Challenging Global Inequality: Helping Investors, Helping the World
Tuesday, April 25, 2006 / 10:50 am - 12:05 pm
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Moderator
Betsy Zeidman, Director, Center for Emerging Domestic Markets, Research Fellow, Milken Institute

Speakers
Susan Blaustein, Co-Director, African Millennium Cities Initiative, Earth Institute of Columbia University
Deborah Burand, Executive Vice President of Programs, Grameen Foundation USA
Lauren Burnhill, Vice President, Financial Markets and Services, ACCION International
Ann Miles, Director, BlueOrchard Finance
Stewart Paperin, Executive Vice President, Open Society Institute and Soros Foundations Network

Despite rapid advances in the standard of living in much of the world, almost half of the world′s population subsists on less than $2 per day. According to the panelists, this is "everyone′s problem" and will require everyone′s cooperation to address effectively. Financial and business leaders are developing innovative approaches to leverage finance, philanthropy and business development to yield "double-bottom line results" that provide investors with solid returns while also making a meaningful difference in fighting poverty and inequality.

Stewart Paperin of the Open Society Institute identified the primary role of private institutions in promoting financial integration between the microfinance organizations that serve the poorest of the poor and the larger commercial financial institutions that serve the next tier of the population. The current disconnect between these two systems can impede the fight against global inequality, and Paperin argued that "connecting the dots" should be a priority for the private sector.

In addition, he said, the private sector can help inject back-end administrative and processing expertise and discipline into the process. Meanwhile, the government should focus on getting the rules and regulations right and philanthropists on advocating and demonstrating the feasibility of initiatives.

Susan Blaustein of the African Millennium Cities Initiative discussed what such a demonstration can look like. Her innovative work in sub-Saharan Africa is centered on three major initiatives: a green revolution in agriculture, a health revolution in addressing malaria and other illnesses, and an infrastructure revolution to develop the roads needed to sustain a modern economy. As Blaustein passionately noted, "We can′t wait because waiting means lives." The hope is that demonstration projects like the Millennium Cities Initiative will show that there are viable and effective solutions to these seemingly intractable issues, catalyzing investments in these areas.

As Lauren Burnhill from ACCION noted, microfinance models have proved very effective in addressing the subsistence needs of some of the poorest of the poor. The challenge today is on building scale and increasing the revenues of these micro-entrepreneurs to transition to traditional financial products. Commercial banks, such as Citibank, are beginning to show interest in this area, which may facilitate the bridging that Paperin suggested was so critical.

Ann Miles of BlueOrchard Finance was optimistic about the success that microfinance has had, but she pointed out that less than 1 percent of the overall demand has been financed on the capital markets. In addition to microfinance, the focus has turned to alternative means of financing, including bond issuances and structured finance offerings. Miles was hopeful that these recent innovations will pave the way for more robust private investments in efforts to reduce global inequality.

Investors have had a tremendous impact on combating global inequality, but the battle is far from over, and significant challenges remain. First, there is the issue of asset classification. As new financing models emerge, many are unclear on how to treat these new instruments, both from a risk and ratings perspective and as a matter of pure categorization. Second, it is critical to build the capacity of micro-enterprise institutions to bring offerings to market. And as these organizations begin to offer savings and deposit products, regulations may be required to protect these deposits and prevent potential banking collapses in times of crisis.

Liabilities management will be an important capability. Third, it is important to increase the visibility and acceptance of microfinancing to conventional investors, which includes improving the liquidity and attractiveness of these instruments. Finally, it will be critical to iron the role of local vs. international financial markets: Is the solution Wall Street or Main Street?

Financial investors have already made a tremendous impact in fighting poverty and inequality through innovative financial models. Continued, sustainable progress will require ongoing commitment and creativity, and the ability to make investment propositions that make social and economic sense.