Microcredit —Interview with Ivan Pictet, Senior Managing Partner, Pictet and Cie, A Private Bank in Geneva
He is the eighth generation of a well-known banking family whose roots go back to fifteenth century Geneva. His name is well-known in the international community — both for having chaired the Foundation for Geneva and the Geneva Financial Centre, and lately in supporting the seminar on micro-credit hosted by Geneva in 2005 during the celebrations for the sixtieth anniversary of the United Nations. Like any banker he is discrete, but kindly accepted to meet with us despite his busy schedule.
Q: So, Mr. Pictet, who are you?
I’m a private banker from a family profoundly anchored in Geneva for more than 500 years. I’m the senior managing partner; which implies that I am at the head of a private bank carrying my name and which celebrated its 200th anniversary last year.
I am proud of being the eighth generation carrying on this tradition. Today, Pictet & Cie happens to be the biggest private bank in Switzerland. It is a specialized bank; in fact the largest European independent asset manager, both institutional and private, it brings me to be seen as one of the key economic players in Geneva.
Q: You are involved in both the Geneva Financial Centre and the Foundation for Geneva. What are reasons behind this?
It is a tradition in Geneva that people wear different hats. Several are involved in politics, for instance, which has nothing to do with their professional lives. Some are concerned with the military. So my extra-professional activity — if you can call it that — consists of promoting Geneva. First, I was for several years President of the Chamber of Commerce and Industry; then for several more years President of the Foundation for Geneva; and now President of the Geneva Financial Centre. All three functions have the common objective of getting the message across about the huge potential of this small town — Geneva — which is not taken enough advantage of, in my
Q: In order to "exploit Geneva to its maximum", what is needed?
First of all, since we are living in a quasi-direct democracy, such as the one existing in Switzerland, I think we have in a certain way "to explain Geneva" to the citizens of Geneva, since they are the ones who are actually taking the important decisions.
First of all, there exists a division in Geneva between the international community and the locals. During each day there are about 50% Swiss (and even less "Genevois") and 50% foreigners working in Geneva. The population of Geneva is, I think, open-minded and there is no expression of xenophobia — we need only look at the last elections where Geneva (together with Basle as the only 2 cantons out of 26) voted against the strengthening of the asylum laws. This fact in itself is rather surprising, as one might expect that the opposite could have happened. Therefore, with the Foundation for Geneva, we tried to create bridges between these two "worlds", multiplying the activities of the Foundation in this sense. This was done from booklets for children in local schools informing them about the international aspect of Geneva to bringing local politicians together with some representatives of the foreign community, to organising some 4-5 a month gatherings.
With the Geneva Financial Centre Foundation, it is more or less the same thing. Geneva is perhaps one of the most important financial centres in the world today. Geneva is number one in the world in trade finance in the oil sector and is definitely among one of the four or five most important centres in private banking. It deserves to be protected against political decisions - this is our role as a lobby - and to be promoted abroad so as to be more well-known. In summary, we might say that we are lucky to have an incredibly rich heritage that is rather badly exploited. My objectives have been to try to improve this "exploitation".
Q: Despite international competition, do you think Geneva has succeeded in maintaining its position?
One should not be complacent and one should not fall asleep either. Each city and each country is looking to exploit its resources. We have to be extremely vigilant. However, the situation of Switzerland is quite favourable at the moment. You might have read the report of the World Economic Forum about global competitiveness which put Switzerland as number 1! This can be compared with last year when it was ranked number 6! Globally, according to a certain number of criteria, Switzerland remains
attractive. However, this attractiveness is always being questioned, so one has to defend it. When it comes to global competitiveness, in my opinion Geneva is in an excellent position. When it comes to the competitiveness of financial centres, Geneva is subject to a number of laws and regulations and does not control its attractiveness. As I told you earlier, we are in a quasi-direct democracy: it is then up to the Swiss population to vote or maintain these laws or not. Each year, opinion polls are undertaken and about 80% of the Swiss population are in favour of keeping their banking system as it is. This means that the Swiss are in favour for the time being of maintaining the banking secrecy which is the confidentiality offered to the clients. It does not mean that the Swiss financial centre is competitive in all financial activities, nevertheless we have an important card to play.
