Yesterday I had the opportunity to hear Muhammad Yunus of the Grameen Bank speak at the Commonwealth Club here in San Francisco about his new book, Creating A World Without Poverty. I have seen and heard him speak about microfinance several times before, but this event was particularly interesting in that it focused on “what comes next” and how microfinance may be used to leverage benefits in many more ways — above all business, and how a new type of company may be established whose primary purpose is to “do good for others.” That companies — food companies, water companies, health companies, any type of entity that produces something used by and useful to society — could actually focus on the return to society of such ventures. Ultimately there could even be a stock market on which this type of company trades. How cool is that?
I remain more than a little concerned that many of today’s current companies would actually buy in to the concept of “maximizing the returns that others can make,” or would realistically be ready and able to invest in ventures where they did not get any financial return other than their original investment (in these new “social enterprises” all other returns go to the entrepreneurs and local communities). But still, it is mind-bendingly exciting to commence these discussions and brainstorm about ways to create and develop the parts of today’s international financial system and capital markets that are currently missing.
And given my law-and-microfinance background I could not help but be encouraged by Yunus’ answer to the question, “What are the key things that microfinance needs today?” The two fundamentals he highlighted are both legal/regulatory in nature. First, Yunus believes that we need to create new microcredit legislation that authorizes the existence of microfinance banks as a specific legal entity and gives them explicit authorization not only to make loans but also to accept deposits. (Perhaps we’ll have a new “MFB” acronym someday – for microfinance banks?) Yunus spoke of the “supertanker” banking laws currently in place (and which are substantially inappropriate for microfinance, especially with respect to things like hefty capital and reserve requirements) as opposed to the “dinghy boat” law that would be much more suitable to microfinance. I am far from convinced that undertaking this type of legislation would be easy, practical or timely, especially given the relative unpreparedness of legislative bodies to tackle these subjects and the broad diversity of how they are treated among countries. Things like capital requirements exist for a reason, and we cannot simply overhaul the system without establishing prudential regulations that can be universally accepted. And second, Yunus noted the need for legislation that creates microfinance/microcredit regulatory authority and a governing structure for the overall provision and receipt of funds from domestic and foreign sources. Presumably the governing authority would be some sort of “Microfinance Commission” with oversight of the microfinance sector and actors as a whole, with a view to establishing a framework in which microfinance can be enabled, best practices established and uniform procedures followed. Again, careful thought to how this would actually be executed — and managed between different countries with often very different regulatory regimes — is required, but there is no better time than the present to begin those discussions.
On that note, socially-responsible companies, investors and legal professionals — let the work begin!