Defeating Global Poverty

A recent Economist article, Time to take credit, critiques the philanthropic supporters of microfinance for focusing on the slower-growing, profitable, larger microfinance institutions (MFIs) instead of supplying capital to the entrepreneurial startup MFIs who are pioneering access to microfinance in areas which are un/underserved.

Why are they doing this? Well, for one thing it is less risky. These MFIs are making impact with increasingly little risk to the investors so it is easy to provide a "good report" on social return. In some cases, these funders invested in microfinance when it was unproven (and risky) and they haven't moved on. It is hard for philanthropic investors to know when it's time to leave and move on to the next challenge even when their "children" outgrow them (and more importantly, their mission.)

There are two major "elephants in the room" with microfinance: (1) less than 20% of people who qualify and could benefit from microfinance have access to microfinance services; and (2) in most situations, most MFIs are effectively quasi monopolies which limits the quality of microfinance products and services available. The only way to materially impact these issues is to support entrepreneurial efforts to start/expand small MFIs much like the venture capitalists make risky investments in new business ventures in other industries.

One organization which is focused on the venture investing model is Unitus. Unitus is willing to take risk in order to dramatically accelerate small MFIs with entrepreneurial leadership teams to bring access to microfinance to underserved markets and to create microfinance products (loans, insurance, savings, etc.) which serve the working poor. We need more investors like Unitus which are taking the risk to bring the redemptive power of quality microfinance services to those that need them.

Please post comments about other organizations who are taking this venture capital approach to microfinance.

Labels: economist, microfinance, poverty, venture capital

I wrote previously about an insightful book by Hernando de Soto called The Mystery of Capital which argues for the importance of legitimizing land rights for the poor as a key in breaking poverty. By not having legal right to property, the poor people's property is effect "dead capital" as it cannot be used as collateral, sold or inherited.

The Economist recently published an article called The mystery of capital deepens which follows the progress of an interesting land rights situation in Argentina. On the outskirts of Buenos Aires, a number of squatters outlasted various governments until a new government expropriated the land and gave it to the squatters. But some of the squatters didn't like the terms, so there are now two groups side-by-side -- land owners and squatters.

Summary of results: [Here is a more in-depth study.]

• secure land rights encourage the poor to improve their residences/living conditions
  
• [poor] titled landowners have no better access to financial services

This demonstrates the continued need for alternative financial services for the poor -- e.g. microfinance. The large, traditional bank sector continues to have little appetite for serving the poor.

Labels: de soto, economist, poverty, property rights

In July 15th issue of The Economist, there was an interesting article on whether the money being spent on education in developing countries was resulting in children actually learning. Globally, the World Bank alone has spent over $12 billion on primary education since 1990. Pratham, an India educational charity, reported that less than half of children ages 7-14 could read a simple passage in their native language.

One of the most successful programs to date in increasing school enrollment is to not only make primary education free, but to actually pay parents (cash or free meals) if they keep their children in schools. In Nicaragua, a pilot program like this has raised enrollment rates by 22%.

It seems that donors are more interested in school-building than they are in schooling. That is, focused on the inputs -- # of buildings, # of teachers, # of text books, etc. -- rather than the outputs -- are children learning.

Pratham has found one educational experiment that has worked well ... hiring balsakhis (which means "children's friends") who are unqualified high-school graduates to provide remedial education to students falling behind. These mentors were cheap, quick to train and could work in hallways or under trees reducing the need for more buildings. The result in Mumbai is that it raised the chances of fourth-year pupils grasping first-year math by almost 12% and second-year math by almost 10%.

Read article

Labels: children, economist, india, learning, poverty

The Economist has a very good article summarizing the state of the global microfinance industry. They take a very broad look at what's working, what the top issues/concerns are and how the microfinance industry is evolving. And their "net" is very positive! This is a significant endorsement as The Economist has a reputation of being very tough in doing their due diligence and is very skeptical of unsustainable or long-term irrelevant economic phenomena.

Labels: economist, microfinance, poverty

The July 2nd-8th issue of The Economist has this as the headline as the world turns interest towards "making poverty history" in Africa. A few interesting quotes from the introductory article:

"Some [critics] say aid [to Africa] is useless. Some say it is worse than that. Economists worry that it crowds out export industries, by, for example, bidding up the price of skilled workers. And aid may make governments dependent on their paymasters in the rich world, not their taxpayers at home. For every extra dollar of aid they are given, governments raise 28 cents less in tax, says Sanjeev Gupta, of the IMF."

"The claims for aid should not be inflated. Grand, global targets, such as the UN Millennium Development Goals, might helf the international bureaucracies fill their coffers and justify their existence. But they also invite disappointment and disillusionment when the goals are missed."

"But neither should the demands be exaggerated. The sums (the Commission for Africa calls for an extra $25 billion a year over the next three to five years) amount to just 0.08% of the 22 richest donors' combined GDP. And besides, what else would the money be spent on? The European Union alone wasted $55 billion last year on a common agricultural policy designed to keep food expensive for its consumers."

"To benefit Afrcia the money need not even be spent in Africa itself. It is sometimes said that 90% of the $75 billion spent each year on medical research is devoted to the concerns of just 10% of the world's population."

"No one should be naive about aid. It cannot make poverty history, and it can do harm. But to say that nothing works is wrong. Cynicism is only the most common form of naivety."

Labels: africa, economist, international aid, poverty