with clients was not just informative but inspirational and genuinely uplifting the visit confirmed the exceptional achievement of micro finance however as the industry matures and it becomes increasingly committee committee we're going to focus on in the context of financial services and i would like to consider the appropriate role for the development banks regulatory oversight and financial consumer protection and the need for developing the broader financial ecosystem including currency credit bureau relevant capital advisory services middle and senior management capacity building etc a significant concern that i and sometimes the broader economy at risk as happened here and around the world with the global financial crisis examples of some of these concerns that we'll have will have to consider include transparency issues of some of the  continued absence of credit markets and conflicting reports of social impact i firmly believe that the micro finance industry and the financial services industry more broadly is far too critical of development to development many of you present here today the praise you deserve for the exceptional work that you have done and the leadership you have demonstrated but let's also not shy away from tough discussion as to tackle the problem actively and demonstrate that we understand the problems and want to fix them sometimes by legislation sometimes by leadership to avoid putting a risk putting at risk the gains of the past decade a representative from the city that's so great they had to name it new york new york the heart of the global financial system epic center of the global financial crisis i assure you i know a little bit about that issue oversight of u s participation multilateral development banks and their national monetary fund much of our focus in the past has been a large economic strategies it remains crucial that we also maintain a focus on the individuals in developing just poverty in their micro lending markets that we have emerged in the developing world this series of hearings promise to give members of the better idea of what can be done for individuals families and small businesses in ways we can encourage development in poverty stricken countries in new and innovative ways more than two decades ago a radical idea began circulating through the investment circle poor people living perhaps as little as two dollars per day could be lent small amounts of money for business development and they would pay it back in a reasonable amount of time micro mohammad yunus began by setting up living circles of ten women in small rural towns and making a small loan with each woman assuming a part of the risk mr yunus has since won the nobel prize for his efforts which speaks volumes in the effort of mind micro finance has an impoverished people as of january two thousand and eight overtook thirty five hundred micro finance report reaching over one hundred fifty million clients among the poorest of these clients over eighty percent were women traditionally funding has been dominated by donors  development finance as well as funding from international finance u s agency for international development however because of micro finance industry continued success interest has developed in private markets for developing commercially viable enterprise that promotes the goal individuals below the poverty line to small to medium size into these employing between ten and two hundred fifty employees one of the questions i hope to address today is which client ranges the most effective way of tackling poverty in the developing world several vishal challenges are presented to us today and i hope that we will have the opportunity to discuss current data available remains unclear about how government and government can most effectively maximize the impact of micro lending we have seen a positive impact a developing world the government can have however it remains clear that more must be done than simply writing a check we must determine how to foster private enterprise in regions economic conditions that are vastly under served by financial services that many americans consider standard among the problems we are faced with this availability of credit rating agencies all the credit rating agency market is developed in the area served by micro finance remains a barrier to private entry into the market where protection of the borrower in the lender remain a paramount as does in this country additionally availability of well trained employees and managers and training in preparing these individuals who lack technical expertise can be time consuming and expensive to point to private investment these issues among others make private capital difficult to attract financing institution must demonstrate a viable return when seeking capital and without reliable credit information personnel this task can be daunting one of the things i would like the panel to address is the question of the most effective way for government to provide  rightfully the chair and the ranking member have had a micro finance hearing focused on micro issues that need to be talked about but i want to put this in a slightly members of this committee have been emphasizing to the full committee as we have gone through all of these discussions about systemic risk  this we've tried to focus the committee on risks that have that ah systemic in particular communities that are very much exposed and  when we talk about my macro micro finance we have the ability to bring it down even to a smaller group of people exposed to  risks that may not create a risk for the entire system of an economy or financial system but for the individuals in a house the individuals in a community the individuals in a city is no less important for us to focus on and so while we have spent a tremendous amount of time focusing on the macro impact of systemic risk this is a wonderful opportunity and to refocus out tension on the systemic profit so this is our opportunity to put this in the context of of the systemic risks that are taking place in small communities both domestically and in other countries that are struggling particularly in africa and some of the underdeveloped countries and while we may not be talking about even a thousand dollar loan or one hundred thousand dollars loan or a million dollar loan is not it is no less important to the people who are trying to develop these small enterprises and get them off the ground to have available to themselves the small amounts of capital and financing that are reflected and will be talked about today so i use this opportunity at a micro finance hearing to put it in a macro economic context because  i think at the end of the day most of the jobs in our country most of the jobs in in africa and some places most certainly all bangladesh with a well