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A Path to Helping the Poor, and His
HE typical New York billionaire is always asking me the same question," Alexandre de Lesseps says. " 'Why do you want to lend money to poor people?' "
Mr. de Lesseps, 54, an international businessman whose great-great-grandfather developed the idea for the Suez Canal, has a ready answer. "The only way to solve the problems of poverty and terrorism in the world today," he said, "is through investment."
He is no ordinary investor. As a co-owner of BlueOrchard Finance in Geneva, he is one of the leading figures in the world of microfinance, an idea that is taking on renewed popularity in the wake of Sept. 11, 2001, and the wars in Afghanistan and Iraq.
Microfinanciers and allied institutions typically make loans in amounts of $1,000 or less to poor people in poor countries who are ignored by commercial banks. The concept can be traced to Prof. Muhammad Yunus, who founded the Grameen Bank in Bangladesh in 1976 and became known as a "banker to the poor."
Investors in microfinancing ventures make profits in the form of interest payments on the order of two to five percentage points above the London Interbank Offered Rate, the international benchmark known as Libor. As a rule, microcredit loans are not backed by collateral, leaving no means of financial recovery for the lender if they are not repaid. But Grameen and other leading microcredit institutions claim loan loss rates of less than 5 percent, compared with 5 to 10 percent in the subprime consumer finance industry, for borrowers with income problems or flawed credit histories.
Just less than $500 million is committed to microcredit loans worldwide, according to BlueOrchard's estimates. But Mr. de Lesseps said he believed that the total market for such loans may be near $3 billion.
He acknowledges that the aims of his microfinancing ventures are not purely philanthropic, at least not in the traditional sense. "The reason we lend money to poor people is not only so that they can make money," he said, "but also so that our investors can make money."
Until recently, microfinancing initiatives, because of their profit-making orientation, have failed to win support from international organizations like the World Bank and the United Nations. But last month, Secretary General Kofi Annan of the United Nations announced a new commission aimed at overcoming the institutional, legal and cultural barriers to private-sector participation in fighting world poverty. The co-chairmen of the commission are Ernesto Zedillo, the former president of Mexico who now directs Yale University's Center on Globalization, and Paul Martin, a Canadian Parliament member and former finance minister.
"Whatever else we do to help the poor, local entrepreneurs have the power to create the greatest change for their countries," Mr. Martin said at the United Nations when the new commission was announced on July 25. "The entrepreneurial spirit does not have to be imported. Visit the smallest town in the poorest country on market day and you will see the private sector at work."
Microfinancing is just one of several international business interests in Mr. de Lesseps's private-sector portfolio. He is completing a five-star hotel in Havana that will be operated by the South African hotel magnate Sol Kerzner. Mr. de Lesseps also has investments in Myanmar, including an upscale housing development with a golf course designed by Gary Player and a 258-bed hospital in Rangoon. But he says he is proudest of a recently completed orphanage and maternity ward in the Shan state of Myanmar, both not-for-profit projects.
Mr. de Lesseps traces his entrepreneurial bent and interest in social causes to his great-great-grandfather, Ferdinand de Lesseps, the French diplomat who supervised the construction of the Suez Canal in 1879 and then made an unsuccessful attempt to build the Panama Canal. As head of the Franco-American Union, Ferdinand de Lesseps presented the Statue of Liberty to the United States.
A British-born ancestor on the maternal side of Mr. de Lesseps's family, Noel Sampson, was a pioneering investor in India who played polo with the maharajahs. "It's in my blood to discover new trends," Mr. de Lesseps said.
Alexandre de Lesseps was raised in Khartoum, Sudan, the son of a former French ambassador, and was educated at Northwestern University. There, his capitalistic instincts were tempered by a flirtation with the antiwar movement and the radical left-wing Students for a Democratic Society.
He began his business career as a film producer in Hollywood, then bought and sold a modeling agency in Paris. In the late 1980's, he decided that Asia was "the place to go," he said, and made a fortune investing in companies based in Hong Kong and elsewhere in the region. "I sold all my holdings in 1993, and in 1994, the Asian market collapsed," he recalled. "I was very lucky."
His involvement in microfinancing began a little over two years ago, when a Swiss banker and friend, Melchior de Muralt, approached him about investing in BlueOrchard. Founded by the former United Nations microfinance specialists C´dric Lombard and Jean-Philippe de Schrevel, BlueOrchard manages a mutual fund that currently makes about $50 million in short-term loans to microcredit lending institutions in more than 20 poor countries around the world, from Peru and Nicaragua to India and Indonesia.
The BlueOrchard Fund is open to retail investors willing to commit a minimum of $10,000. The fund returned 6.8 percent, net of fees, in 2001, and 4.1 percent last year, according to Mr. de Lesseps.
Besides being an investor in BlueOrchard, Mr. de Lesseps is a fund-raiser for the firm in New York (he has a home in the Hamptons), Hong Kong and Europe, and a kind of roving international cheerleader for the microfinancing concept.
"You're not going to get rich investing in microfinance," he conceded. "But at the same time, it's safer than the stock market and offers a much better return than a typical money market account. If you're a blue-chip investor sitting on a lot of cash, it makes sense to put up to 4 percent of your net worth into this type of fund. You also get the satisfaction of knowing that your money is doing good for the poor people of the world."
Mr. de Lesseps has seen BlueOrchard's money at work firsthand on trips with his colleagues. When they arrive in a country they regard as a potential investment area, they visit the central bank or leading aid institutions to learn who is doing micro-financing. Later, on-site research often takes them to interior villages where families may live on less than $10 a month.
"I visited a village in Cambodia where the people used microcredit loans to buy irrigation equipment and seed, which they use to grow vegetables," Mr. de Lesseps said. "They are now selling the vegetables to exporters and to a local hotel. The whole village has been transformed from dust to being productive. You don't ask for collateral on the loans because they don't have it. But they will die to pay you back because you are giving them a first-time chance. It's a matter of pride.'
BlueOrchard typically charges two to seven percentage points more than Libor for loans to local microcredit institutions, which then charge rates to their borrowers based on assessments of risk factors. In countries like Nicaragua, local lending rates can be up to 22 percent above Libor.
"I know that sounds pretty high," Mr. de Lesseps said. "But you have to remember that other forms of locally available credit are five times higher, and that loan sharks sometimes charge 10 percent a week or even 10 percent a day. If you want to rid the world of poverty, you have to kill loan sharking."
BUT microfinancing is still far from a sure thing. Although Mr. de Lesseps says BlueOrchard's due diligence has so far kept its loan losses near zero, a microcredit subsidiary of South Africa's leading retail bank lost $87 million last year because of bad loans. And Grameen Bank, the granddaddy of microfinance, has come under attack from critics who contend that the actual repayment rate on its loans is much lower than the 95 percent it claims, and that the bank routinely reschedules many overdue loans to keep them from being classified as delinquent.
More generally, skeptics of microfinancing say administrative costs of making small loans can be 25 cents on the dollar or higher, which makes it difficult for lenders to eke out a profit without charging exorbitant interest rates.
Nonetheless, Mr. de Lesseps said he believed that 80 percent of the potential for microfinancing worldwide remained untapped and that the industry would easily be able to absorb more than $10 billion in the next decade. He said he hoped that in light of the recent United Nations initiative, central banks in both poor and developed countries may soon see fit to guarantee microcredit bonds.
"For me the only way to make a difference," he said, "is to make sure that the money going to poor countries is properly managed and not just thrown away."