Michael Chu, co-founder and emeritus partner of the Ignia Fund, professor at Harvard Business School and executive president of Acción Internacional (microfinance pioneer), was in Quito on Friday, at an event called “A Different View of Financial Inclusion and Development”, a space to discuss the role and importance of financial inclusion in the economic and social development of the country. Experts, academics, members of the Central Bank, among other actors, participated in the action organized by Asobanca, RFD, Icored, Asomif and Asopifse. Born in China and a lifelong resident of Uruguay, Chu has dedicated himself to researching and teaching about business ventures that serve the emerging middle class. He says that after being invited to Acción Internacional, he left his life on Wall Street to devote himself to the issues of financial inclusion in commercial ventures.

Why is financial inclusion important for Latin America?

Our region, like most regions in the world, has a large majority of people without access to finance. There is 20% of the social pyramid that is well served in everything, in goods and services, some would say ‘overserved’; The other 70% that follow, the vast majority of the population, have great problems accessing goods and services, even the most basic ones, to increase their life potential, including financial inclusion. Everything that the vast majority has, little or very little, they have bought, including financial inclusion. Financial inclusion is important for empowering the lives of that majority. What I find interesting is the role that commercial entities and banks play in achieving their financing. Therefore, there is an urgent need to discuss the reasons why it is important to involve the private sector, which is not usually considered a key player.

What should be the participation of the private sector in the inclusion?

If we think about responding to social needs through the private sector, regulation is very important so that the private sector and national priorities are aligned. Depending on the issue, regulation plays a key factor in promoting and delaying it.

In terms of regulations, it is currently being implemented in Ecuador, there are complaints from the financial sector about rate caps, Basel standards are not met. How do you rate this regulation?

I believe that the interest rate cap policy is very well-intentioned, but with many unintended perverse effects. There are two ways to regulate: one is to set the rules and then get down to the details. The rate is a detail, and which product is put on the street is another detail. Another way is to set rules tailored to national priorities and then let players play by those rules. It is important to have clear rules and let the players play. Making an analogy with football, regulations such as rate caps, is like telling Messi on the pitch that you can run 10 meters but not 11. What I want to suggest is that you can think of other regulatory frameworks that really promote financial inclusion.

You come from a series of successes in Bolivia, Peru, what can you tell us?

I want to share examples brought from the region, especially from Bolivia, where there are good examples of how regulation can work well and when it leads to the wrong effects. Banco Sol de Bolivia had to face several problems, but one of the strongest was during the pandemic and during the issuance of the new banking law, also a colossal over-indebtedness crisis. The regulations were created with the best of intentions, but ultimately reduced financial inclusion.

You also specialize in creating funds for entrepreneurs. Can such an initiative succeed in Ecuador?

Yes, it is a complex subject. I am one of the co-founders of Ignia Fund, which was a pioneer in venture capital in Mexico and the region. It depends on the people who have an interest, and the profession of capital formation is another area.