How Can We Really Help the World's Poor?
Tuesday, April 24, 2007 / 9:25 am - 10:40 am
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Moderator
Betsy Zeidman, Director, Center for Emerging Domestic Markets, Research Fellow, Milken Institute

Speakers
Gerard Caprio Jr., Professor of Economics, Chair, Center for Development Economics, Williams College
Jacqueline Novogratz, CEO, Acumen Fund
Sally Osberg, President and CEO, Skoll Foundation
Zachary Pessin, President and CEO, Distributed Capital Group

Nearly 40 percent of the world's population -- 2.5 billion people -- lives on less than $2 a day, despite years of effort and multitudes of funds expended by governments, foundations and individuals trying to solve the problem. But is donor-supported aid the answer?

In an opening discussion of the definition of "social entrepreneurs," Jacqueline Novogratz of the Acumen Fund added that charity doesn't really solve problems in developing nations; helping entrepreneurs is a real driver for change in those emerging economies.

Professor Gerard Caprio Jr. of Williams College, explained that people forget that when countries have good incentive systems for their citizens to invest in their own futures, they don't need foreign aid —- on the other hand, nations without good incentive systems won't be able to put the foreign aid they receive to good use.

Poverty, added Zachary Pessin of Distributed Capital Group, is "a huge sign of inefficiency -- we are not leveraging human capital." Empowering individuals to create small and medium businesses is a significant driver of change.

Novogratz reminded the panel not to forget that the poor often also have unmet basic needs, such as access to water, and that corrupt governments and syndicates that control business operations prevent outsiders from competing.

Caprio pointed out that even in countries with good microfinance institutions, the reach is very small, at less than 5 percent of the target population. This suggests that financial systems in developing countries are not inclusive of the poor or that banking costs price the poor out. Pessin added that financial markets in developing nations tend to make their loans on 100 percent collateral, problematic for the creation of companies. Unless loans are risk-based, he said, the capital will not get to the entrepreneurs. The problem seems even deeper, according to Novogratz, because many of the world′s poor put their savings in the very banks that will not lend them money. Caprio noted that many people break out of poverty, only to fall back into it due to economic fluctuations.

While aid to developing countries is important, said Pessin, there must also be accountability. "We cannot simply write these countries a blank check," he said. On the topic of economic sustainability, Osberg offered the following example: In 1997 the World Wide Fund for Nature (formerly the World Wildlife Fund) and Unilever created the Marine Stewardship Council to certify fisheries for sustainable fishing. Its main objective is to safeguard the ocean's fish stock from depletion, which would make the business unsustainable. This is an example of a partnership in the right direction, she said, "but for this to be successful It will take governments, businesses and NGO′s to make it happen." This is the way jobs are created, she said.