documented bank but there's still some other areas that do need help research shows that micro finance and micro enterprise investments in poor women create increased participation management families tend to be better off children are better fed and families invest more in their own homes which is important as well and there's an entire spectrum of financial services that are targeted at helping the poor and there are innovative programs across the board that link informal approaches to much larger more traditional micro micro finance institutions and i believe we must focus micro finance more on the asset building in order to create the growth and ultimately i'm interested in hearing from the witnesses today how development alike while india and china have witnessed a story of progress and growth in the past decade large segments of society remain excluded from their country's formal financial system with limited access to  financial services this comes at a large cost the strengthening of china and india will impact the way we all live our lives which is clear that the world needs to be sustainable and this is where financial inclusion is vital it means not just the provision of loans but also a range of products for the rural clientele which enables and supports those with meager incomes over in tough times and securing their livelihood as the micro finance sector expands out of the not for profit sector into the commercial sector we need to ensure the industry enhances their accountability and transparency the range of institutions providing micro financing cannot develop fully without a regulatory environment conducive to their growth without such an environment fragmentation and segmentation will continue to inhibit the institutional transformation of micro finance and a transparent inclusive framework for regulation will preserve the market specialities of different types of mic despite all of the accomplishments of micro finance and there are many and i know we're going to hear about many of them today there are still huge gaps in the availability of micro finance funding only fourteen percent of investment capital is estimated to go to africa and asia combined the lack of access is particularly severe in sub saharan africa the financial access initiative estimates that two point five billion adult children i have a savings or credit account with a traditional or alternative financial  institution some of the work that i am doing as a congressman is indeed in trying to get more micro finance not in central africa but in central new york but that's not what this particular hearing is about but that's how good these particular tools have used research has shown that when financial services are available in particular to women there are far reaching benefits for families and communities empowering women is especially helpful in fighting infant and maternal mortality disease and religious extremism when women have increased participation in household resource management family tend to be better off yet of course in many countries women can still not open bank accounts or do any financial transactions without a male cosigner husband a brother a father  moreover in some areas women still cannot hold property independently or have any kind of inheritance rights this requires greater creativity than on the part of financial institutions and these things are so often used for collateral and other  ways to get larger loans so i do hope that the panels will address what their organizations are doing to ensure these kind of barriers preventing women from accessing formal financial services are removed and also what what they would recommend that welcome i'd like to make three basic point has been said by several of the members of the committee already this is not your grandmother's micro finance micro finance is going up market small and medium enterprises going down market to reach even poorer clients going into rural areas agriculture and agribusiness and even micro credit is no longer just for enterprise it's being india that is that point of service covers the policyholder spouse and children has minimal exclusions covers maternity and preexisting conditions from day one of the policy all for eight dollars u s per year village to village on a truck point of sale devices except the positives and payments and mobile phones allow customers to make electronic transfers of fun in malawi poor people have financial identity for the two and that's really been the the opening salvo in what has been a continual evolution of micro finance from what is now a strongly commercially oriented industry i'm going to skip over some of the stuff in the testimony about the state of micro finance today and the effect of the crisis on micro finance but i want to just turn to two of the key the key questions that the committee is particularly interested in the first one is the role of public versus private funds and the second one is the question of keeping the social mission strong as micro finance becomes more commercial  the reason micro finance now reaches something like one hundred fifty million people rather than about ten million people is because it learned how to finance itself from commercial sources and another story of leverage you've already heard a couple stories  portfolio serves one hundred twenty seven thousand borrowers and two hundred fifty four thousand savers so this is just one more to add to the list of places stories about how a relatively small amount of foreign assistance money w today because the industry has moved on and moving on challenges the public sector to find the new frontier and i'd just like to say that here's the question where is the frontier and i see  that the history of micro finance has gone through three three levels the frontier and i'm going to call them the absolute frontier the risk run tier and the market if we look at the absolute front here that's the time in which things are not proven and grant money is needed at first micro finance wasn't profitable nobody nobody had business models worked out and grants were absolutely necessary to fund the launch the risk front here is the frontier that comes along when profitability is proven but it's not demonstrated strongly and consistently enough to be able to attract private funding and then the market profitability is both demonstrated has a track record and clearly private money is able to come in so if we look at this is a path that micro finance has traced over time and if we look at this path we see a basic decision rule facing anyone in charge of determining where to place public funds find the frontier and help push it out in other words redeploy public monies to riskier uses and away from any activity that can be privately financed so the question today is where is the