclusive financial sectors that benefit the poor. The increasing involvement of commercial banks in microfinance is critical if financial sectors are to be structured in a way that will help to ensure that both the poor and the poorest in developing countries have access to financial services.

International Year of Microcredit

2005 marks a critical year in the evolution of the microfinance movement. The International Year of Microcredit calls for building inclusive financial sectors and concrete actions to strengthen the often untapped entrepreneurial spirit that exists in communities around the world. This is a unique window of opportunity to ensure that microfinance can transform development and create jobs, business and economic growth in a way that enables microfinance to take its proper place as one of the main contributors to achieving the Millennium Development Goals.

The international year offers a challenge to national governments, central banks and supervisory bodies, multilateral institutions, the private sector (including the wide range of financial institutions), civil society and other stakeholders in the microfinance industry to work in partnership to assess and promote the power of microfinance so as to improve individual lives, communities and whole countries.

It could be said that microfinance offers the ultimate win-win proposition: profitability and social impact.

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Tsunami Lending In Sri Lanka, Loans Take On Key Role In Disaster Relief
Pledged Aid Is Slow to Reach Victims, So They Embrace Company's Offer of Credit Cash to Replace a Lost Boat
By ERIC BELLMAN and PATRICK BARTA
Staff Reporters of THE WALL STREET JOURNAL
February 17, 2005

COLOMBO, Sri Lanka -- The world has pledged more than a $1 billion to help this island nation care for its tsunami victims. But when Jasindra Maheshwaran needed cash to rebuild her life, it didn't come from that vast charitable outpouring. She got a loan.

Like many Sri Lankans in refugee camps, Ms. Maheshwaran first tried to tap the international aid through the government. Nobody got back to her, she says. So after more than a month, with still no livelihood, she took a nine-hour train ride to the offices of a Sri Lankan company called Ceylinco Consolidated. Two hours later she walked out with a borrowed $700, which she'll use to buy fish at wholesale and a motorcycle to transport the fish to local markets.

"Now we can start our life again," says the 27-year-old mother of two.

That survivors are going into debt amid an unprecedented aid flow underscores the unusual track the relief effort has taken here. Much of the roughly $1.1 billion pledged internationally for Sri Lanka still hasn't arrived, and of what has, only a small portion has made it to victims so far, local aid officials say. The reasons include bureaucratic snafus and political wrangling. Aid workers note that government officials are even impounding some donated supplies for fear they could be delivered to insurgents such as the Tamil Tigers.

In many villages, capital for houses, boats or other necessities isn't coming from foreign governments or famous global relief organizations but mainly from little-known local sources, including lenders, who're less hobbled by red tape and politics. Ceylinco, a Sri Lanka conglomerate with tentacles in nearly every aspect of village life, from beauty salons to banks, has offered loans to more than 10,000 tsunami victims so far. They range from $300 to $10,000, have a one-year grace period, and carry an interest rate of 6%.

Aid that puts the survivors in debt is hardly the ideal form of assistance. In some cases, people are taking out loans for items they probably could get free at a later date. Some are borrowing not to restore their earning power but for necessities that won't generate any income with which to repay the loans. "You have to ask, is [debt] a good rehabilitation model?" says Nathaniel Raymond, a spokesman for Oxfam America, part of the international Oxfam relief agency.

Some advocates for the poor are even more critical. "Robin Hood didn't rob from the rich and lend to the poor," says Sid Balman Jr. of InterAction, an alliance of nongovernment American relief groups. With so much free money available, he says, "anything above zero percent [interest] for people in such a desperate situation seems high."

But Ceylinco isn't gouging customers, say others, including Nimal Fernando, the lead rural financial specialist at the Asian Development Bank. He contends that private lending is necessary to speed reconstruction. Ceylinco's 6% interest rate is less than half the going rate for similar small unsecured loans in Sri Lanka, thanks in part to low-cost capital it is getting from the central bank. Ceylinco takes no collateral, so if the loan isn't repaid, it's the lender that will bear the loss. Ceylinco says it can afford that hazard because of its deep ties in rural communities, which enable it to judge risks better than many.

Behind the initiative is the group's charismatic chairman, Lalith Kotelawala, a white-haired 66-year-old who's better known -- and seems better trusted -- than most politicians here. A son of Ceylinco's founder and nephew of a past prime minister, Mr. Kotelawala nearly lost his eyesight to a 1996 bomb blast amid Sri Lanka's long-running civil war. During treatment in Britain to save his vision, he first fantasized about revenge, then changed his mind and instead formed a peace movement called the Society for Love and Understanding.

He also rallied other business leaders to help bring about a cease-fire in the separatist war, which pits the mostly Hindu Tamil minority against the largely Buddhist Sinhalese majority. The truce has held for more than two years.

To expand his company's profile among the rural poor, Mr. Kotelawala several years ago linked up with a Bangladeshi "micro-lender," Grameen Bank. Ceylinco thus began offering tiny loans to budding rural entrepreneurs. The experience convinced Mr. Kotelawala that the struggling poor, accustomed to being gouged by loan sharks, and appreciating being given a chance, can be counted on to repay if humanly possible.

