01 Apr 1998
Microfinance's Big Payoff: Michael Chu and ACCION InternationalTopics:
Michael Chu (MBA '76) is president and CEO of ACCION International, a private nonprofit corporation founded in 1961 and based in Somerville, Massachusetts. ACCION's affiliates in thirteen Latin American countries and the United States seek to reduce poverty and unemployment by providing small, short-term business loans to the self-employed poor.
Chu, a native of China, grew up in Montevideo, Uruguay. After graduating from Dartmouth and HBS, he held senior management positions with several firms, including The Boston Consulting Group and Kohlberg Kravis Roberts & Co. (KKR), before taking ACCION's helm in 1994.
You left Wall Street for ACCION. Why?
During 4 a.m. leveraged-buyout marathons at KKR, I'd occasionally wonder if I might be doing something else, however small, that could help make the world a better place. At the time, I was a board member of ACCION and increasingly intrigued by its pragmatic use of the profit motive and market mechanisms to make a sustainable, self-perpetuating, and effective impact on the lives of poor people. When the ACCION opportunity came along, it forced me to confront those late-night musings.
Explain the power of microfinancing.
Microfinance utilizes the one asset that exists in abundance in even the poorest and most fragile social sectors - people's self-initiative. It increases the productivity of the person engaged in economic activity, thereby creating new wealth, rather than depending on the redistribution of existing wealth. Assets grow amid poverty, triggering an empowering ripple effect. We only loan to businesses we believe can grow; we expect every loan to be repaid, and 98 percent are.
You've said that microlending can change the world. How?
In the developing world, 50 to 60 percent of the work force is outside the formal economy and brings food to the table through microenterprise - selling oranges, repairing shoes, making utensils out of scrap metal. We provide access to credit that those people can't otherwise get. Over the last five years, we've supplied $1.3 billion in loans averaging $575 each, assisting more than a million microentrepreneurs - more than half of them women - and creating or strengthening some one million jobs in low-income communities.
What kind of impact has that made?
A good example is Banco Solidario, or BancoSol, in Bolivia. Six years after we helped open it as a nonprofit, the program was so successful we had to establish it as a regular commercial bank to accommodate its growth. Today, BancoSol leads the Bolivian banking system in profitability and makes 40 percent of the system's loans; it has 76,000 microentrepreneur customers who, until a few years ago, were completely outside the banking system. BancoSol's success has spawned competitors in both the nonprofit and formal financial sectors that are eager to serve microentrepreneurs. Every Bolivian political party now includes microenterprise as part of its economic program.
What's the outlook generally in Latin America?
The emergence of civilian governments and market economies throughout the region presents the opportunity for people to be included in the shaping of their destiny - if they can participate. Microfinance helps people earn enough disposable income to think beyond their next meal - that's the first step toward political choice.
What about ACCION's U.S. programs?
ACCION's first U.S. venture - begun in Brooklyn in 1991- has since been joined by programs in Albuquerque, Chicago, El Paso, San Antonio, and San Diego. Unlike Latin America, the United States is an affluent society. But despite its safety nets, it has marginalized pockets of poverty that will seriously threaten the future of the larger society if we don't unlock their potential for sustainable development.
What gives you the most satisfaction in your job?
In 1994, when we first sold BancoSol certificates of deposit to emerging market funds, we closed the conceptual link between Wall Street and the promise to pay of a street vendor in La Paz. That's deeply satisfying, as is the knowledge that we've helped that vendor - and thousands like her - to transform her life, her family, and, ultimately, her country.