Microfinance and Beyond: Forging New Paths in Economic Development

Event schedule:

1:00-2:00: Brad Swanson (Developing World Markets)
2:00-2:30: Shereef Zaki (Kiva)
2:30-3:00: Alexandra Kobishyn (Innovations for Poverty Action)
3:00-3:30: Break
3:30-4:30: Professor Jonathan Morduch (NYU Wagner Graduate School of Public Service)
4:30-5:00: Kara Tirimacco (Accion USA/Microfinance USA Conference)
5:00-5:30: Rachel Taber (Alta Gracia)

This microfinance summit is free, and no registration is necessary.  The event will take place in Peter B. Lewis Library on Princeton University’s campus, which is accessible via NJ Transit.

At least that seems to be the trend. An enterprise incubator has just appeared in Abuja, Nigeria: Enspire Incubation Program, piloted in August of 2009 ‘to provide technology innovators with resources to develop and grow their ideas, products or services, and fulfil their creations in the local market.’ This is a part of the soon to be completed Abuja Technology Village, spearheaded by the Nigerian government. Taking a different approach, a smaller and slightly more hip venue is being designed right now in Kenya, the iHub: ‘Nairobi’s Innovation Hub for the technology community. . .an open space for the technologists, investors, tech companies and hackers in the area.’

And why not? Singapore’s epic climb from a third to first world country in the latter half of the 2oth century was, in part, spurred by the efforts of Singapore’s Economic Development Board (www.edb.gov.sg) to identify and build strategic industry sectors. An important piece of this was setting aside industrial parks and providing incentives for foreign investors to set up shop. Eventually, as they shifted their focus onto more knowledge-intensive activities (such as R&D, engineering design and computer software services), the government built research parks.

What about the role of local enterprise? In 1986 the EDB established the Small Enterprise Bureau. Ten years prior to this the Small Industry Finance Scheme  provided small loans (here we’re talking around $250,000) to local small to medium-scale enterprises.

The EDB was able to create an innovative and business-friendly environment that attracted foreign direct investment. They transitioned from a focus on manufacturing to a knowledge economy, where a highly educated population became their biggest asset – a market incentive for high quality education.

Today, Singapore’s economy is thriving and it’s ranked #1 in the world in ease of doing business in the World Bank’s 2010 Doing Business Report. We can learn a lot from the steps that Singapore took to achieve real and lasting economic growth. Of course, the picture is not all rosy. This was done under a largely autocratic government and one wonders if such progressive action could have been carried out within a democracy.

The question now is: results. Will Kenya and Nigeria be able to catapult themselves into the IT sector? Will these spaces attract the types of dynamic communities that create real growth?

Only time will tell, but they are certainly off to a promising start!

~Rebecca

Check out this insightful article by Kenyan economist James Shikwati. He questions the real goals and effects of development and the role of the G8.

“Development is the Ability to interpret/understand the World and creatively/efficiently respond to the challenges that confront humanity in order to increase the levels of human comfort on earth. The current development model sustains Africans on the “scratch the soil” level while they (G8 and re/emerging economies) import raw materials and add value to them. Adding value to African raw materials enables importing countries to grow their industries, financial and knowledge sectors while the African is left with hoe in hand scratching the soils for minerals and crop. Please note that even chicken in Western Kenya scratch the soil. Little ingenuity is needed in the scratch the soil model!”

The president of Rwanda, Paul Kagame, put it nicely; “The debate about good and bad aid misses the point. Aid must do things that wean people off aid—if not, aid is a failure.” (from a newsweek column by Fareed Zakariah)

Dambisa Moyo, Zambian economist and author of Dead Aid, argues that foreign aid has not helped Africa and may have even made things worse (Munk Debates: Dambisa Moyo argues in favour of …).

Although far from perfect, the microfinance sector has certainly begun to shift the focus of development strategies away from handouts and onto more innovative solutions. However it may also be prone to the same ailment as traditional aid. Ideally microfinance should help to bring about a situation in which it is no longer needed or useful: real development.

So is microfinance actually furthering development? Some new studies on the effects of microcredit from MIT and IPA (Innovations for Poverty Action) are not terribly conclusive on that front. Check out a review from the Economist on this here.