frontier and i think we've already heard that well expressed by our first two witnesses i'm going to put several things in each of the categories at the absolute frontier where grant funding is still  needed services to marginal groups r and d for new products like savings in micro insurance r and d for new technology capacity building in the countries and regions where micro finance institutional structures are lagging industry infrastructure such as credit bureaus and regulatory reform and financial education at the risk frontier which is something that i think that  probably talk about a little bit more i hope so but i would put their equity and debt in second and third tier the smaller especially those who are operating in riskier countries mechanisms that help support the entry of private capital for an exchange and standing by as an emergency lender and in two thousand and nine when the credit markets the international financial organizations stepped in and kept finance flowing to many m f eyes and this was very important the challenge now is for them to recognize that it's time to yield back to the private investors and then in the markets we have debt finance for second tier some of the some of the debt finance for the second tier in my five especially those in less risky countries debt in equity in first year m f i and deposits in profitable regulated him up by i'm going to skip then to look at the very very briefly the issues of keeping the social mission in micro finance and i see three important ways to do that as micro finance becomes increasingly provided by the private sector first social performance management that means monitoring the social the social activities and the micro finance industry been working very hard on this and has made some progress a newer area is client protection and i really want to urge all of you to take a look at the smart campaign this is a really worldwide effort to get client protection principles embedded in the fabric of the micro finance industry by all kinds of different ways including tool development and resources and we are going to continue to push this campaign and work with with people in this campaign until we really have succeeded in getting it to be part of the a of the industry finally social investment and i would just say there that there's a tremendous desire on the part of many investors across the united states to invest in ways that have university of london school of oriental and african studies on a number of external boards and councils including the board of advisors for the united nations commission on legal empowerment of the poor serving on the university of london institute of commonwealth networks and investors as clients and partners to go beyond just philanthropy and to treat us as clients and serve them as such with a presence in over one hundred countries we serve micro finance situations locally whether in citibank in bangladesh or uganda el salvador jordan brazil mexico it's on the ground in the local market that we work closely with the microphone and sector today we serve over one hundred micro finance institutions and network most sustainable scalable micro finance institutions still nonprofit institutions they reach millions of people grameen bank you mentioned brock and others and the range is extensive they go from nonprofits to cooperatives to  specialized banks but they all designed to serve the poor and the service and the majority them continue to do that we also provide hedging services many microfinance institutions has been mentioned before foreign exchange or from borrowing from international organizations or donors or investors that are leaving them with risks that are difficult to manage and that's one of the areas we early on started working with our strategy has also been to work closely with institution networks partners who are local branches connecting them to their own domestic investors domestic capital markets in local currency in local languages to local law we've executed a number of innovative financial structures with leading micro finance institutions and some very small ones we've been bedded micro finance into our d n a with the help of many of the institutions that are here today and with a lot of humility as a traditional bank working on the sector it's reflected in our credit policies and our debt rating model in our products that we have a specialized focus on micro finance across all businesses today private sector banks and investors are more active today in funding and investing in this sector but the public sector and public support is still very evident and  protection and technology to bring down the operating costs of institutions that are growing at fifty to two hundred percent a year in some cases the clients of micro finance are also being challenged by increasing food prices and fuel prices in much of the world and slowing remittances so there are pressures on household income but this is increased the need for bringing in a range of financing to the micro finance sector and we've worked on innovations from securitization of one hundred loans in bangladesh to syndications in pakistan  bond issues in peru and mexico all from micro finance institutions to us has been engaging domestic investors in those markets themselves also we've worked innovative lever groups like go pick  hundred million dollars program to go finance micro finance institutions around the world about three years ago and we've exceeded that we reached over two hundred thirty million dollars this point but i looked at two hundred million dollars of those loans in local currency financing twenty six institutions in fifteen countries the average loan bar in those institutions was one hundred seventy seven dollars and ninety five percent of their clients are women so the funds are reaching the segment we set out to reach we've also just finished a deal with bor that have a phenomenal success rate relative what to the commercial sector has been able to achieve in the same space but we shouldn't stop there micro finance is about more than credit we've also worked with a number of institutions on introducing savings products whether it's  in india where we've introduced biometric identified savings accounts that can take deposits themselves but their clients require savings deposits those clients now have a city account that can be accessed biometrically or ourselves in queens new york with grameen america where we're opening savings account for every account that grameen is making a loan to mike rogers back in our own backyard so we're trying to work across the geographies with what we can learn on the i want conclude by saying there's been a real range of diversity of the kind of institutions that are involved in micro finance today and increasing role for private