Over recent years, we have been discussing integration with the European Union and the bilateral agreements reached were rather positive for the financial centre in Switzerland. We were able to maintain our major advantages. So I do not think that the Swiss financial centre has lost its position, nor its potential. On the contrary, it may have consolidated it.
Q: Why did you agree to organize the seminar last year on micro-credit? Is it an important subject for you?
Yes, very much so. It is an asset rather limited in quantity, if I could express myself this way. In Switzerland we manage about 4,000 billion Swiss francs, and Switzerland represent about 3 or 4% of the world’s global savings. Micro-finance overall represents not more than a total of US$ 1-2 billion, so you see that it is something that is excluded for most investors, the market is simply too small.
On the other hand, it is a fast developing sector with an annual growth rate of 30 to 40%. I would also say that Geneva is well placed in this aspect as we are located at a crossroads between North and South. You find here also most of the international organizations and multinationals that have activities in the countries of the "South". Geneva has the natural vocation to become a competence
centre for micro-finance.
Micro-finance is something that can, to a limited degree, be a good financial support for developing countries. It provides the possibility of a parallel
banking system in countries where the banks belong to the State or the "system" and cannot play the role of efficient distributor of financing. This is better performed by NGOs and micro-credit institutions. I believe that this type of financing, even if it is of limited capacity, deserves to be continued and Geneva should stand out as one of the centres for micro-finance in the world.
Q: Some time ago I was present at a press conference about micro-credit. I was shocked to learn that the interest rates charged for these loans were something between 50 and 100%. Where is the charity?
Let us examine whether it is shocking or not. First of all, micro-credit is not a charitable affair. It is an economic activity, and nobody will save the planet through charity.Anyone investing in micro-finance receives a financial return that corresponds to this investment. The return on micro-credit investments is about 5 or 6% per annum in "hard" currencies and if you take into consideration the risk in comparison with traditional assets, it is not excessive. Thus, one cannot say that the investor is taking advantage of the situation. The reason why the interest rate is so high locally is that in countries where micro-finance is taking place, the annual inflation rate can be somewhere between 50 or 100%. If you have an inflation rate of 100% and an interest rate of 50%, it is almost a gift to lend money at this rate.
The interest rate is not really a problem in itself as the economic return is so high in these countries that the borrowers reimburse the loan very quickly. In general, these loans are reimbursed within a maximum of six to twelve months. The added value realised is quite high, as there is a general lack of capital, therefore if you have funds you can make them work very quickly. The rates of repayment are in fact higher in these countries than in rich countries; they are close to 96%. For instance, among the 300 leading micro-credit institutions, you will find that the reimbursement rates are higher than those of commercial banks in rich countries. This shows that this is an important exercise and deserves to be maintained and intensified.
Q: Do you think that micro-finance is not well perceived among the general public, as we tend to believe that it is charity?
It is not charity at all. On the contrary, the person borrowing these funds has to pay the cost of money for the loan. I do not think that micro-finance is perceived as a charitable measure and the aim of all the conferences on micro-finance is to show that it is a often good option compared to other investments, especially for individuals. Furthermore, investors in these funds feel that these investments are useful — and that is always valuable when you are investing.
If micro-finance becomes something other than a pure economic profit-oriented investment, then it has no chance of succeeding. In summary micro-finance is a good way in helping a country to set up small private companies, to create social capital. But it has to be based on optimal resource allocation and profit. If you overlook this aspect it will turn out to be a bad investment.
Q: Do you think this is the best way to help developing countries?
No, this is just one way. International cooperation has to be the major source, then private direct investments from multinational companies. Microfinance is on a smaller scale.