Above: Ghada El Sheikh, a small scale farmer in Lebanon, used a loan from Global Communities to purchase fertilizer and irrigation equipment to help her generate more income for her family. Global Communities’ microfinance lending in Lebanon is supported by $20 million in OPIC financing, which has helped it provide nearly 36,000 loans to small businesses, entrepreneurs and farmers like Ghada.
Business as a force for good
If one were to take stock of the biggest gains in helping the poor around the world over the past generation, which ones would come to mind in a blink? And what might these solutions have in common?
Certainly a major gain has come through the dramatic rise of microfinance. It is a market-based solution to a development problem, not what some people might call to mind for poverty alleviation. Yet it has produced promising momentum towards lifting many people out of poverty.
Microfinance has markedly expanded access to financial services for millions of poor people, often in rural areas. It has enabled them to have access to loans and a safe place to save money outside the household. And it has helped them to smooth out disruptive fluctuations in income levels and deal better with financial emergencies.
Another success story would be the astounding spread of mobile telephony. There are now 5.4 billion mobile subscriptions in the developing world. This is a more than a technological marvel. It is a major contribution to economic efficiency and development progress.
Having a cellphone can mean the difference between breadwinners sending money home to rural families securely and instantaneously rather than hand-delivering it. It can mean the difference between getting a fair market price for agricultural produce or getting cheated. It can mean the difference between getting life-saving advice from a distant hospital or seeing family members suffer from lack of appropriate care. Again, this is a market-based solution to development problem that has unquestionably worked.
Another, more recent, success story is the meteoric rise of renewable energy in developing nations. In 2004, developing nations were attracting about $9 billion in new investment in renewable energy – one quarter of the rate in the developed world. As of last year, developing nations were attracting more than $130 billion in such investment, almost equal to the amount being invested in advanced economies.
This investment does more than expand access to power. It allows some of the poorest consumers to take advantage of some of the most advanced technology. It stabilizes energy prices. It advances political autonomy and stability by making nations less dependent on distant sources of power. And, of course, it makes a long-term contribution to addressing climate change. So this too would be a market-based solution that unquestionably works.
Perhaps the biggest success story has been the ability of several key developing nations to maintain private sector growth rates that roughly double those of advanced economies. Incomes are rising so rapidly that more than 35 countries may graduate from lowest rung of poverty by the end of this decade. That does not mean those countries will have escaped chronic deprivations in regions or sectors, but it is an encouraging marker of progress.
What is the common denominator among all these success stories?
They all represent cases where progress was prospected and then pioneered, in part, by a combination of aid organizations and development finance institutions (DFIs) working with and through the private sector.
Consider the challenge presented in 1995 to create a mobile telephone payment system across Africa. None of these types of organizations could have accomplished such a feat alone.
Rather than rely on the market alone or aid alone to address entrenched poverty, this one-two combination of using development finance institutions to channel the market for the purpose of development has had a powerful effect.
Institutions such as the Overseas Private Investment Corporation, the U.S. government development finance institution, have a catalytic role once investors reach the critical decision point. OPIC provides loans, guarantees, and political risk insurance that help companies go into or expand in markets ranging from Kenya to Egypt to Pakistan – altogether more than 100 developing nations.
Just one example of this critical intersection of aid, DFI financing, and private sector leadership, is the OPIC financial commitment to NextGen Solar, a U.S.-based renewable energy company which is will constructing a grid-connected, solar power facility in Tanzania. This progress was made possible in part because of USAID technical assistance to the Tanzanian national energy regulatory agency.
OPIC is helping to provide clean water in arid nations such as Jordan, affordable housing across Latin America, healthcare, energy, and education in Africa—all through sustainable private sector investment.
Our goal is not simply to spur capital for the sake of economic growth. It is to ensure that private sector growth results in tangible economic, social and environmental benefits that reach the poor.
Ahead, we see extraordinary opportunities for development finance. Ever more and ever larger investors now look to the emerging markets for growth. At the same time, the development needs of these nations far, far outstrip the domestic resources of developing countries or the traditional aid budgets of advanced economies. Using private investment to achieve development goals, then, is a case where we can and should make a virtue out of a necessity. Market-based solutions to development problems have proven that they can work.
Elizabeth Littlefield is the President and CEO of the Overseas Private Investment Corporation, the U.S. government development finance institution. She was part of the official U.S. leadership delegation to the UN’s 3rd Financing for Development Conference in Addis Ababa, Ethiopia in July, 2015.
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