The Optimist

Big Is Beautiful

Financial access is key to helping the world's poor -- and tech-savvy big banks, not microcreditors, are our best hope for providing it.

Poor people borrow and lend to survive -- but one of their biggest problems is that no one wants to help them do it. Portfolios of the Poor, a recent book by four finance experts who studied the financial dealings of poor households over the course of a year, concludes that "at almost every turn poor households are frustrated by the poor quality -- above all the low reliability -- of the instruments that they use to manage their meager incomes." Some poor households even pay fees in order to save: In West Africa, susus, or roving deposit collectors, will collect money every day for a month and then give back the deposits minus one day's worth.

The much-ballyhooed microfinance organizations such as Grameen Bank have an important role to play in filling the gap, but it's not necessarily a huge one. After a decade of extraordinarily rapid growth, there were only about 154 million microfinance clients worldwide at the end of 2008 -- around 130 million future customers were born that same year alone. (A spate of recent microfinance-related scandals in India and Bangladesh has also begun to tarnish the industry's reputation.) There are still 2.5 billion adults with no access to formal financial services, including 80 percent of adults in sub-Saharan Africa.

That means that if we want more access, it has to be delivered by the traditional banking sector. The challenge is that it makes no commercial sense to open a branch in a slum that spends all day trafficking in exchanges measured in cents (which is one reason why microfinance took off in the first place). In India, four people in five who signed up for basic traditional bank accounts aimed especially at the poor said they would need to spend half a day's wages and an entire day just to reach the nearest bank branch and make a transaction.

That is why technologies that allow banking without the need for a bank branch are so revolutionary. Take Kenya's M-Pesa, a money-transfer service that works over the mobile-phone network and has turned 16,900 phone vendors into banking agents -- this in a country with fewer than 1,500 physical bank branches. M-Pesa currently has 11.9 million customers, equal to about 54 percent of Kenya's adult population, according to a recent study by Ignacio Mas and Daniel Radcliffe of the Gates Foundation. Not surprisingly, when banks outsource service provision to street vendors, their costs drop dramatically. Pakistan's Tameer Microfinance Bank found that the capital and operating costs for a vendor/agent were 76 times less than for its microfinance branches in the first year, and 89 times cheaper over five years.

The affordability and reach of electronic systems supported by vendors means it is now plausible to imagine universal access to basic financial services. There are already 20 times as many point-of-sales terminals -- phone-connected readers in stores that take a credit card -- than banks in the developing world. And Kenya's experience suggests that in a very short time it should be possible to get to ubiquitous financial access using mobile networks. There were 4 billion mobile subscribers worldwide in 2008. The global population over age 15 is only 4.9 billion.

Governments have played a big part in the rollout of branchless banking because they need cheap and effective ways to deliver cash transfers and pensions to their citizens. Brazil's Bolsa Familia government welfare program provides financial aid to 12 million poor families on the condition that their children attend school and are vaccinated. Since it switched from handing out cash to an electronic benefits system, Bolsa Familia's administrative costs have fallen from 15 percent to less than 3 percent of total program costs. An additional benefit: Two million recipients now use conta facil (easy account) banking and access financial services from one of more than 20,000 locations in the country -- mostly point-of-sales terminals.

Branchless banking is also being used, with exciting results, in delivering financial aid. Conditional cash transfers based on incentives like school performance and health benchmarks have seen dramatic impacts. Mexico's 25 million strong Oportunidades (formerly Progresa) program increases the chance that children will complete ninth grade by 23 percent, for example. And finance without conditions attached -- just giving money to the poor -- also has a positive impact on schooling and health outcomes. Transfer systems could be used to reach a range of other development goals from higher savings rates to spreading resource wealth, as well.

And when e-banking is linked to biometric ID systems like fingerprinting, the impact and efficiency of cash transfer schemes can rise even further. My colleague Alan Gelb at the Center for Global Development estimates that "leakage" rates for financial aid -- the percentage of money spent on transfers that doesn't reach the intended beneficiary -- can reach as high as 40 percent as money is lost or stolen in the delivery chain. He suggests that biometric approaches could help significantly reduce that loss. In addition, using fingerprints as unique identifiers means that illiterate people can use smart cards to make transactions and meet ID requirements for banks without extensive documentation.

Government iris or fingerprint record systems already cover more than a million people in South Africa, India, Malaysia, Costa Rica, Bolivia, Zambia, and Jamaica -- perhaps more than 150 million in total around the developing world. Such systems can be used to efficiently deliver targeted support at a very rapid pace -- which is particularly important after a disaster, when the most efficient and effective thing to do for victims is simply to give them money to help survive and recover. In Pakistan during the 45 days after last summer's floods, banks backed by the government issued 1 million smart cash cards to victims using biometric identification technology in order to finance reconstruction.

With this convergence of identification and e-banking technologies, the power of financial access to change lives will expand even further. This all depends, of course, on governments putting in place the regulatory levers and transfer systems to help grasp this opportunity. But if they do, we may finally have a way to get financial access to everyone -- and today's partial solutions will be a relic of the past.


The Optimist

Great Expectations

The biggest problem with post-disaster relief efforts like Haiti's is the unreasonable ambitions we have for them.

