From the inner cities of America to the remote villages of Africa, we know the current economic slump is going to seriously hurt the poor, undermine nonprofit social safety nets, and reduce the social finance funding on which so many depend.

Even before the economic meltdown, the need was enormous:
• 22 million Americans are unbanked.
• 80% of US micro-entrepreneurs – 10 million business owners in all — have never
received a bank loan.
• Since 2005, food commodity prices have doubled — shoving 100 million people
back below the poverty line. Overseas, food expenditures in poor households
now account for about 50% of income. By sad coincidence, that’s roughly the
same number of microfinance borrowers created
own over two decades ago.

• In the developing world, 2.5 billion people remain unbanked — or underbanked.
Notwithstanding inspiring media reports and a Nobel Prize for Mohammed
Yunus, microfinance has only achieved a 10% market penetration.
The sober and humbling truth is that, if you keep your food in a refrigerator and your
clothes in a closet, if you have a roof over your head and a bed to sleep in, you are
richer than 75% of the world’s population. Half the world’s people survive on just $2.00
a day or less.
As depressing as the poverty statistics are and as discouraging as Wall Street has
been, this audience – more than most – knows that for a poor person everyday is a lousy
stock market day.
In that regard, nothing much has changed. Our shared mission remains.
We are part of a righteous movement and a mighty campaign to reform political
economies that thwart opportunity, steal dignity, and destroy lives. We are committed to
economic policies of creative opportunity, not creative destruction.
For times like these, the ancient Persians observed: “When it is dark enough, you can
see the stars.” In this time of economic darkness, each one of you is a star. Unbowed,
undaunted, uncowed, working together, you form a constellation for change – lighting
up the communities in which you work.
But, it is not enough that we are well-intentioned. From decades of disappointing
experience, we social entrepreneurs know that well-motivated is not the same as wellrun.
This conference is, in part, about lessons and learnings from international microfinance,
and accelerating their application for the communities of California. Today my
assignment is to discuss the commercialization of microfinance:
• What is relevant and what is not?
• Is microfinance a viable asset class or a social movement?
• Are we advocates for the poor or advisers to the well-off?
• Who do want as our literary role model? Don Diego de la Vega (aka Zorro)?
Don Quixote? or Don Corleone?
Because the scourge of poverty demands our very best, we in this room have to be
high-minded without being soft-headed.
Microfinance marries profit margins to social missions. It fuses together our pragmatic
knowledge about market realities with our noblest aspirations for economic justice.

Beta-tested in the flood plains of Bangladesh and in the high Andes of Bolivia,
microfinance achieves what we social entrepreneurs call “sustainability” and what the
business community calls “profitability”.
Properly deployed, implemented, and managed, microfinance builds economically
viable enterprises on three levels:
First, profitable micro-businesses feed the hungry — and foster village-level
micro-economies.
Second, for-profit and nonprofit mini-banks are themselves sustainable social
enterprises, — creating jobs and access to credit.
Third, microfinance investment funds profitably deploy public and private sector
capital to fund micro-businesses.
Around the world, there are an estimated 10,000 microfinance programs. Arguably,
about 500 of them are in the black; over 9,000 are not. The data reminds us that
sustainability, life’s hardships, and mission commitment do not always align.
We know the potential for changing the poverty paradigm with private capital is huge
and promising. At the turn of the last century the Industrial Revolution became the
single biggest anti-poverty program in the history of Humankind. In our own time,
Chinese capitalism has lifted 300 million people out of rural poverty – three times the
number of entrepreneurs created globally by microfinance.
That said, we social entrepreneurs need to respect – pragmatically and with clarity – the
core differences that distinguish textbook market conditions from market opportunities
for micro-enterprise.
The financial environment in which microfinance operates is distinctive and demanding,
and bears clear-eyed delineation:
First, in functioning markets, capital flows to its highest and best use. The only
seriously measured metric is return on invested money.
In microfinance markets where the poor live, capital is rare and expensive. Indeed,
microfinance was invented because mainstream banks had historically and
enthusiastically ignored the poor. Serving the bottom of the pyramid is a great idea, but,
generally speaking, wealthier customers represent less trouble, less risk, and more
margin.
Second, in functioning markets, the reality of creative destruction and survival of the
economic fittest is accepted as a necessary consequence of progress. Some
businesses succeed, some fail. Risk and reward is measured to the single basis point.

