The world of microfinance has quickly become one of ordinary miracles, though not in the sense that they are anything less than astonishing. They are ordinary in the ecclesial sense; they come one after another.
One loan goes out and comes back, with interest. Another loan goes out as the sum total of money from the first, and the process is repeated until there is enough for two loans, then three loans and so on. The loans stay small, spreading out as the pot grows with each new round of loans. Each loan builds the capacity for a household or village to sustain itself – purchasing a cow to sell milk, a mule to plow more land in less time or a sewing machine to open a tailor shop. Borrowers pay back the money with interest, and more loans are made. One after another.
Even in all its marvelous progress, for true believers in humanity’s inherent value, microfinancing is hardly more than vindication.
For those who believe there is no value but market value, microfinancing has managed to prove its virility as a venture. The Nobel Prize-winning Grameen Bank reports a default rate of less than 2 percent, with interest rates typically hovering around 30 percent. Grameen reported net profits of $15 million in 2005 and $20 million in 2006.
The next level of development calls for something out of the ordinary.
Last week as Villanova met face-to-face with Immaculeé Ilibagiza, the heroine of “Left to Tell,” officials in her home country of Rwanda prepared to inaugurate the tiny nation’s own securities exchange in Kigali, the capital. It will open trading in corporate bonds and treasury notes, with trade in stocks on the horizon. Among other expected benefits, the added financing potential of an exchange will likely address that strange space between the world of multinational corporations and that of microfinance miracles – the realm of mesofinance.
It is a wide gap, to say the least, between a multi-million dollar investment to build a factory and a $100 investment to purchase a mule.
Longer-term corporate bonds represent that type of investment Africa needs most: mesofinance. Running in the 5-15 percent return range, they offer less than a typical venture capitalist might demand in return. They are also paid back over a longer time horizon. These loans do not come one after another; they each take time, but they are each almost as certain to be paid back as smaller loans. They build capacity within Africa in the same way microfinance builds capacity within smaller villages.
They solve problems – or more accurately, they allow problem solvers to go to work.
These are larger problems, such as irrigation systems or a fleet of trucks with drivers to move goods to market. They expand current businesses to extend their capacity, sustainability and profitability. They are the natural next step, but it takes more time and patience to profit from such investments than is typically exhibited by global financial markets or microfinancers, though it does not make it much less profitable.
The solutions funded by mesofinancing are critical to any economy’s development and, by extension, the global economy as a whole. Ideas are the ultimate engine of economic growth – not tax rates, trade policy or other factors politicians like to credit themselves for thinking up. By extending the potential market for an idea to a world of investors, innovation bursts forth literally from the ground, like grass on the savannah.
Right beneath the radar of world media, thoroughly mesmerized by Asia’s breakneck double-digit growth, Africa as a region has actually been accelerating from 3 percent a decade ago up to 6 percent by some estimates today. The grass is growing in Africa, though not fast enough to feed the world’s fastest-growing population, which is riddled with well-documented crises like AIDS, malaria and chronic hunger.
Even after warranting a Nobel Peace Prize, microfinance will not grow enough grass in Africa – nor, for that matter, will multinational corporations be enough. The dramatic success of microfinance institutions has brought immense resources into their coffers, Catholic Relief Services (a Villanova partner) among them.
It may just be time to recognize the next page in the larger story of eliminating poverty. Even miracles, it seems, need makeovers.
Oscar Abello is a senior economics major from Philadelphia, Pa. He can be reached at [email protected]