"The poor person is a better credit risk than the rich person," Mr. Kotelawala says. "To break out of poverty, he is totally focused."

How well this will work out in Sri Lanka -- where it could take years for businesses such as tourism to recover -- is unclear. In any case, the loans are likely to benefit Ceylinco by boosting its image and cementing its place in tsunami-affected areas, which are key to the company's growth.

Mr. Kotelawala buys full-page newspaper advertisements, featuring his smiling face, to promote his views on peace, charity and economic policy. Soon after the tsunami, he took out ads asking people to come to Ceylinco for help. One showed him signing a loan for a family.

The response has been huge. Tsunami survivors arrive by the hundreds at Ceylinco's Colombo headquarters each day soon after sunrise. Middle managers call them one by one and interview them about their needs, what's left of their assets, and their plans.

Many are people who've previously dealt with one of the more than 200 corporate branches of Ceylinco. Combined, its various banking, insurance, real-estate, jewelry and other businesses have more than four million customers -- about a fifth of Sri Lanka's population. Using a customer database, the Ceylinco manager quickly checks a tsunami survivor's file. Then the manager makes a snap recommendation for a loan, or in some cases a small grant from a charitable fund Mr. Kotelawala set up years ago. The manager hands the recommendation to Mr. Kotelawala, who gives a quick personal audience to the survivor before he signs his approval.

Mr. Kotelawala says he plans to dish out more than $40 million in post-tsunami reconstruction loans. They're going to some people who probably wouldn't have qualified for a loan before the catastrophe -- and now have even less in the way of assets and livelihoods.

Recently, Mr. Kotelawala has taken his private reconstruction rally on the road. His Toyota Land Cruiser, flying the Ceylinco flag, leads a convoy of 20-plus cars that tours tsunami-ravaged areas. With him are about 100 Ceylinco managers, in matching polo shirts. At every stop, they're mobbed by survivors.

When the caravan rolled into the town of Hambantota last week, local government officials were showing off blueprints for a multimillion-dollar sports complex planned before the disaster. Mr. Kotelawala urged them to give up on it and sell Ceylinco some of the land, to build a community for victims. "Give me some land and I will fund the whole thing," he told the visibly uncomfortable officials. "Let's make Hambantota the first place with housing for victims. We can call it Tsunami Town."

Hundreds were waiting later when a phalanx of Ceylinco managers arrived at a Hambantota community center. At the door, guards from Ceylinco's security business had to tell many to wait outside. Inside, most people stood because there weren't enough plastic chairs. They were offered butter cake and bananas.

After a couple of hours waiting and chatting with Ceylinco managers, K.P. Rejee, 32 years old, walked away with a loan of 600,000 rupees, or about $6,000, to buy a fishing boat and motor. When he was told the loan was official, he got down on his knees and touched Mr. Kotelawala's feet, a sign of respect usually reserved for top political and religious figures.

Mr. Rejee said he wasn't concerned about making his payments, even though it isn't yet clear how sustainable the post-tsunami fishing industry will be. He has paid off smaller loans at triple the interest rate, he said.

He also said he saw little choice but to borrow. "The government is dragging its feet. They keep saying, 'it will happen, it will happen,' but nothing has happened," said Mr. Rejee, who lost his home as well as his fishing boat in the tsunami. "A loan is fine because I can't afford to wait any longer."

Villages' requests for donated equipment or permission to build new houses often require government approval that can be slow to come. Sri Lanka President Chandrika Kumaratunga promised after the tsunami to complete the country's reconstruction, which could include as many as 100,000 new homes, within six months. The government's first project, a collection of houses on a hill near Hambantota, is still mostly a clearing in the jungle. The government now says it will begin large-scale reconstruction in March.

Legal uncertainty over where families can rebuild is the biggest source of delay. The government says it will prohibit most building within 100 meters of the ocean, to be safe from any future tsunamis. But despite weeks of discussions within the government, the exact terms of the policy -- including whether it bars repairing some damaged shops and homes close to the sea -- remain unclear.

Sri Lankan officials acknowledge that parts of the reconstruction are moving more slowly than some would like. But "we've done pretty well" considering the enormous logistical complexities, says Harim Peiris, a spokesman for the president. International relief agencies add that there are risks in moving too quickly, including letting people build on land with poor drainage or to which they don't hold proper title. Systems must be put in place to avoid such mistakes and also to prevent fraud, says the World Bank's country director in Sri Lanka, Peter Harrold.

Ceylinco offers a faster alternative, for those willing to take on the debt. Ms. Maheshwaran, the woman who borrowed $700 to get back into the fish business, already had a small life-insurance policy with a Ceylinco unit. Now she will have to cover debt payments as well. But Ceylinco is confident she will be able to once she is back in business.

Ceylinco knows she kept up her payments on the insurance policy for the past two years. "She's a good customer," says Jude Nelukshan, the Ceylinco manager who interviewed her. "So we are trying to help her out."