In microfinance markets where the poor live, when a microfinance institution fails, a
baby cries in hunger. In harnessing the power of free markets to serve the poor,
microfinance is challenged to live the words of the poet: “A wise man should have
money in his head, not in his heart.” 1
Third, in functioning markets, profits create competition, bring down prices, improve
products, maintain high levels of consumer service, and extend markets. Less
admirably — along with jobs, innovation and economic growth — capitalism has often
produced cartels, monopolies, pollution, worker exploitation, and disdain for the
consumer.
In microfinance markets where the poor live, the drive for profits can morph into
predatory pricing, mission drift, and loan sharking. Property rights and contract
enforcement depend on social capital or brute force and fear. Characteristically, the
disenfranchised and the illiterate do not have the law on their side. The poor are
powerless.
Fourth, in functioning markets, money makes money. Investors use leverage and
complex financial structuring to maximize profits, mitigate risk, and preserve capital.
In microfinance markets where the poor live, capital is rooted in the land and a few
possessions. Capital assets are vulnerable just as the poor are vulnerable. As the
credit crunch painfully reminds us, high leverage and opaque financial accountability is
dangerous for investors, and exceptionally dangerous for the poor.
Fifth, in functioning markets, prices are set between willing buyers and willing sellers.
In microfinance markets where the poor live, scarcity and monopoly live side by side.
The poor are captive consumers. Pricing is set by ethical business practices, by
government, or by greed.
Sixth, in functioning markets, modern companies are fully integrated into the global
economy — sourcing cheap labor, capital and raw materials, hedging currencies,
dominating distribution channels, and so on. Wal-Mart is the poster child for this
phenomenon.
In microfinance markets where the poor live, microcredit works in the informal economy
far from government regulators and even farther from Wall Street. While some
microfinance programs have become de facto regional banks focused on investing
global capital, most microfinance leaders remain laser-focused on staying close to local
communities and clients.
Seventh, in functioning markets, a measure of consumer protection and financial
transparency exists.

In microfinance markets where the poor live, usury laws, SEC full disclosure and
published Annual Percentage Rates are missing. Mistakes of the marketplace are paid
for by the poor for whom life is “fragile, cheap, dangerous, and unpredictable”. 2
Microfinance bears a singular responsibility for the impoverished who go into debt to
feed their children.
Eighth, in functioning markets, a distinction is made between public and private goods.
As one social economist famously recorded, a society overly-dependant on private
markets is often a society with too many vacuum cleaners and not enough street
cleaners.
In microfinance markets where the poor live, private investment is not a substitute for
economic justice. If it were, the smartest, hardest working mother in the poorest country
on the face of the Earth and the Internet inventor of an electronic flea market would both
be compensated justly for their labor and societal contribution.
In the real marketplace of life, each one of us has the individual freedom to use our
economic power in accordance with our values. We can deliver the benefits of robust
free markets without abrogating ethical business practices in fair trade, in human rights,
in safe products, and in microfinance lending.
At its core, microfinance is overturning 10,000 years of free market bad behavior – from
slavery to debt bondage, from company towns to global cartels, from discriminatory
banking to predatory pricing – the list is shamefully long.
No human being should be cast aside or be forced to wait patiently in abject poverty for
a mythical invisible hand to miraculously and mysteriously deliver the conditions for
economic opportunity and justice.
For the most desperately poor, microfinance is an engine of economic survival. And
that alone is a remarkable achievement. But microfinance by itself is not a poverty
panacea. As we cannot bomb our way to peace and prosperity, we cannot debt finance
our way to economic justice.
Microfinance is about more than money. None of us in this room would accept living in
a community with bad schools, little healthcare, no electricity, and filthy water –
but with a great bank. Economic justice means the poor must have the power to
speak up, speak out and speak for themselves.
Whether financing an impoverished woman in Kenya or an impoverished woman in
California, we are called upon to embrace the words of a chaplain: “Be a maker of
peace, a steward of mercy, a voice of reason and be the hands and feet of justice.”3
Thank you and Godspeed.