MICROCAPITAL STORY: Michael Chu Promotes Commercial Microfinance in Forbes Article

In a recent Forbes article, Michael Chu, senior lecturer at Harvard Business School and former CEO of ACCION International, writes that microfinance is a scalable, sustainable model that can provide real hope of winning the war against global poverty, even in the midst of the global economic crisis.

According to Chu, any strategic model that seeks to roll back poverty must encompass four fundamental attributes – scale, permanence, efficacy, and efficiency – and the only way to achieve all four of these attributes simultaneously and consistently is through private enterprise. He argues that the creation of industries such as microfinance produces competition that brings forth the massive scale, sustainability, and continuous improvement needed to vanquish poverty.

The reason why microfinance works, even in depressed global markets, lies in what Luis Alberto Moreno, president of the Inter-American Development Bank, calls “opportunities for the majority.” The 70 to 75 percent of the world’s population who live on less than USD 300 per month and are not currently served by the private sector represent an enormous opportunity for new industries. Chu cites an IDB, International Finance Corporation, and World Resources Institute report, “The Next Four Billion,” which estimates that this “two-thirds of humanity” represents a market that spends USD 1.2 trillion annually.

Chu gives two examples of social businesses that are built on the opportunity of the majority. Farmacias Similares, a Mexico-based pharmacy chain that targets the bottom of the pyramid, currently has annual sales of USD 800 million, with 3,916 outlets serving over 15 million Mexicans every month. The second example is Banco Compartamos, which was valued at USD 1.53 billion when it became the first Latin American microfinance institution to offer equity through an Initial Public Offering (IPO) in April 2007. Today, Banco Compartamos has a gross loan portfolio of USD 414 million and reaches 1.15 million clients.

Chu concludes that successful businesses such as Farmacias Similares and Banco Compartamos inspire industries and represent a sustainable model that is reason for new optimism in the fight to reduce global poverty.

Michael Chu has been an active supporter of commercial microfinance for many years, beginning during his tenure as President and CEO of ACCION International. ACCION, a non-profit organization that both partners with and invests in microfinance institutions, has disbursed approximately USD 23.4 billion to 7.7 million clients worldwide. As President, Chu played a major role in the development of Banco Compartamos and was a supporter of the controversial IPO in 2007. Following the belief that high profits are integral to social impact, Chu co-founded IGNIA in 2007, an investment firm based in Monterrey, Mexico that is dedicated to investing in commercial enterprises serving low-income populations in Latin America. IGNIA has raised USD 34 million to date, from investors such as the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB) and private foundations, and aims to raise a total of USD 75 million. IGNIA has invested in Primedic, which delivers health care to urban low-income populations, and Jardines de Grijalva, an affordable housing development in Chiapas, Mexico.

Chu has written several articles in support of commercial microfinance and social enterprise, including a December 2007 article for Forbes and several papers in his position as Senior Lecturer in the Initiative on Social Enterprise of the General Management Group of the Harvard Business School.

In October 2008, Chu debated Mohammad Yunus, the Nobel Prize winner and founder of Grameen Bank, on “How fair is it to do business with the poor?” at the World Microfinance Forum Geneva. The debate over the role of profit in microfinance has become a key issue of the industry, and is explored in this MicroCapital Special Feature. The event solidified Michael Chu’s position as a leading proponent of commercial microfinance, and his opinion piece in Forbes is yet another contribution to the ongoing debate.

By Jaclyn Berfond

Additional Resources:

Forbes: Getting Microfinance Right by Michael Chu

Forbes: Profit And Poverty: Why It Matters by Michael Chu

Harvard Business School: Michael Chu Biography

ACCION International: Homepage

MIX Market: Homepage

NextBillion.net: Four Questions for IGNIA’s Michael Chu

Inter-American Development Bank: Opportunities for the Majority Initiative

World Resources Institute: The Next 4 Billion

MicroCapital Special Feature: Mohammad Yunus and Michael Chu Debate Profiting from Poor People at the Worldwide Microfinance Forum