How Business Can Aid in the Fight Against Global Poverty
by Kim Tan, Dec 12, 2007
Statistics on global poverty are as easy to find as they are numbing: Nearly half the world’s population lives on less than two dollars a day; eight-hundred forty million people worldwide suffer from hunger; ten million children die every year from preventable diseases; AIDS kills three million people every year, and contraction rates continue to climb; one billion people lack access to clean water; one billion adults are illiterate; approximately one-quarter of children in poor countries do not finish primary school. Meanwhile, the richest 20 percent of the world’s population owns 77 percent of the world’s wealth, while the poorest 20 percent own 1.4 percent.
These statistics present two problems: First, they make the problem of poverty, disease and hunger impersonal; Second, the scale is too vast to comprehend. How can we come to terms with hundreds of millions of people suffering each day from hunger? The problems seem insurmountable, with the result that people feel incapable of doing anything about them. Such difficulties are often compounded by reported accounts of failed aid projects, or the theft of funds by corrupt government leaders, or the flight of capital from poor regions, especially from Africa.
A recent UK-government white paper entitled Eliminating World Poverty noted that the number of people worldwide living on less than one dollar a day is falling, largely due to the rapid economic growth in Asia. Asian economic growth alone will result in halving by 2015 the number of people living in poverty. It is important to note that not all countries or regions will experience that poverty alleviation evenly, however; if current trends continue, by 2015 over 90 percent of the world’s poor will live in South Asia and sub-Saharan Africa.
The poverty of Africa is a scar on our conscience. In view of the disparity in wealth between rich countries and poor countries it is impossible to escape the conclusion that tackling poverty is a responsibility rich countries must accept.
For the past five decades the major approach taken by governments to tackle global poverty has been through government-to-government aid. William Easterly, the former World Bank economist, estimates that US $2.3 trillion has been given in aid. While many suggest that aid can work when the appropriate government policies are in place, Easterly suggests that when examined over the long term there is no evidence that aid raises growth among countries with good policies. The conclusion, therefore, is that good governance and policies help economies grow and reduce poverty whether they receive aid or not. Aid is neither necessary nor sufficient to ensure sustainable development and poverty reduction in poor countries. Encouraging enterprise, however, is vital to achieving these goals.
As an example of what enterprise can do, consider just one example: SPOT Taxis of Bangalore, India. SPOT Taxis is the largest taxi franchise in Bangalore; it has over 300 taxis and operates 24 hours a day, seven days a week. It is the first commercial radio taxi operator in India and was started for social reasons in 1999, in particular to encourage the unemployed to seek employment and for drivers to become owners. One unique feature is that each driver is enabled to own his own vehicle with a structured loan over a three-to-four year period.
SPOT stands for Self Employment Programme for Organised Transport. It has a corporate entity that structures the loans for the vehicles, equips them with radios to a uniformly high standard, and trains and provides legal and ancillary support to the drivers. Through the corporate entity, it is able to negotiate vehicle leases with major banks like ICICI on behalf of the drivers, most of whom have no credit history and would not have access to credit on their own.
SPOT combines the management and financial strengths of a corporate entity with the entrepreneurial vigor of self-employment. Unlike other operators, SPOT’s fleet are driven by owners who operate as individual businesses linked by a common brand, system, processes and values. This, coupled with their reliability and high-quality service, differentiates them from other taxi operators.
It has been found that by running their own businesses drivers are more motivated, with the result that productivity is increased. In fact, some enterprising drivers now own more than one vehicle. In addition to the fact that SPOT helps the poor own their businesses and build a credit history, its model is easy to replicate.
Examples like SPOT indicate that enterprise can be a powerful anti-poverty tool. Micro-finance has shown the way forward in removing people from abject poverty to ‘normal’ poverty. The next step is increased investment through small and medium-sized companies in poor countries which yields both financial and social returns. The way forward consists of a number of steps.
First, encourage foundations, trusts, high-net worth individuals and companies, through their social responsibility budgets, to invest in social venture capital projects instead of simply making charitable donations.
Second, encourage governments to devote a greater proportion of their aid budgets to funding enterprise, and design tax policies that promote social venture investments.
Third, reduce trade barriers so that developing countries can increase both their exports and imports; if that fails, encourage countries to unilaterally liberalize their trading agreements.
There are no easy answers to the eradication of poverty. There is no ‘one size fits all’ or a single solution. Poverty will ultimately be solved when good governments are installed that will create the environment for vibrant economic activity to take place. It will not be solved by grand projects run by governments but which offer poor returns on their investments. An enterprise-based strategy will lay the groundwork for a better educated and resourced next generation, to transform their nations and make poverty history.
All opinions expressed in this piece are those of the author, and do not necessarily reflect the position of Beyond Philanthropy or its sponsors.
Kim Tan is the founder and chairman of SpringHill Management Ltd, which manages several private equity funds including the biotech VC fund, SpringHill BioVentures. He also is a trustee of the Transformational Business Network, a network of business people and corporate organizations that uses an enterprise approach to tackle global poverty and bring social transformation. Kim is a director of Active Capital Trust and a number of biotech companies in the UK, US, India and Malaysia. He is a Fellow of the Royal Society of Medicine. Kim is the initiator of the Kuzuko Game Reserve in South Africa, a conservation and social transformational project working in an area of high unemployment.
Wall Street Journal
MEXICO CITY (Dow Jones)–Citigroup Inc’s (C) Mexican banking arm Banamex has started coverage of microfinance lender Compartamos Banco SA (COMPART.MX) with a buy rating, citing the firm’s growth potential in low income segments of the population.
Small Is Beautiful. Want a safe bet for 2009? Try microcredit.
A great article about the investment potential of microfinance…
Wall Street’s titans minted money in good times but now find it hard to repay their debts, if they are in business at all. Ironic, then, that many of the world’s poor are better credit risks than the once-high-flyers at Lehman Brothers. This is one of the attractions of microcredit, the lending of tiny sums—as little as $50—to people at the bottom of the economic pyramid. It is an increasingly bright light in the gloom of the financial world.
Micro-borrowers range from farmers in rural areas to shopkeepers, artisans and street vendors in cities. In places where banks do not reach the poor, micro-lenders (often NGOs and non-profit organisations) provide capital to people who can put it to good use. If you think this looks like another subprime scheme—lending money to people who should not be borrowing—cheer up. Micro-borrowers have a stellar repayment record: Muhammad Yunus, founder of Bangladesh’s Grameen Bank and recipient of the 2006 Nobel peace prize for his work in microfinance, says repayment rates are 95-98%. American credit-card holders are not that dependable.
Increasingly, mainstream financial firms see money to be made. A study by the MicroBanking Bulletin puts the inflation-adjusted returns for lenders on a par with commercial banking. Advocates of the poor worry that too much commercialism will ruin microfinance, but a decent return will attract more capital, broaden its reach and make the whole enterprise more sustainable.
Microcredit’s marriage with technology is opening new opportunities. Mobile phones and a local shopowner willing to handle the cash can extend microlending to a wider audience. XacBank, in Mongolia, is planning a mobile-banking programme that could cover as many as 300,000 people—no small feat in a nomadic country where livestock outnumber people 13 to one. Another bad year on Wall Street and goat-herding may look attractive there as well.
First European Microfinance Award in the Rural Tourism Sector
In 2006 Moroccan institute, Fondation Zakoura received the first European Microfinance Award for work it undertook in promoting financial services in the rural tourism sector. The film, which shows the impact this award has on rural communities, traces the institution’s activities since receiving the award, with testimonies from recipients of the Fondation Zakoura’s services.