This was published in the Daily Star on Saturday, October 30, 2010
The typical microfinance beneficiaries group meeting: How many freed from poverty trap?
US$2.3 trillion has been spent by the global North on international aid in the last five decades. Nevertheless, close to half of the world’s population still lives in poverty. One in five live in extreme poverty. Aid is not working as well as it should. Unless we can inject the spirit of innovation into this provision, the extreme poor we try to help in places like Bangladesh will continue to remain poor.
Bangladesh is home to probably the biggest innovation in the history of aid: Muhammad Yunus’ microfinance innovation has changed the lives of a generation of Bangladeshis, not to mention the estimated 665 million people who have taken out microfinance loans around the world since. In the aid industry, we want more innovation like this. Unfortunately, we only get more Grameen Banks — replications of the same thing. There are now more than 3,000 different microfinance institutions around the world, and as long as microfinance is delivering results with a large enough percentage of the poor (more than 40% of Bangladesh’s population is still classified as poor), there is little incentive to push innovation outside of this proven comfort zone.
However, microfinance, much like any innovation, cannot do everything. Critics in Bangladesh have fiercely attacked it for its failure to improve the lives of the extreme poor. Due to their specific social and economic characteristics(constraints), these individuals regularly default on their loans, and are accordingly often refused credit. We need more innovation, but why does innovation in aid for the extreme poor appears so hard?
The success of modern business innovation is that it is driven by the users: empowered to do so through good education, improved communications and readier access to investment capital. Normal people are innovating business solutions to their own needs. The problem with much of modern aid, however, is that there is no user innovation — policies are thought up by outsiders. That is not to say that most aid is not well-thought-out; international aid initiatives are increasingly guided by thorough research, and are met by more success. Nevertheless, this is still manufacturer innovation; the user’s only role is having a need, which the manufacturer identifies and designs a response — or ‘product’ — for.
In the global North, social entrepreneurship has become the innovative platform for many user-based solutions to social ills. The innovation-friendly environment in those countries is primed to encourage it: needs are identified by a wealth of people empowered enough to make their thoughts heard, an educated population of social entrepreneurs are capable of developing new policies and technologies, and there is cash available, through financing institutions such as the Big Society Bank in the UK, or the Barack Obama’s Social Innovation Fund in the US.
In countries like Bangladesh, we find these preconditions not so well met to encourage user innovation. Even less for the extreme poor.
The problem is that the typical person who can identify innovative solutions, the user, is not in a position to do anything about it. Socially marginalised, the extreme poor in Bangladesh are unlikely to even be deemed eligible for a 1000Tk loan from a microfinance institutions, let alone be entrusted with a significant enough investment to make a difference on a bigger scale. Compare this to the US, where empowered users compete for multi-million dollar funding for their ideas from Obama’s Social Innovation Fund. What can we do to promote social innovation for the extreme poor?
The shiree/Economic Empowerment of the Poorest (EEP) Challenge Fund is funded by UKaid from the Department for International Development, and its goal is to sustainably ‘graduate’ one million extreme poor Bangladeshis from poverty by 2015. The Challenge Fund concept works by setting up a ‘challenge’, and inviting people — individuals, NGOs, private companies — to compete to best respond to this challenge. Through this system, it hopes to bring the need, the solutions, and £65million in cash, closer together to develop the necessary innovations which can enable the extreme poor, for whom microfinance and other traditional development projects have failed. This and other likeminded institutions with funding will continue to drive innovation in this area, but there are some guiding principles which must be followed to create an innovation-friendly environment.
The extreme poor will not be able to innovate their way out of poverty, unless we give them the opportunity to do so. This means 1) ensuring universal education enables extreme poor young people to enhance their analytical ability and develop their own solutions; 2) empowering the extreme poor, who tend to be marginalized due to their gender, ethnic group, and other reasons, to make their voices heard and; 3) keeping our ears to the ground through consistent lines of communication with the extreme poor, as users’ ideas can come and go in a day.Christopher Maclay is an Associate Programmes Manager at shiree. (www.shiree.org). He can be contacted at firstname.lastname@example.org Source: www.thedailystar.net