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‘What We Need Now Is a Henry Ford of Microfinance’
At the start of the 20th century, Henry Ford's vision of every American owning his own automobile was considered an "absolute dream," said Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance. "People were laughing at him because cars were very expensive toys that only very rich people could afford. But it became a reality in a couple of decades," said Zingales, who moderated a panel at the Chicago Microfinance Conference May 25 at Gleacher Center. The discussion was among several events organized by the student-led Emerging Markets Group. Other speakers included Elizabeth Littlefield, CEO of the Consultative Group to Assist the Poor, and SKS Microfinance CEO Vikram Akula.

"What we need now is a Henry Ford of microfinance," he said. "We need somebody who is able to master the technology to transform something that today is very high in per-unit cost. It is very difficult to apply to everybody, but the reward would be enormous because there are at least 2.5 billion people who need financing and cannot afford it according to standard methods. We need to find a production process to make finance affordable for them."

Kiva has been able to get capital to micro-entrepreneurs by connecting them to Internet users around the world, said Premal Shah, president of the Web-based firm, which lets lenders choose individual recipients. "The thesis for Kiva is that people are fundamentally better than banks," Shah said. "If you can actually aggregate them, people value emotional return that can actually subsidize the need for financial return. It doesn't eliminate the need for financial return, but it recreates a new market price of capital. Secondly, people over the Internet have much lower cost structure than banks."

The Mifos Initiative at Grameen Foundation is developing software to create a technological platform that can be used by any microfinance institution, said George Clonard, head of the initiative. The goals of the software are to provide flexibility, technological support, innovation, and lower costs, Clonard said.

"The challenge with custom development work is that there is a lot of variation in methodology and regional needs, but there is a lot of overlap as well," he said. "Everyone building a custom system means that, as a community, we're spending the same money over and over again building the same 90 percent of functionality. An open-source, open-platform system starts to bridge that gap."

Technology can be used in two key ways to affect more established financial markets to provide capital to microfinance institutions, said Jesse Fripp, senior manager with ShoreBank International. "One is, how do you give microfinance institutions the ability to connect to existing systems?" Fripp said. "A lot of work can be done with data standards and connectivity standards, just providing interface between two different systems to allow that connection to happen."

Secondly, he said, "We can give microfinance institutions a more consistent way to get access to capital and where it comes from," Fripp said. "They can get what they need to report back and to manage."

Atsumasa Tochisako's biggest concern is taking care of the "bottom of the pyramid" in the microfinance market. One-third of the population of developing countries is migrating to the developed world, said Tochisako, founder of Microfinance International Corporation. Of $63 billion remitted from the United States to Latin America last year, 95 percent was sent through Western Union and similar companies, he said.

"There is no financial service infrastructure ready to serve immigrants," he said. "The banking system is only able to send money from bank account to bank account. The majority of senders and recipients live outside the banking network and are not familiar with or not allowed to have banking accounts."
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