funding both social finance and commercial the role of the u s government shouldn't be understated i think it's sector investors and to go into new names that they wouldn't reach otherwise and i think that's important and city will continue to work with those institutions and networks is on the table today as partners we've gone through this whole approach by partnering with the micro finance sector rather than assuming we could go it alone and we've learned a great deal during that we're committed both from our foundation and our business to continue to grow our work in the sector and i will lead you to do it in the years ahead thank you very much thank you  much money there and that as you as the members of the finance committee know better than anybody else is a dangerous situation now contributing to the situation is that the international financial institutions badly to make a point in this case it is the it is the international lending institutions who want to make that they really want to polish their developmental credentials they want to show that they are developmental  the adjective describing the the growth of micro finance over the past decade in particular but really over its life of now almost forty years i agree with all of them it's been a stunning it's been a spectacular success and it's not nearly enough and it's not nearly what it could be or should be hopefully will be in the future micro finance started in the early one nine hundred seventy s because the world's financial system was basically totally completely irrelevant to the overwhelming majority of the people living in the world and today that is still the case the financial system that you in this room look at all of the time is essentially irrelevant to the lives of the overwhelming majority of people living in the world today so almost forty years ago micro finance started and for a number of years it was the altruistic domain of n g o s and their sponsors who basically were putting together supporting revolving loan funds that were reaching a few hundred or at most a few thousand families developing countries that was the model that's what micro finance was a century microcredit so when we talk about micro finance now as  mentioned previously we're talking about a tested business model that can offer a variety of financial products including working capital savings accounts remittances transfers payment services micro insurance and housing finance i just want to mention microinsurance has been mentioned previously but when i was at the end american development bank we thought it was a pretty good idea to actually survey the people that were trying to help find out what they wanted and so we did surveys of more than seventy five thousand latin americans living in all the countries that were major remittance recipients and we said what financial services would you like to have that you don't have now i thought and i don't think we appreciate the type of uncertainty that is in the lives of the four if they can get insurance micro insurance and it's been described how you can do that affordably this is also part of the micro finance role i want to be clear what the market is for micro finance in the world today about six and a half billion people we know about the two to two and a half million people  financial system now about two billion of those people are engaged in form of economic activity some productive activity they are not the poorest of the poor that's the other so i think we need to be success of micro finance over these years we are currently reaching ten to fifteen percent at most of that so we can celebrate it is an accomplishment to have gone from small n g o s to where we are today one hundred million people is not bad but only scratching the surface now as we've gone through this process we've learned what works and what doesn't and i tried to summarize at least what we learned what worked in latin america in the caribbean but i want to make as quickly as i can these three points if you don't have the right legal and regulatory framework nothing works well given the success of micro finance over these past thirty to forty years how come the legal regulatory environments are as good as they should be in this country that's not money that's not  that needs to become a top priority we all know that when the secretary of state of the united states of the president or the head of the into american development bank of the head of the world bank goes to a country they've got a number of things on their list micro finance is typically not number one number two it might be number three on them before but as we know you never get to number three on them before legal and regulatory framework can be improved if they are we can go a lot further than we have so far without it we can't make it happen what is the proper role of public versus private financing this is the central point today you know in real estate it's location location location and development in my opinion micro finance is i think in the development world for its possibilities for being scaled up we know the billion in terms of the target market but there isn't  official development assistance in the world to meet targets we have to figure out as best ryan said what's the front that's where official development assistance should be that's where official development assistance was in the past and germs of transforming n g o s into regulated financial institutions you want them to be regulated financial institutions everybody in n g o s is going to heaven not so much the regulated financial but everybody n g o s ago and i haven't but you that's important legal regulatory environment the role of the private sector versus the role of the public sector the role of the public sector is to take the risk and be on the front the noted before micro finance work we know how to do it in the commercial sustainable way which can attract private investment partnership with public sector financing and which can reach the scale that's necessary to make a difference unprecedented two weeks ago there were one hundred forty thousand micro entrepreneurs being serviced by about five micro finance terrific micro finance organizations in the future those micro  to bring to your attention that the multilateral investment fund of the idea is to put forward a grant fund to first rebuild what was there two weeks ago and even more importantly perhaps to build on that over the next five years so that we can go five hundred forty thousand to three hundred thousand families in haiti having access to micro finance by the year two thousand and fifteen they're going to be putting forward some grants for that and they're going to matching funds partnerships in the private sector in like you can measure everybody's bottom line in the same