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North Africa and Near East
The trend of providing microloans to poor people to buy houses is likely to rocket in the next few years as an alternative to conventional bank mortgages, says low-income finance expert David Porteous.
There is an inherent paradox in
the debate about poverty alleviation that escapes even the most
sophisticated observers in the West. Consider the conventional thinking
about China and India: They are seen as a threat to the West. The fear
is not only about "exporting well paying U.S. jobs" but also about
competition for resources such as oil and commodities. Yet India is
home to more than 500 million people who live on less than $3 a day. In
China, the number may be around 400 million. Just these two countries
represent 900 million people in poverty, a larger number than the
entire population of Africa. There are about 600 million in Africa who
live on less than $3 per day. Why, then, do China and India evoke fear
and anger, while Africa elicits pity and guilt? Despite the magnitude of their respective poverty
problems, China and India may have a chance of meeting the Millennium
Development Goals established by U.N. Their economies are following the
lead of other countries that have raised their populations into a
middle-class economic base. For example, between 1975 and 2004, GDP per
capita in South Korea increased fourfold. Over the same period,
Malaysian incomes rose threefold. On the other hand, in those decades, per capita
incomes in Nigeria declined by a tenth. Why? During the period
1955-2004, the West and multilateral institutions invested more than $1
trillion in aid and subsidies in emerging economies. But poverty
persists. It would seem, therefore, that we need to challenge the role
of aid and subsidies in promoting sustainable economic development. If
poverty cannot be eradicated with humanitarian handouts alone, what is
the alternative? The G-8, led by Tony Blair and supported by Jeffery
Sachs and Bono, believe that debt relief and a doubling of aid from
rich countries to poor, especially in Africa, is the way to go. A less
popular alternative focuses on the involvement of the private sector in
poverty alleviation through the development of market-based ecosystems. Irrespective of which route we take, we need to build
an infrastructure to deal with poverty. There is an implicit aid
overhead. According to Prof. Sachs, out of every dollar of aid given to
Africa, an estimated 16% went to consultants from donor countries, 26%
went into emergency aid and relief operations, and 14% went into debt
servicing. How much of the remaining 40% escaped corrupt officials to
benefit the intended recipients is not known. Take
America's approach to aid. Of the $1 billion in food aid provided by
the U.S. in 2004, 90% of it was spent on U.S. produce. George Bush's
plan for AIDS required that all groups receiving cash for drugs use
FDA-approved drugs (typically expensive branded products) rather than
invest in generic drugs and prevention programs likely to work in a
specific country. The poor (the intended beneficiaries), or the NGOs
and foundations working with them, receive a small percentage of the
total aid and have very little say in how it is used. Aid may benefit
aid givers and aid administrators as much as aid recipients. In contrast, private sector investments must focus on
making a return on investment. While building an infrastructure -- in
this case a market-based ecosystem -- managers recognize that the
percentage of funds allocated to overheads and non-revenue-generating
investments must be stringently controlled. Because of the
accountability for profits, private sector investments tend to be
subject to less corruption. Proponents of aid recognize, rightly, that the poor do
not have access to even the basics of an acceptable quality of life.
Somewhat syllogistically, they conclude from this that the poor cannot
create wealth. Hence the need, they argue, to give them something -- an exercise, in essence, of wealth substitution. When established private sector firms (including
multinationals) start to look at those at the bottom of the economic
pyramid -- about five billion people in all -- as potential consumers,
the entire process of poverty alleviation takes on a new perspective.
The motivation of entrepreneurs and the private sector is profit. They
recognize that there is money to be made by serving consumer needs in
the poorest countries in the world. And they are right: On a purchasing
power parity basis, just 10 countries -- China, India, Brazil, Russia,
Turkey, South Africa, Mexico, the Philippines, Indonesia and Thailand
-- represent a GDP of more than $15 trillion. This is a market that
cannot be ignored. Innovative engagement in this new market will lead
to large-scale wealth creation -- especially if the focus is on a
creative combination of global standards, local needs and local
capabilities. Consider "connectivity." Between 1998 and 2004, the
number of mobile-phone users in Africa grew 41-fold to 81 million --
the fastest growth in the world. The spread of mobile phones in Africa
illustrates the power of market-based solutions to usher in social and
economic transformation. Bottom-of-the-pyramid consumers understand and
accept high technology and are willing to pay for it. A focus on
access, availability and affordability is needed to create markets at
their level. Entrepreneurs have created this capacity to "consume"
connectivity in Africa. The spread of cell phones around the world --
estimated to reach two billion by 2006 -- will be accomplished by the
private sector (likely in the face of stifling state regulation). The
private sector has made investments to create a marketing ecosystem for
connectivity. So why not in other products and services? We have to stop thinking of the poor as victims, or as
a burden, and start recognizing them as resilient and creative
entrepreneurs and value-conscious consumers to foster fundamental
innovations -- be it in financial services, personal-care products or
healthcare. For example, in the Philippines, low-income consumers
are starting to use the prepaid cards in their cell phones as currency.