This week has seen a predictable outpouring of disappointment about the state of Haiti one year after the country's devastating earthquake. It was predictable in part because some deserving causes for scorn -- the pace of rubble removal, the slow dispersal of reconstruction funds, the cholera outbreak -- have emerged over the last year. But it was predictable mainly because not a natural disaster goes by without year-after retrospectives bemoaning slow progress. Hurricane Katrina, the Asian tsunami, the Bam earthquake in Iran -- all saw the same story unfold. We should have done better, but a large part of the problem is that our expectations of what can be achieved within 12 months of a natural disaster are often wildly optimistic.

It is worth thinking about how much worse it might have been. When the quake first struck, medical experts weren't just worried about the logistical difficulties of importing sufficient food and supplies -- they were terrified about the risk of tetanus, gangrene, measles, and meningitis. Jeffrey Sachs warned five days after the quake that "Haiti will suffer a quick death of hunger and disease unless we act." A cynic might read that, look at the recent cholera outbreak, and say "one out of two ain't bad." But that cynic would be seriously underestimating the scale of the tragedy averted this past year as the country struggled to recover.

The earthquake was by far the largest natural disaster in terms of mortality as a percentage of country population that we have seen in recent decades. The per-capita death toll was 3,000 times that of Hurricane Katrina. It left 1.3 million Haitians living in camps. In the quake zone, 30 out of 49 hospitals collapsed or became unusable.

Beyond the immense scope of the initial tragedy, the earthquake hit a country with some of the lowest-quality government services in the world and one that was a breeding ground for a range of infectious diseases even before disaster struck. In 2008, according to the Pan American Health Organization, only 19 percent of Haiti's households had access to adequate sanitation, 40 percent lacked access to clean water, and 40 percent were unable to access basic nutritional needs. Sixty-five percent of preschoolers had anemia. Despite progress in health over the last 40 years, vaccine coverage for diseases including measles and whooping cough hovered just above 50 percent. Haiti had the highest HIV burden and rates of tuberculosis infection in the Western Hemisphere. Malaria is endemic -- there were over 100,000 cases in 2005 -- and acute respiratory infections were rampant, with pneumonia accounting for one out of every five child deaths.

Past humanitarian catastrophes in similar situations have seen mortality rates rocket in crowded, unsanitary camps as children in particular were felled not just by cholera but salmonella, meningitis, hepatitis, measles, respiratory infections, and malaria. Cases of acute respiratory infections increased fourfold in Nicaragua after Hurricane Mitch in 1998, for example. The Haitian camps hold more people than lived in the camps for Rwandan refugees in Goma in the Democratic Republic of the Congo. But in 1994, the Goma camps saw 12,000 killed by cholera alone and fatality rates among the infected of over 12 percent. By contrast, a national surveillance system for disease set up by donors and the government in the aftermath of the Haiti earthquake found no evidence of epidemic spread or disease clusters in the first four months after the quake -- indeed cases of respiratory infections, malaria, and diarrhea were all on the decline.

The recent cholera outbreak in Haiti has blighted that record and (deservedly) attracted alarm. It has already affected nearly 150,000 people and killed over 3,000. It broke out 55 miles from the nearest camp but spread rapidly to every part of the country -- aided on its way by the havoc wreaked by Hurricane Tomas. With adequate preparations, many of those deaths could have been avoided. Mortality from cholera was about 6 percent of cases at the start of the outbreak, with fears it might rise. But since then, the rate of new infections has fallen and mortality has declined to 2.2 percent, thanks to rapid response by government, donors, and NGOs.

Meanwhile, the donor community has given 1.1 million people access to drinking water, installed 11,000 latrines, and constructed 19,000 transitional shelters. Pregnant mothers are seeing doctors and nurses, many for the first time. Children are being vaccinated, and some are going to school. Quality of life for many in the camps may be better than it was before the quake.

Why, then, the widespread sense of disillusionment with the global response? A large part of the problem is that donors routinely promise too much too fast from aid -- particularly in the aftermath of disasters. At the March donors' conference which raised nearly $10 billion in pledges for Haiti, some spoke of a "Haitian Renaissance" or a "second independence" for the country. U.N. Secretary-General Ban Ki-moon foresaw "a sweeping exercise in nation-building on a scale and scope not seen in generations."

We should know by now that after an apocalypse is not the perfect moment for outsiders to come in and remake a country. Following the invasions of Afghanistan and Iraq, too many swallowed the heady idea that we were starting with a clean slate and could reinvent economies and societies for success. But the institutions that underpin economic development cannot be reconstructed overnight -- and they are never built from scratch.

Progress on reconstruction has been achingly slow, it's true. We could be doing better if we used more aid money to employ Haitians and if we had coordinated flows better and put at least some more resources through the Haitian government. We would be doing better if the donor community had actually paid up more than 10 percent of the reconstruction money it promised in March. And we'll never do as well as the lofty rhetoric of those donor conferences might suggest. Aid agencies and donor groups have done themselves and everyone else a disservice by inflating expectations about the speed of recovery. But what they can realistically deliver, and what they successfully delivered in Haiti, is the services necessary to elevate a hellish situation to a merely horrible one.

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