Friday, June 9, 2006

KUWAIT: For the world’s poor getting a loan to start up a business is almost impossible, because of the strict rules most banks follow including the necessity to borrow against collateral. However, microfinancing – though not a totally new financing concept – is growing more popular now that it helps the poor and yet manages to get a bit of cash for the lenders. Microfinance can be defined as the provision of comprehensive financial services to micro-entrepreneurs.

Still, the idea of giving loans to the less fortunate may seem difficult to comprehend if it is not related to charity. “I remember some funny stories when I used to go meeting my billionaire friends in New York, they would ask me: why would I lend money to poor people?” says Alexandre de Lesseps, Director of BlueOrchard Finance in Geneva during an exclusive interview with the Kuwait Times during his recent visit to Kuwait.

The concept of microfinancing is not new; it is traced back to Prof Muhammad Yunis, who founded the Grameen Bank in Bangladesh in 1976. Yunis was known as a ’banker to the poor.’
“They used to call us the philosophers of finance in Geneva,” said de Lesseps with a laugh, recalling his first days when he joined BlueOrchard in late 1999. De Lesseps is an international businessman, but he is not an ordinary investor. As a co-founder of BlueOrchard, he is a leading figure in the world of microfinance.

Microfinance institutions (MFIs) usually lend small loans in amounts of $500-1,000 to the poor people in developing or under-developed countries who are usually ignored by commercial banks. Investors in microfinancing make profit in the form of interest payments in the order of 2-5 percentage points above the London Interbank Offered Rate, the international benchmark known as Libor.

The World Bank estimates that there are now over 7,000 microfinance institutions, serving some 16 million poor people in developing countries. The total cash turnover of MFIs worldwide is estimated at $2.5 billion and the potential for new growth is outstanding.

As the concept of microfinancing is to lend money to the poor, such loans cannot be backed by collateral, subjecting the lenders to a high risk of loss if the loans were not paid back. As per the United Nations Capital Development Fund (UNCDF), it is estimated that worldwide there are 13 million microcredit borrowers, with $7 billion in outstanding loans, and generating repayment rates of 97 per cent. It has been growing at a rate of 30 per cent annual growth.

De Lesseps strongly believes that the human factor plays a big part in driving the borrowers to pay the loans back. “You are helping people for the first time, it is a lifetime chance. People like the idea to pay back, and [they] would cover for each other,” he said.

“The principle of microfinance is simple: bring very little amount of money multiply it by the biggest number of poor people,” said de Lesseps. “But you can’t have a bank lending philosophy because you lend to people who get together,” he added.

To de Lesseps helping the poor to become entrepreneurs is what microfinance is about. “We visited a village in Cambodia where we lend 80 women $25 each. They have pulled their resources together and grew vegetables,” he said. The whole village has been transformed from dust to productive.

Moreover, BlueOrchard must asset the local MFI and see the money at work. “We have eight people who travel almost all the time to check the local institutions and the end user, and make sure we are not giving money away,” he said. Microfinance loans can start from $25 up to $500, and to be paid on 6 months to one-year period.

BlueOrchard is now working with more than 60 microfinance institutions with total current assets under management of $270 million, in over 23 countries mainly in Asia and Latin America. But De Lesseps’ plans to expand BlueOrchard’s business and is now eyeing the Middle East. “I am on a sort of general tour in the Middle East, because I am convinced that microfinance has a huge potential in the region,” he said. “There are few countries such as Egypt, Jordan, Lebanon, Palestine, Morocco, Tunisia and Yemen that already have existing microfinance institutions,” he added. BlueOrchard is currently working with MFI institution in Jordan, while studying investing opportunities with Egypt.

De Lesseps was to meet with the Kuwait Fund for Arab Economic Development (KFAED) on Tuesday. “What I am trying to do here [in Kuwait] is to generate awareness about microfinance because it seems that we are all interested in fighting world poverty. We are in the process of meeting with investors here but nothing is materialised yet,” he said. “Here [in Kuwait] you have enormous amount of money, and some of these money are well distributed in donor grants and helping out small business but I think bringing capital to the people who have none – to the poorest – has a huge potential here,” he added.

De Lesseps stressed more than once that microfinancing is not about donation. “I always stress the point: we are not involved in charity business,” he said. “The return doesn’t make you rich but it is 2 per cent more than what the banks give you,” he added.

BlueOrchard charges 2-7 per cent more than the Libor rates on loans to local MFIs, and in their turn charge rates to the borrowers 2 per cent above local bank rates. “The problem with people who are in poverty that the only financial services are given by loan sharks, who charge up to 10 per cent a week or even a day,” he said. “That’s why the first thing that disappears when MFIs come to a village are the loan sharks because they can’t compete,” he added.

De Lesseps traces his entrepreneurial spirit and interest in social development to his great-great-grandfather Ferdinand de Lesseps, the French diplomat who commanded the building of Suez Canal in 1879. He then made an unsuccessful attempt to build the Panama Canal in 1880.

Alexandre de Lesseps started his involvement in microfinancing at the end of 1999 when two of his friends Mechior de Mauralt and former UN microfinance specialist Jean-Philippe de Schrevel approached him with investing in BlueOrchard. The idea that the investment has a social impact appealed to de Lesseps because he was raised in Sudan and was already involved in other humanitarian activities.

During its first years of investing BlueOrchard has $70 million that were mainly the company’s owners personal money. Now BlueOrchard is investing much larger amounts of money with names such as Morgan Stanley, JPMorgan, OPIC and Credit Suisse Bank. “The world perception is changing now,” said de Lesseps. “Every big business wants to have the green image or that it is helping poverty. I am not questioning their motive and I think it is perfectly timely that everybody is aware that they have to do something,” he added. “Lots of people started to realise now that it is time to help the poor because otherwise we will have a clash of civilisations when 3 per cent of the world own everything and the rest own nothing,” he concluded.

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