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The founder and president of an international group promoting microfinance, a type of small-lot lending for low-income people who cannot put up collateral, has urged Japan to make more use of the tool to improve its official development assistance.

“Japan is the second- or third-largest ODA provider in the world. Therefore, I believe there is a huge role for ODA in microfinance,” said Jacques Attali, 63, former special adviser to the late French President Francois Mitterrand and creator of the Paris-based PlaNet Finance, in a recent interview in Tokyo.

There is a “huge need” for capacity building for microfinance institutions that extend loans to the poor, Attali said. If Japan’s ODA is used to improve skills at those institutions, Japan’s ODA “can be visible, efficient with very low costs.”

“You improve the standard of living in these countries much more happily than providing debt-rescheduling or white elephants of any kind,” Attali said.

In 2006, Japan was the third-largest ODA provider after the United States and Britain, falling from second place for the first time since 1983, according to the Organization for Economic Cooperation and Development.

Microfinance is the brainchild of Bangladeshi economist Muhammad Yunus, who won the 2006 Nobel Peace Prize for his efforts to eradicate poverty with the lending method. Many borrowers use their loans to start small businesses or find ways to secure a steady income and escape poverty.

Attali and Yunus jointly launched PlaNet Finance in 1998 to provide knowhow in microfinance. Now, there are 10,000 microfinance institutions and 150 million beneficiaries around the world, he said.

On Japan’s role in small-lot lending, Attali also stressed the need for the country to train experts to work at international microfinance institutions and to involve private companies.

“There is no Japanese microfinance expert in international institutions. That is certainly something which is missing,” the Frenchman said.

“I think the Japanese authorities should negotiate or discuss with private banks in order to foster the development of private, commercial funds for microfinance,” he also said. “There exist already 60 commercial funds in the world, but no one in Japan.”

“In terms of corporate social responsibility, Japanese companies could play a very important role in providing some of their funds for microfinance,” Attali said.

He pointed out that nowadays, microfinance institutions can receive commercial funding because sophisticated financial technology, such as securitization of microfinance portfolios, has become available.

Public awareness of microfinance has increased since Yunus was awarded the Nobel Prize, but Attali said efforts made so far in the fight against global poverty have been inadequate.

“The number of people living below $2 a day is growing — today, one-third of mankind. We know that in 40 years, if we don’t react rapidly, the number of people living below the poverty line will be one-half of mankind,” he said.

“Even though microfinance is growing 30 percent a year, we will not win. The only way to win is to increase the speed of development of microfinance and democracy,” Attali said.

Calling poverty “the worst problem of mankind today” as a factor that generates wars and violence, the microfinance advocator said, “It’s a matter of survival for mankind to fight against it.”

“Nothing works against poverty except two very important tools, which are democracy and microfinance,” he said.

Attali, also known as the founder and first president of the European Bank for Reconstruction and Development, came to Japan to take part in a microfinance symposium hosted by PlaNet Finance Japan.

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