Unilever and P&G and a host of local firms sell world-class
products -- Sunsilk or Pantene shampoo -- for less than $0.02 per
mini-sachet in India. They had to build a whole new business model --
manufacturing, packaging, distribution and market reach -- to be
profitable at these prices. And they are. Narayana Hrudayalaya (a cardiac-care facility) is
experimenting with health insurance for less than $0.20 per person per
month in southern India. They have signed up two million subscribers so
far. Out of this pool, 85,000 have received medical consultations; and
25,200 surgeries have been performed, including 1,700 heart surgeries.
The facility has also built an ecosystem for telemedicine. Last year,
they helped 5,880 patients -- including 1,925 who received consultation
and treatment at remote sites using telemedicine. Similar telemedicine
initiatives are cropping up in eye-care. The Gujarat Cooperative Milk Marketing Federation,
popularly known by its famous brand name "Amul," covers more than 2.4
million producer members in 11,600 Indian villages and collects and
processes about two billion liters of milk per year. It sells a wide
range of milk-based products, from pasteurized milk to pizza. Amul's
revenue for the year 2004-05 was $672 million. The number of commercially based initiatives from
local and multinational firms that will have a desirable social impact
is growing rapidly. These offer us a distinctly clear alternative to
poverty alleviation, based on markets rather than aid and subsidies.
This is not to say that there are no circumstances when aid is
appropriate. But aid just cannot be the default position for poverty
alleviation. Global firms increasingly realize that the
bottom-of-the-pyramid markets are a source of innovation in business
models -- potentially, even, of "breakthrough" innovation. Innovations
in technology, capital intensity, delivery, governance (e.g. in
collaboration with civil society organizations) and price-performance
levels are all needed to create a market at the lowest-income level. To
"make poverty history," leaders in private, public and civil-society
organizations need to embrace entrepreneurship and innovation as
antidotes to poverty. Wealth-substitution through aid must give way to
wealth-creation through entrepreneurship. Mr. Prahalad, the Paul and Ruth McCracken
Distinguished University Professor at the Ross School of Business,
University of Michigan, and CEO and founder of The Next Practice, is
the author of "The Fortune at the Bottom of the Pyramid" (Wharton,
2004).
Nogaye Sow is a humble street vendor in a rough patch of urban Africa, but hidden in her flowing robe is a weathered piece of cardboard that helps put her on equal footing with those who work in air-conditioned offices instead of at the curb.
It is a makeshift health insurance card, with photographs of her, her seven children, her granddaughter and two other relatives pasted inside. When they get sick, they receive free consultations at the clinic down the road, cut-rate medicine and peace of mind. The chances are lower now that a bout of illness will bring the family to total ruin.
Following AMD's PIC, Intel showcased a rugged PC designed for developing countries, that can tolerate harsh climate, intermittent electricity, dust and bugs while accessing the Internet without wires.
Via video from India at the Intel Developer Forum, San Francisco, the Intel-based PC, or "community computer" is meant to provide Internet access to entire communities and villages in rural and remote areas.
NEW DELHI: Remote villages of Jarha-Chetwa and Jemara in Uttar Pradesh no longer use the local-made bottle-dibri or kerosene lamps for lighting their homes after sunset -- instead they now have switched on to electric bulbs.
Located beyond the reach of normal electric grid supply, Jarha-Chetwa in the mountainous region of Sonebhadra district of Uttar Pradesh has been provided with solar-powered electricity in June this year, involving an investment of Rs 45 lakh.
To give a major thrust to small and medium enterprises (SME) lending, Indian Overseas Bank (IOB) and Small Industries Development Bank of India have signed an MOU for co-financing the projects in the segment. Under the agreement, term loan for viable projects in the sector would be financed by Sidbi, while the working capital requirement would be fulfilled by IOB. Initially, the scheme would be implemented at select clusters, including Chennai, Erode, Tiruchi and Madurai and would later be extended to other places based on the scope.
Two decades and over 3,000 MFIs later, the microfinance movement in the country has finally come of age. While retaining its core value, the sector has emerged as a huge business opportunity waiting to be tapped.
“All stakeholders have now realised that microfinance is a powerful tool that can make a difference,” says Udaia Kumar, MD of Share Microfin, a leading microfinance institution. “There is acknowledgment that that rural masses are bankable,” he adds.
The first bank-by-phone system is designed for poor South Africans, enabling saving and access to credit
Cellphones are already used for music downloads, text messaging, and video games. But here in South Africa, they are beginning to perform another function: personal piggy bank.
With the new technology, a grandmother in rural area can receive money from her son, working hundreds of miles away, with the beep of her cellphone. A teenager can buy groceries with a few punches of keys. Not a coin need change hands.
When Ram Panday wants to send money back to Kathmandu, he never uses a bank. “Too expensive, too complicated, too open,” says the Nepali T-shirt maker.
Instead he hands a bundle of notes across a grubby desk in Bangkok's lively Watergate garment district. A few hours later a similar sized wad is delivered to his family home.
ACCRA: The Ghanian government has set up a 50 million-dollar microfinance fund to be disbursed to small-scale businesses in rural communities under the Ghana Poverty Reduction Strategy (GPRS). Papa Kofi Mensah, Micro-Finance Coordinator, Office of the Senior Minister, who announced this at the annual review of the Social Investment Fund (SIF) in Accra on Thursday, said that office would be the main coordinator of the fund.
He said an independent body that comprised stakeholders with interest in micro-finance would be constituted to administer the fund to ensure its effective management.
