MICROCREDIT'S CHILDREN
Microinsurance: Microcredit -- tiny loans provided to poor people with no standard collateral that were a revolutionary idea when Bangladesh's Muhammad Yunus first promoted them 38 years ago -- is old enough to have offspring. Now those spinoffs are promising to help the poor in ways credit alone can't.
This was the year of microinsurance, which now covers some half a billion people with small policies to protect their lives, health, crops, and vehicles. Poor people need insurance even more than wealthier people. With insurance, the poor can take important financial risks, such as keeping their children in school or planting their whole field, instead of just a part to save money.
But it was never feasible for insurance companies to write micropolicies; the cost of issuing a $20 policy is the same as that of a $200,000 policy. They needed cheap ways to assess risks and damages, sell policies, and pay claims. Now those channels exist. Crop insurance, for example, is possible today for small-scale farmers because of localized weather data from satellites and computerized weather stations. With information about rainfall, insurance companies don't have to make costly visits to farms to verify crop damage. And they can sell their policies and make their payouts via cell phone, thanks to the spread of cell-phone banking in Africa.
Microfranchising: Microcredit provides, well, credit. Everything else that goes into a business is up to the borrower. But not everyone wants to be an entrepreneur, and everywhere in the world new businesses often fail. So microcredit begat the microfranchise. Remember the Avon lady? She's a microfranchisee, a borrower who's given a business in a box.
There may already be as many as 2,000 microfranchising companies in poor countries, among them Fan Milk, with 25,000 vendors selling ice cream and juice by bike in seven West African countries, and Ruma, with a network of 10,000 vendors selling cell-phone airtime throughout Indonesia. Now, microfranchising is taking on another role: New organizations like Living Goods in Uganda help poor people start businesses selling medicines, nutritionally fortified foods, or water filters to villagers who otherwise wouldn't know about or be able to buy these products. The new idea with microfranchising is to make it a sustainable distribution channel -- one with a known brand, a tested model, training, and inventory bought at bulk rates -- for getting life-changing goods into the hands of the poor.
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Three common threads run through these ideas. They all devolve power away from donors, letting poor people decide what to buy with cash or letting poor governments choose how best to combat social ills. They all uncover new resources: Governments are finding private investors to fund programs; insurance makes the poor's few assets more valuable; cash instead of in-kind donations enlists the energies of its recipients. Finally, all these innovations in one way or another are financial products. Inequality is stubborn because the people at the very top of society resist attacks on their excess. But here's a big idea: Maybe financial creativity can finally start to help reduce inequality by bringing up the very bottom.
ALI ALI/EPA
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