The conference’s closing panel featured Robert Annibale, Global Director of Microfinance, Citigroup; Alex Counts, President and CEO, Grameen Foundation USA; Mary Houghton, President and Director, ShoreBank Corporation; and Richard Taub, Paul Klapper Professor of Social Sciences and Public Policy, University of Chicago. The panel was moderated by Christina Barrineau, Chief Technical Advisor, “International Year of Microcredit 2005,” United Nations Capital Development Fund. Here are excerpts:

Barrineau Where do you think microfinance is going to be in 10 years?

Counts I think the key question is where is the money going to come from? In a perfect world, it will come from borrowers’ savings. So far, where that’s been possible in a microfinance environment, it’s been a major source of growth. Grameen Bank now has more than $325 million of borrower savings, which more than covers its loan portfolio. But for the most part, that’s not permitted. There are many problems with foreign capital: exchange rate issues, regulatory issues, repatriating equity, profits, and loan principal. If we are going to expand and address the global poverty crisis with microcredit, it’s going to come from local money. Using guarantees and increasing volume and leverage to actually take money from inside to finance growth—things like that are in our future. We’re also seeing that it’s possible to use a microfinance platform to take other businesses that would be marginally profitable and make them more profitable, and for social objective-oriented businesses that would be not profitable as a stand-alone to become at least marginally profitable. For example, a major development in Bangladesh is that regulators are starting to come from the top level in microfinance in the biggest microfinance market in the world. If more of this can happen, I think we will see breakthroughs on a regulatory front that will spur breakthroughs elsewhere.

Taub Microenterprise now is at an important moment. There is national and international enthusiasm for it. But I’m concerned about a couple of things. One is the extent to which microenterprise is a social movement. If we agree it is a serious business activity, one ought to be clear what its goals are. Is it going to help the poor? Is it going to achieve economic development? Is it going to provide banking for a larger sector of the population that has not had the opportunity to get it? Is it going to empower women?

Barrineau Mary, do you think microfinance is a social movement or is it a serious part of the financial sector?

Houghton It’s both. Is this market return investment to really broaden the banking sector, or is it a mid-return social investment? What are these institutions that try to both influence poverty and broaden banking? What is this sector that’s in between the conventional and the unconventional sectors?

Barrineau Bob, do you see yourself as part of a social movement, as a do-gooder, or do you see yourself as part of the serious financial sector?

Annibale I believe that what we are doing is more than being “ do-gooders”; it is about doing the right things to make financial services and related opportunities more accessible to a wider range of people. I am delighted to be participating along with MFIs (microfinance institutions), NGOs (nongovernmental organizations), governments, and others in this social and commercial movement with many common objectives for providing many more people with financial services, choice, and opportunities. What we are referring to as “microfinance” includes a wide range of financial institutions and people with different needs and objectives. There are programs focused on everyone from the ultra-poor to those who are very economically active and above the poverty line in their country, but who simply lack access to basic financial services.

Barrineau From Citigroup’s perspective, where do you see opportunity? Why did Citigroup create a business unit?

Annibale At Citigroup, we realized there was a need and an opportunity to bring financial services to many more people than are currently reached by the formal financial sector. With humility, we realized that there were microfinance institutions and a new breed of bankers that were developing innovative products and methodologies for servicing the “unbanked” and that the best way for us to learn and begin would be to work with such institutions as partners and clients, which would also make for a much more inclusive financial sector. Citigroup has contributed to the growth of comprehensive consumer banking in many countries, so we also can share our experiences. We are working with leading MFIs and others with the objective of increasing the scale of access and broadening the range of financial products delivered in a number of innovative ways on a commercially sustainable basis.

Barrineau So does microfinance really affect poverty or is the impact too small?

Counts I think the balance of the evidence is that it does. Microfinance is having a major impact in a couple of markets, such as in Bangladesh, where it’s gone to serious penetration. According to Jeffrey Sachs, Bangladesh is beginning to pull itself up from the bottom rung of the development ladder. This is happening for two reasons. One is sweatshop labor was employing people. That’s okay, but it’s still sweatshop labor. The second major reason for progress on poverty was microcredit. I think the vision is to have that level of impact globally, and I think it can be done. In fact, the model of the people who grew the industry in Bangladesh is very interesting because their ethics actually shaped the movement in some very creative ways. They could have reaped monopoly profits from microcredit for a long time before there was competition. But the goal was always to try to break even—just figure out what the costs are, and keep them down. All the loan officers who wanted their salaries to go up had to negotiate hard. Now there’s actually competition that would prevent them from raising prices that they could have initially. That was a major windfall for the poor because there’s so much competition now. This is, I hope, the future.

It’s a chaotic future, but now a poor woman has choice. Even if you say that 20 percent of those 15 million families accessing microfinance in Bangladesh are duplications (the same client borrowing from two microfinance institutions), this is a major breakthrough. And this competition will drive down prices, perhaps drive some out of the market, and also drive product innovation as people try to differentiate themselves and compete for the business of poor women. This is a radical concept if you think about it. On the cost side, two things are going to drive down costs. One is technology and another is scale. Scale itself will drive down costs as people reap economies to scale. There’s an interesting process playing out. And then there’s the issue of leadership and governance in terms of how decisions are made because there’s tens of millions of dollars at stake.

Taub But practitioners claim that microfinance is causing economic development, alleviating poverty, and empowering women, but with little evidence, if any, for these assertions. To market these programs to funders, exaggerated claims are made, which, in fact, are seldom if ever realized. A related problem is that so much enthusiasm is generated for small territorial-based programs, that attention is deflected from alternative national policies that are likely to have more profound consequences for the poor and for development. Big national programs that focus on human capital development, such as education and health, and efforts to deal with corrupt governments would have much larger and more widespread consequences.

Barrineau Richard, 80 percent of the market is being reached in Bangladesh with microfinance.

Taub I think that’s wonderful.

Counts Thank you.