What is clear is that there is no magic solution. Microfinance certainly has its benefits and its place, however it is crucial to keep in mind the real goal of any poverty alleviation program: to eliminate the very need for its existence.

~Rebecca

See the article here: Lending Talent and Money on a Micro Scale

Poverty traps occurs when agents fail to coordinate their actions to achieve the optimal allocation of resources. It is argued that this phenomenon makes economic convergence impossible and keeps agents in a poverty trap from which they cannot escape unless a massive and coordinated industrial policy is implemented. This analysis shows that the literature on coordination failures has overemphasized the significance of market failure. It argues that coordination is possible and profitable in a free market system. State intervention is responsible for the systematic misallocation of resources (discoordination), in general, and for poverty traps in particular (Coordination Failures, Poverty Traps, “Big Push” Policy and Entrepreneurship: A Critical View, Bogdan, 2007)

Of course, what this says is that not only is economic growth from top-down aid largely unsuccessful, it is often the inadequacy of the government of the people in question that keeps the people trapped in their current economic situations.

For an example of how some top-down approaches fail see this article:

MOZAMBIQUE: 1,001 things you can do with condoms

Honestly, the immature side of me wants to laugh; the youthful side of me is happy the kids are getting soccer balls, and humanitarian in me realizes that good intentions are failing to be enough. Just because condoms are being made available doesn’t mean they are being fully adapted into the local community. If we call the slight decrease in the rates of AIDS cases each year in this community a success, then we risk seeing what more we can do to a) decrease the presence of HIV/AIDS, and b) decrease the number of unwanted pregnancies per year. The fact is, while condoms are a nice touch in this battle, the community in question is clearly lacking the necessary infrastructure to battle the very things that are keeping it trapped in poverty. Throwing condoms in the mix is literally like throwing a glass of water onto a burning house–it will wet but not douse the conflagration.

This is the part where I would usually make a comment like, “Here, microfinance can help,” but I’ll refrain from the usual, and instead state the obvious: top-down approaches mitigate, but do not solve, the most pressing problems facing LDCs around the world. In the current recession, fewer are looking to give money to any cause and more are looking to save. The microfinance industry is still relatively strong but can only do so much. It’s times like these that we should explore other means–transcending the actual giving or investing of money and reexamine just how that money is distributed. Furthermore, we should look into shaping the way decisions are made by individuals, incentivizing good decision making that will help individuals in their given societies live better with the means and resources they CURRENTLY have (while foreign investment slowly and quietly injects more money into increasingly successful systems). This is the work of behavioral economics, as far as shaping decision making processes goes, but also the work of anthropologists to understand culture-based incentives and mechanisms, and sociologists to project how change will occur and restructure the society as a whole.

It seems that in the current state of the global economy no “Big Push” or heavy handed top-down approach will occur, most people with any means are looking out for themselves. This is the time we need to learn how to do more with less. Then, when there is more, we can accomplish more.

Just a thought.

A

Thanks especially to our wonderful group of speakers. As Dean McGuinness stated in her opening remarks, “Many of the speakers in attendance are ones that I have been trying to bring to campus for four years. The students of Princeton Microfinance Organization were able to accomplish this in 4 weeks!”

We hope that you enjoyed coming to our colloquium as much as we enjoyed having you! Please keep in touch with PMO for future events/projects.

Thanks!

-PMO Colloquium Team

Parking will be available for visitors, free of charge, in Princeton’s Lot 21. See the map: here.

As you can see in the map, northwest of Lot 21 is Princeton’s football stadium, northwest of the stadium, on the corner of Ivy Lane and Washington Road, is the Lewis Library–the location for the Colloquium.

The walk isn’t too bad, but there is a “TigerTransit” shuttle that serves the lot. The time table for Lot 21 is found here.

IF, for some reason there is no parking available, you will be able to find parking on the neighborhood streets off of Prospect Avenue, or up on Nassau Street. This parking is metered and not serviced by a shuttle–so bring some quarters (and an umbrella, it might be raining) just in case.

If you have any questions, e-mail horvath@princeton.edu.