A path to helping the poor Microfinance institutions see the sense of investing in the developing world 1 SIN New York, people are alvays asking me the same _ question,” Alexandre de Lassep sas: “Why do yo vant 10 lend meney 10 poor people in developing counties?” Mr de’ Laseps, 5, an international investment banker, dnas a roady answer, “The only way (0 sole the problems of poverty and tert fm in the world toda.” he says, "is through investment” AS a co-owner of BlueOrehard Finance, a corporate bank in Geneva, he is one of the leading fig tures in the World of microfinance. Hs firm manages a fund that currently ‘makes about $50 raion in short-term Toans to microcredit lending institutions jn more than 20 developing: countries around the world, and BhueOrchard and its investors make a profit inthe form of interes payments om the loans that they ‘make to sch insteutions. 2 Microfinance institutions typically ‘make loans in amounts of $1,000 or les to poor people in developing countries ‘who are ignored by commercial banks. As a rule, microcredit loans are not ‘backed by collateral leaving no means of financial recovery forthe lendet if they are not repaid. But leading microcredit institutions claim thar only fve percent of the loans they make are neve repaid This compares with five to fen per ent jm the consumer finance industry for borrowers with bad credit histories, Just less than $500 millon i= committed to microcredit loans worldwide, according to BhicOrchards estimates. Bur Mr de Lessps says he believes that today the total market for sich loans may be neat Iy $3 billion, “Hie acknowledges thatthe aims of his ‘mierofinancing Yentures are not purely philanthropic. "The reason we lend money 10 poor people in developing Countries isnot only so that they can ‘make money," he sad, “but alo 20 tht ‘our nestor can make money” The t= ter, of course, have to be his primary concern, His involvement in mictoti- rancing began a itl over two years ag, When a Swiss banker and. friend approached ‘him about investing in BlueOrchard, which was founded by microfinance specialists Citric Lombard and Jean-Philippe de Shrevel, fone-time employees of the United Nations, OY When de Lesseps and his team arrive ina country, they Vist the central bank or leading aid instiutions, the ones gen- cally doing microfinancing. Later, on Site research often wakes them f0 inter villages, where failies may live on less than $10 a month “T vst a village in ‘Cambodia where the people used micro cre loans to buy iigtion equipasent and seed, which they use to grow vegeta bles" Mr de Lesseps said. "They ate now selling the vegeubles to exporters and 10 2 local hotel. Such villages are being transformed from dust to being productive, You don't ask for collateral fn the loans because they don’t have But they will die t0 pay you back because you are giving chem @fist-time chance. IP a matter of pide." > BlueOrchard typically charges wo to seven percentage points more that [Bbor, the international benchmark. for interes ass, fo loans to local microere= it institutions, which dhen change rates to their borrowers based om assesements ofisk factors. “now that sounds pet ty high,” Me de Lesseps sad. “Bue you bhave to remember that other forms of locally available credit are five times higher than that.” © Me de Losseps seid he believed that 80 per cent ofthe potential for microf- nancing worldwide remained untapped, and that the industry would easy be ie 9 absorb more than $10 bilion or me, the only way to make a difer cence," he sai, is wo make sure that the money going to developing countries is properly managed and not just thrown Glossary collateral assets that can be used asa guarantee fora loan philanthropic benevolent, interested in people's well-being Libor London Interbank Offered Rate (the rate of interest at which London banks offer loans to each other)