Tuesday, March 9, 2010

"Build it and they will come"

The March 8th edition of the Financial Times contained an op-ed piece that caught my attention. Entitled “How banks can better help the world’s poor” I thought it would be particularly appropriate to the theme of this blog. In the article the author, Alexander Friedman a former investment banker and chief financial officer of the Bill & Melinda Gates Foundation, outlines four steps he believes the financial and social sectors can take together to help the world’s poor:

1. Foundations could “carefully lend” against a portion of their assets they do not give away each year;
2. The private client and wealth management businesses of financial institutions could work with foundations to syndicate grant-making opportunities;
3. Banks could expand “on their current, limited efforts in community lending” to “structure deals that serve the poor;” and
4. Governments could “bring about a revolution in giving and investing” by providing tax incentives for “high quality social impact investments…”

After giving the article some thought, however, I found myself disappointed in this prescription for helping the poor which, in essence, is all about raising money. Certainly we can agree that more funding for anti-poverty programs would be a good thing and that eliminating global poverty will require a lot more of it. Nevertheless, if we have learned anything in the effort to date, just throwing money at the problem won’t make poverty go away.

I believe we also need to be building anti-poverty infrastructure and banks can make huge contributions in this effort. In an excellent recent book, "Portfolios of the Poor", the authors meticulously document the need for safe, reliable financial services that are tailored to fit the needs of the poor.

Although micro-loans are playing a vital role in helping to lift the poor out of poverty, increasing attention these days is being given to micro-savings and mobile payment products. However, serving those at the base of the pyramid with such products is difficult and expensive. Banks should work with local MFIs (Micro-Finance Institutions) and social enterprises such as PT Ruma and Microfinance Solutions (mentioned in previous posts) to reach poor clients and provide them with the basic financial services they need to run their businesses and protect and grow their families’ assets.

Today social entrepreneurs use the internet to raise increasing amounts of money for a wide range of anti-poverty programs. In fact, some commentators fear that the fund raising ability of such social enterprises as Kiva, in the near term, may be out-pacing the ability of MFIs to deploy the funds effectively. Without sound anti-poverty infrastructure such well intentioned efforts to help the poor can flounder.

So what else should the financial and social sectors be doing to help the poor? Briefly I would offer the following:
1. Foundations should invest more in the human capital required to run social enterprises that focus on the needs of the poor;
2. Wealthy individuals who utilize private client or wealth management services should invest some of their time and resources in these social enterprises;
3. Banks should find ways to tailor their products services to meet the needs of the poor and create greater access to the banking system; and finally,
4. Governments should enact effective consumer protection regulations for the poor while also encouraging and enabling banks to work with the poor.

Mr. Friedman is correct that now is the time for the financial and social sectors to work together to change philanthropy. But we also need to create the capacity to absorb and effectively deploy increasing levels of funding. Build the right anti-poverty infrastructure and the investors will come.


  1. According to CK Prahalad's Fortune at the Bottom of the Pyramid, reaching out to the poor is more than philanthropy. It's good business.

    In India last month I was intrigued by a glimpse of a woman in a squatter's tent talking on a cell phone. That led me to the Bottom of the Pyramid book and a great explanation of how she could afford it and why people like her need cell phones, too.

  2. Chura,
    You're absolutely correct--reaching out to the poor can be good business. "Bottom of the Pyramid" is a great book that makes this point. Thanks for the comment.