ByTheEast: As the founder of Financieros sin Fronteras, you have a wide angle about how foreign countries run their monetary system, about microfinance. How would you compare Spain with other Mediterranean countries?
De la Torre: In my opinion, you can apply to our monetary system the words Winston Churchill had about democracies: “It is the least bad of all systems.” It is true that we suffer financial shocks, but it is also true that we have lived the best economic growth in History, and that extreme poverty is being eradicated on Earth. It should not be such a bad system. It’s the same for Arab banks who were not hit as much as Americans and Europeans during the 2008-2010 crisis, it should not be such a bad system. Three years ago, the IMF issued a declaration in trying to learn from the Arab monetary system. But I have doubts. I don’t think western institutions applied some thoughts of Islamic finance.
ByTheEast: Beyond the headlines and the refugees’ crisis, how Europeans institutions look at the North-South cooperation nowadays? What categories of projects are put forward?
De la Torre: The key shift is that Europe will mandate the European Bank of Reconstruction and Development (EBRD) to invest in Sub-Saharian Africa, at the expense of Eastern Europe. There are some recent examples here even if this region was not in their mandate beforehand. The only way to deal with massive immigrations in not walls but local development.
“Islamic finance has proved to achieve banking structures more resilient than those of traditional banking”
ByTheEast: How local microfinance can be an alternative to international funding? Can you provide some example(s) from Africa or Asia?
De la Torre: In general, international funding is more macro related (IFM loans for example) or huge infrastructure projects (Development Bank). Microfinance, by nature, is very granular and focus mainly towards agriculture matter. Microfinance has shown remarkable low levels on non-performing loans, and its granularity makes it very compelling to diversify risk.
ByTheEast: Then, microfinance should be an asset regarding sustainable development, shouldn’t it? What about the Arab world?
De la Torre: A, it is profitable. B, it is sustainable. And C, its risk-adjusted returns are very decent. Much better than investing in traditional banks in some cases. I am more knowledgeable about Sub-Saharian Africa. But in the Arab world, the key is to develop Sharia compliant microfinance structures which means more equity. This would be an amazing mandate for the Islamic Development Bank.
ByTheEast: A long time ago in Beirut, I heard a Lebanese banker saying that microfinance and Islamic finance were bound. What «spiritual» links can you make between microfinance and Islamic finance?
De la Torre: Poverty alleviation in intrinsically linked to finance specially to sustainable finance. Islamic finance has proved to achieve banking structures more resilient than those of traditional banking, hence even the IMF has praised some logic behind Islamic finance that should be considered by traditional banking. The main result is better risk management. Microfinance should also be proud of its risk management. Both contribute with these results to a common goal: make a better world.
ByTheEast: How Islamic finance model could be attractive to Europeans?
De la Torre: By thinking that you are not financing a house but co-owning a house, your risk attitude improves, this is a key lesson to be taken by Western financiers.
ByTheEast: We did witness how cell phones revolutionized digital banking in Africa. How microfinance could take advantage from the digital revolution?
De la Torre: Blockchain could be a revolutionary way to register properties, what would propel asset bank finance for the poor. Look at the experience in Peru with Hernando de Soto, 30 years ago*!
*The main message of de Soto’s work and writings is that no nation can have a strong market economy without adequate participation in an information framework that records ownership of property and other economic information. Hernando de Soto Polar (age 77) is a Peruvian economist known for his work on the informal economy and on the importance of business and property rights. He is the president of the Institute for Liberty and Democracy (ILD), located in Lima, Peru.