Before the tsunami, Ceylinco was getting its lending capital for about 9% and lending it out at about 14% -- adding two percentage points for administrative costs, one point for a risk premium and two points for its profit. With tsunami loans, it gets capital at 3% from the central bank and adds three percentage points, largely for administrative costs. Analysts say the loans to disaster survivors, priced to barely cover costs, will lower Ceylinco's profit margins. The company had about $30 million in profit last year on around $600 million of revenue.

The lending may pay off for Ceylinco in the long run, however, by lifting its profile with the rural poor. This is important for the company because low-income Sri Lankans are its main source of capital, via their savings accounts and insurance policies with various subsidiaries.

"Ceylinco has proven it can be profitable" when it reaches out to the poor, says Dinesh Warusavitharana, an official of credit-rater Fitch Ratings Lanka. He says the post-tsunami lending "has a tremendous positive impact on the group image."

Mr. Kotelawala dismisses concerns that the borrowers are making bad decisions by taking on loans they can't repay, noting that if they default, it's Ceylinco that takes the hit.

Besides, he says, for most of them, borrowed money beats the alternative of continuing to wait for the international assistance. "The aid will come, but victims can't choose what they get or when," he says. "What they need is to start their lives again."

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Switzerland jumps on microfinance bandwagon
By Faryal Mirza, swissinfo

2005 has been designated the International Year of Microcredit to highlight the role these small loans play in alleviating poverty in developing countries.

This week the Swiss Agency for Development and Cooperation (SDC) said microcredit would form a key element of its strategy for the year ahead.

One of Switzerland's goals is to persuade the private financial sector to help improve lives through investing in microfinance institutions (MFIs), which provide loans to low-income clients.

Given the unreliability of foreign aid budgets, MFIs are hoping that big businesses will throw them a much-needed credit line by offering a secure source of funding.

The extra funds would allow these mostly charitable organisations to boost their infrastructure and finance their loan portfolios for the estimated 500 million so-called microentrepreneurs globally.

Microentrepreneurs, who come from low-income backgrounds, cannot afford to provide collateral for loans and are thus excluded from mainstream financial services. Many are in rural areas beyond the reach of banking services.

The MFIs plug the gap by offering microcredit to these individuals. Now the private sector is being tempted onboard with the promise of benefiting from the extensive networks and infrastructure they have built up.

Driving Swiss policy

The idea that the world of business could help solve the problems of developing nations is one that drives Swiss development policy. Walter Fust, head of the SDC, says that he has been a keen believer for the past decade in the adage of "poverty alleviation through business".

The SDC already invests SFr25 million ($20.7 million) a year in the microfinance sector in around 20 countries.

Fust sees microcredit playing a vital role in getting the tsunami-hit areas of southeast Asia back on their feet.

He told swissinfo that developing nations have frequently asked Switzerland to participate in microfinance projects because of the reputation of the Swiss financial sector.

Fust added, that despite the success of MFIs, 80 to 90 per cent of poor households and small enterprises around the world still had no access to financial services.

"The main constraints for private sector [involvement] have been the risks and high costs," said Fust, adding that he believed this was just an excuse.

The real reason, he explained, was the "lack of a clear engagement and strategy to serve the poor". To help the Swiss private sector jump on the microfinance bandwagon, the SDC and the State Secretariat for Economic Affairs have formed a partnership with a Zurich-based social-investment platform, responsAbility. The initiative's shareholders include four Swiss financial institutions: Baumann & Cie, Credit Suisse, Alternative Bank and Swiss Re.

Acceptable risks?

responsAbility has set up the Global Microfinance Fund, targeted at the socially minded investor, who is interested in a combination of moderate financial returns and social benefits. Generating a fixed income, the portfolio consists of direct loans to MFIs.

For Klaus Tischhauser, responsAbility's managing director, the private sector has a clear role to play."Private investors are needed to take over from the public sector where the risk is acceptable," said Tischhauser.

Proponents say that the private sector cannot afford to stay out of what is seen as a fast-growing industry with a vast client base. Added to this are the limited credit risks — the loan repayment rate for microcredit stands at nearly 100 per cent. And the icing on the cake: businesses get to help stamp out poverty.

Little goes a long way

responsAbility estimates that a loan of SFr100,000 ($84,000) to an MFI for a term of five years would result in microcredits worth SFr1 million.

"This [could lead to] a sustained improvement in the lives of around 10,000 microenterprises and indirectly in the lives of around 40,000 family members," said Tischhauser.

One of responsAbility's advisers is Geneva-based Blue Orchard, which says that it sees "no contradiction between social impact and commercial investments".

This for-profit asset manager says its activities prove that it is financially worthwhile pouring funds into MFIs. It manages the Dexia Micro-Credit Fund, said to be the first private worldwide and fully commercial microfinance investment fund.

With total assets of $58 million, the fund targets MFIs with short-term debt in 20 countries; so far, none has defaulted and there has even been a net return on its investment.

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Mbanda

Mozambique
When Aid to Artisans (ATA) first met Mbanda (born Jose Rodrigues Fumo), he was carving under a tree. Originally working alone, Mbanda now employs four other artisans in his workshop. Read Mbanda's entire success story >>
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