When the World Economic Summit convened today in Davos -- an Alpine resort nestled in the cozy and romantic confines of Switzerland's Sertig Valley -- reporters such as the Wall Street Journal's Marc Champion pronounced it "more wracked with self-doubt" that at any time in its 38-year history.
Among the top, as yet unanswered questions are, as Champion put it, "What will provide [future] growth?," and as the summit's chairman and founder, Klaus Schwab, asked, Where should leaders look to find a new "transformative vision for international finance"?
The answer to the last question seems to me to be obvious, even though it's admittedly in one of the last places mainstream economists would have looked before the crash: to microfinance.
Although microfinance was until recently derided as little more than an idealistic gamble, it embodies, more than any other financial system today, the very best ideals of early Western capitalism.
What began as a philanthropic movement to empower the working poor by Nobel Peace Prize recipient Muhammad Yunus, has evolved into a new class of social entrepreneurs who have shown that capitalism, especially when driven by creativity and social conscience, can generate significant returns in every sense of the word -- financial, ecological, ideological and cultural.
One leading pioneer of the latest phase in microfinance is the Seattle, Washington-based group Unitus. (Disclosure: I am a senior advisor to Unitus.) Its president, Ed Bland, describes his group as a "microfinance accelerator." A nonprofit driven by business principles, Unitus uses a venture-capital model to support entrepreneurs in emerging markets.
Consider, for example, Vikram Akula's SKS, the fastest growing microfinance institution in the world. A partner of Unitus, they have maintained a mission of empowering the poor to become economically self-reliant, but have done so with a solid business model and vision for innovation. The security, long-term-growth potential and low default rates of their loans have been impressive enough to attract leading venture capital firms, including Sequioa Capital, a first investor in companies like Apple, Google and Oracle.
But what is most impressive is what SKS provides. A $25 loan to Kondapur Saalibai, a young woman from the Banjara tribe, one of India's poorest communities, is used to fertilize her land. Tracked closely by loan officers using Internet-enabled cellular camera phones that provided instant accountability, Saalibai not only repaid her debt but garnered enough profit to buy a small house and then purchase a water buffalo to help her earn additional income to enroll her children in school.
Another Unitus partner is Jamii Bora (meaning ''good families'' in Swahili). The Nairobi, Kenya-based group, started with a group of 50 beggars from the slums of Nairobi. Today, its loan officers -- often traveling in deceptively antiquated bicycles -- employ high-tech mobile point-of-sale devices, such as magnetic-stripe cards and fingerprint authentication, to responsibly extend capital to over 184,000 clients. When Munro first met Yunus in his 1998 trip to Africa, she confided that not all of her borrowers promptly paid her back. But as the two conversed, they came to view such defaults less as shameful failures than as challenges to make capitalism more creative.
As Munro recently put it, "When we looked at the reason why some members defaulted, we found that 93% had the same problem: one of their family members was very sick and in the hospital. When this happened, members were selling everything, and then didn't have money to repay their loans. We decided to start our health insurance program as a defense against that. Everything we've started since then has been a response to some social challenge, from micro-housing to micro-health insurance and even micro-water programs. To get out of the vicious cycle of poverty, people need more than just access to finance. They also need insurance, education, healthcare, housing and last but not least, a chance to realize their hopes and dreams."
By channeling commercial capital to entrepreneurs at the bottom of pyramid, emerging business leaders such as Vikram Akula and Ingrid Munro are accelerating access to credit faster than ever before.
As Unitus's Ed Bland sees it, "When credit is fair and the mission is to help millions of the poor work themselves out of poverty and into the middle class, we have an opportunity for a win-win. That is what banks were supposed to be all about."
The very antithesis of shifty "credit default swaps" and other frothy, get-rich schemes that nearly toppled the world's financial system, the vision of these microfinanciers, is still, as the early capitalist idealists put it, "by the people and for the people." It offers the very "transformative" vision that Schwab is seeking.