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Charity needs capitalism to solve the world’s problems – FT.com

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By Bill Clinton

Charity alone will not solve the world’s problems. Capitalism can help and at the same time put people back to work. There has always been a gap between what the government can provide and what the private sector can produce, a gap charities have long helped to fill. But as our world and economies evolve, we have an opportunity and a responsibility to reconsider how to fill this gap – to rethink the relationship between economic and social challenges, so that benefits and opportunities are available to more people.

First, this rethinking is necessary because people are demanding it. FromZuccotti Park to Tahrir Square, people are standing up and saying that for too many citizens the current systems are not working.

Second, the financial crisis has made plain that the path we were on was unstable and unsustainable. While our global economic system has brought benefits to many, it has also exacerbated inequalities, both within and among countries. Too much inequality not only hurts the poor and stifles the dreams of the middle class, it also hinders productivity and growth.

Finally, our increasing interdependence strengthens the link between our prosperity at home and prosperity abroad. It is hard to sell things people cannot afford to buy. Also, economic privation breeds political resentment with all its costly consequences. We therefore have a vital stake in the fates of others – a stake that extends beyond compassion to political stability and economic security.

How do we change course, to merge social and economic progress? Haiti offers us some lessons. Earlier this month, when I travelled there to mark the second anniversary of its devastating earthquake, I could feel a palpable change in the country. Much of this has to do with the focus and drive of the new government. But a lot of it is also due to the approach of Haiti’s friends and partners – an approach driven more by empowering people and communities than by imposing external solutions. My good friend Denis O’Brien and the Digicel Group not only employs 70,000 Haitians, they also rebuilt the famed 19th-century Iron Market bazaar, one of the capital’s landmarks, to create jobs for others, and give charitably to education to ensure that there will be a better educated, more employable workforce. Another example from Haiti is an innovative fund set up by the Carlos Slim Foundation and Frank Giustra to invest in entrepreneurs – giving them a hand up, not a handout.

We are starting to see the success of this new approach in other countries and sectors as well, in the approach of the Bill and Melinda Gates Foundation, in companies such as Walmart, Google and Procter & Gamble that have shifted their corporate culture from promoting social responsibility to increasing shared value.

This is the lesson that we learnt while working to solve the Aids crisis, when the pharmaceutical industry moved from being a low-volume, high-margin business to a low-margin, high-volume one with guaranteed payments. Today, this system is providing millions of people around the world with lifesaving HIV/Aids treatments at much lower costs while also improving the profitability of the companies involved. Similar lessons were learnt from our work with farmers in Africa: by helping them access the fertilisers, seeds and markets they need, we could provide them with a fundamentally more sustainable way to lift their families from poverty than we could ever hope to achieve through traditional charity. The lessons of this work and the benefits of boosting productivity are clear.

The common thread through all this evidence is that private wealth can effectively advance the public good when governments, businesses and non-governmental organisations work together to share expertise and implement lasting solutions. When our bottom line is more about strengthening the future than maintaining the present, and when our financial interests are aligned with our social ones, we will be closer to the kind of world we want all our children to live in.

One of the ways in which I have been trying to support the work of leaders around the world as they rethink our approaches to global problems is via the vigorous discussions and diverse commitments that are generated through our Clinton Global Initiative. To date, members of CGI have made more than 2,100 commitments that have already improved, or are now helping, the lives of nearly 400m people in 180 countries. Many of these commitments reflect the new approach to problem-solving by better aligning the interests and objectives of private corporations, governments and non-governmental organisations. Beyond their specifics, the goal of these projects is to work ourselves out of a job – not to generate perpetual aid dependence.

These efforts benefit both the communities they target and the corporations and philanthropists involved, diversifying their businesses, expanding their markets, training more potential workers and helping to create a culture of prosperity. All this enhances profits, increases economic inclusion and gives more people a stake in a shared future.

Because of these developments, and in spite of current economic conditions, I am hopeful for the future. The problems we face are solvable: we have the means. What we need is innovation, imagination and commitment. The most effective global citizens will be those who succeed in merging their business and philanthropic missions to build a future of shared prosperity and shared responsibility.

The writer is former US president


MFI Research Shows Clients Better Off Through Microfinance

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May Kunmakara 
Monday, 16 January 2012
A survey by Cambodian microfinancers showed debtors were better off in several respects than those who didn’t borrow from the institutions, MFI officials claimed.Responding to recent concerns over the role of microfinance institutions and the alleged role they played in creating poverty and loss of property in the Kingdom, the Cambodia Microfinance Association on Friday released a study that showed positive outcomes for borrowers in changes in income, assets and the empowerment of women, among others.The Cambodia Institute of Development Study, an independent institution, surveyed 1,876 MFI clients, 568 non-clients and 533 former clients in 15 provinces during the first nine months of 2011.

About 54 per cent of MFI clients saw increases in income in 2010, compared with 32 per cent among non-clients, the survey showed. Nearly 80 per cent of clients had multiple sources of income. Among non-clients, 66 per cent had more than one job.

Cambodia Microfinance Association and Netherlands Development Finance Company funded the survey, of which 80 per cent of the responders were women.

The ability of MFI clients to repay their loans has grown as the industry has matured, association director Bun Mony told the Post Friday.

“During the last 10 years, customers used to borrow from us just around US$50. But now they are able to get about $10,000,” said Bun Mony, also the director general of Cambodia’s third-largest MFI, Sathapana.  “How can we loan them so much money? After our assessment, we see that our clients can pay back these large amounts of money with interest and principle.”

MFI loans average at about $500. The industry has about $570 million in outstanding loans to 1.1 million customers. Prasac, the country’s biggest MFI, had a default rate of 0.14 per cent, the company’s director told the Post last week. About 30 per cent of the MFI’s loans go to the agriculture sector. Kalyan Mey, a senior advisor to Cambodia’s Supreme National Economic Council, as well as an outspoken critic of high microfinance interest rates, told the Post last week that, with up to 50 per cent annual interest on some loans, the potential for default among the Kingdom’s rural population was high.

A lack of understanding among rural debtors could lead to social instability and a loss of property, Kalyan Mey said at the time.

“[The interest rate] is too high to justify any productive gain from the farmer raising pigs or growing rice,” he said.

“At the end of the day, many farmers will lose their houses and their land. It can become a big social problem for the rural community.”

Son Koun Thor, president of the state-owned Rural Development Bank, said last week that free-market forces had left the rural borrowing population at a disadvantage in terms of interest rates.

At many MFIs, rates have fallen from an original monthly 5 per cent to between 2 and 3 per cent. Sathapana’s interest rates are about 25 per cent a year, according to Bun Mony. Prasac’s rates are slightly lower.

Some insiders, however, have said the rates could climb again as more MFIs start to take deposits.

Depositors would demand higher savings interest rates from the institutions, which before 2010 were only permitted to give small-scale loans, a source familiar with the industry told the Post last week on condition of anonymity. “The spread between deposits and loans will only increase,” the source said.