currency the way you can measure financial returns so that that i would say that there has been progress in coming up with frameworks that are more about measuring how well  to financial education and access and i think what we're looking at is all about that it's about organizations that we're working with in queens and brooklyn and now in manhattan and it's grameen america it's about giving them access to financial services and giving financial empowerment account giving people access to a basic bank account we're looking at how do we go from a financial education to an accountant financial services same  achieved and banks have a lot of reason to look at that and say their organizations that i trust and know the capacity in the needs of individuals we're trying to match that with financial services that are appropriate think that their knowledge and ability to access those individuals are even greater than what the banks so far been able to demonstrate when you get to very specific geographies so domestically also looking at groups like community development finance but i would love to have a man who tried to blow hitler up i'd love to have lunch with you because i have a tremendous amount of questions i'm from that area but you should be very very proud of him and i'm very proud of that name and he was quite the hero but i have a question for you i mean the private sector micro finance funds are too small for institutional groups and yet they're too large for individual groups room for a fund of funds type of a program and if so how would that work  i know there's got to be a real difficult task in underwriting these loans in these impoverished countries that you're trying to deal with and how do organizations effectively underwrite those loans to make sure that the investors   he talks about the crowding out of private micro finance capital international organizations what is it why does it happen how serious a problem is it how do you suggest we deal with   public money whatever the source should be where private money won't go or not where so in the case of the  multilateral investment fund when we started to make loans and equity participation in the early one nine hundred ninety s we made a point that whenever there was private sector of the ways that you can get more private sector involvement when we first said that we were going to sell our shares microphone is a situations we're not happy with that actually because they like the idea of having the interim american development bank there and frankly i think what happens sometimes if we want to call it burnishing the portfolio these are developing institutions that everybody loves micro finance and so people tend to keep those perhaps longer than they should wouldn't be having any additional big institutions either i mean given what we've been through the last year i just don't know that we ought to be holding but i won't belabor that i want to get into a philosophical discussion with you about that obviously come from a different place on on that and perhaps some other issues too i do want to number of members of congress bipartisan lay have encouraged the world bank to take some steps and i wanted to find out what the current status of that is suggested thank you the current status is that there has been an exchange of letters going back and forth between members of congress and representative representative hold office met with world bank staff most recently in november of clarify if i didn't before on the very poor and on centers of excellence to encourage cross learning and sub saharan africa funding mechanism to help micro finance institutions focusing that government is not a provider of financial services and one of the difficulties that the world bank has in providing grant capital is that it has to work through government and government are having difficulty setting up the mechanisms that are at work really you think that ought not be involved in the world bank should be involved in this but i think it has our how i guess that that was the question i actually was asking what i think should be encouraging the world but i like the aims of the initiatives that are being proposed and i would suggest mechanisms that are separate from government working through government agencies i'm not sure i understand that well that's been one of the problems is that the world bank has difficult charter setting up those kinds of facilities saying it should be done through something other than the world depending on how it could be done by the world bank depending on how creative the world bank can very innovative institution that in many cases don't just look like banks micro finance sector they have many of those characteristics but we need to also understand them from their own origin and is a role where i think they will be able to convene around of technology bringing down the cost of delivery in micro finance regulatory using mobile cell phones and other forms of delivery to rural and other communities so i think their arms of the world that perhaps creatively are working on has been transparent but maybe unintentionally not as transparent as it should have been and the but the but the challenge is quite difficult of figuring out exactly because transparency  not just disclosure it's also understanding by the client and interest rates is a very complicated subject i think that you will find micro finance institutions complying with the law in the whatever the law is in different countries which require disclosure of interest i think that we still have a ways to go in terms of ensuring that the clients understand what they're looking at and are able to  on the other side compare institutions want to get another because everybody quotes interest rates in different ways so i think there is a lot of work to be done in this area  also think that this is probably an area where regulation is ultimately needed in disclosure because what we find is that micro finance institutions we want to be transparent but we don't want to be think a regulated context will not only give them the power to do more for their clients in terms of products and services but they will be more transparent they'll have to be more transparent and i think responds to positively that on the exception not terribly transparent if you go into their website you will find beautiful pictures of what's going on and a country but you will not get the kind of information that you would take for one of the things that we try to preach now in the united states a lot of financial literacy and one of the financial literacy is understanding your credit rating as put forth by  more informal micro finance providers and just kind of across the board is lacking in many environments and more so in africa probably than in in other places so i think that