Category Archives: Development

Justice and Compromise in the Middle East

The recent political upheavals in North Africa and the Middle East have caused many to speculate on what the next generation of governance will look like in the region.

Will news governance structures emerge or will new leaders simply fill the voids in an unchanged political system?  And how will the new leadership balance this transition while maintaining sufficient stability and cohesiveness to ensure economies and cultures are kept sufficiently in tact?

In one of the most reflective pieces I have read on the topic, Cambridge historian Marc Michael discusses how the searches for truth and justice can be balanced in a post-Mubarak Egypt. Does immunity for some in exchange for information necessarily imply that others will be scapegoated as a result?

The author above argues for a model adapted from the Truth and Reconciliation Commissions (TRC) set up in post-Apartheid South Africa and Rwanda in order to give culpable Egyptians the chance “to participate in the rebuilding of their nation rather than undermining reform for the sake of their personal safety or privileges.”

The need for compromise in political decisions is not unique to transitional governments.  Governments face these decisions on a daily basis: growth vs. stability, secularism vs. self-expression, liberty vs. order, tradition vs. progress and, yes, truth vs. justice.  (Read the work of Ronan McCrea of Reading University if you’re interested in this from a religious perspective in the EU.)

Striking the right compromise between these competing objectives can often be as much of a challenge as the original struggle which gives people the power to make them.

Are You Happy?

On Friday, I went to see two Iranian documentaries playing at the British Museum. The second of these documentaries, directed by Ali Tamadon and entitled “Are You Happy?”, sees the film crew visits different areas of the country and ask local families this most fundamental of questions. Throughout the 50+ minutes of tape, the range of responses continued to surprise me. Most people — perhaps out of shyness, naivete, or sheer optimism — claimed to be happy in their lives. A few of the more nuanced responses stood out to me:

- A middle-aged mother discussed how happiness and sadness are two sides of the same coin. To know one, you must know the other.

- A teenage boy, squirming in front of the camera, confesses to being unhappy, full stop, but begs the director to not force him to reveal why.

- An old woman, who looks to be in her 80s, talks of hardships and the deaths of her loved ones. She prays to Allah that she will be taken to a place where these burdens will be taken away.

- A Tehran-based documentary filmmaker claims he is happy only when he is allowed to speak his mind and express freely what he sees around him.

The film never bored. The camera frames were beautifully set and simple, showing the interviewee in his home with his family in the background. It drove the point home to me that happiness (or contentment, as I prefer to think of it) is a mindset and is only tangentially linked to actual events of your life.

This truth was echoed in the memoirs of a young autistic savant, which my friend Stephane sent me. Called Born on a Blue Day, it describes the life of 27-year-old Daniel Tammet, the oldest of nine children born to a poor East London family. Tammet’s childhood could be seen as brutal: several bouts of epilepsy, Asperger’s syndrome, poverty, homosexuality, and social dislocation at home and school. Despite all this, he manages to find a decent life for himself by just being upfront, embracing his savant abilities, and openly admitting his quirks and apparent ineptitudes.

This focus on happiness is particularly useful in a time when material excess is increasingly the norm in the developed world. Clothes, appliances, furniture — even houses, for that matter — are increasingly made to be disposable. Fat middle-aged Americans are now making way for fat Chinese children. Almost 1/3 of the food purchased and brought home in the UK is thrown out. Something doesn’t seem right.

This debate has even entered the academic world. While studying at the London School of Economics, I came across the work of Richard Layard, one of the university’s professors who has pioneered a branch of economics that he refers to as “happiness economics.” Rather than allocating resources to maximise wealth, Layard argues that they should be allocated to maximise people’s happiness. A simple enough premise to argue for, but how do these models differ? When measuring optimal economic outcomes, he claims that neo-classical economics fails to consider (or purposefully disregards) the psychologically damaging impacts of inequality, the implicit costs of our evolving tastes, and our path dependency for material objects which we have grown accustomed to. The effect is a society which works harder than it should and is less happy (Incomes contribute to greater happiness, studies suggest, only up until $10-15,000 US dollars annual income… maybe that’s why so many Japanese are committing suicide…)

And Layard is not alone in the academic world. Other economists, such as Cornell University’s Robert Frank, argue for an entirely new form of taxation which is based on consumption rather than earnings (Look out for his book Luxury Fever for a more detailed explanation). Frank argues that high wage-earners who save their money should not be disincentivised from being productive; tehy are, in fact, facilitating future investment (either directly or through middlemen such as banks) by saving what they have earned. On the other hand, the more they consume, on average, the more they should be taxed, with items considered most luxurious taxed at the highest rate. This way, non-productive consumption could still have a place in the market, but its social cost (in terms of the inequality it produced) would be more properly reflected.

Microfinance 101

A friend of mine works at a law firm in London which does pro bono work for microfinance organisations. She, like a few others I know, want to know more about the intended and actual impacts that microfinance is argued to have in developing countries. Here is my take and some (hopefully) useful links to learn more… Please leave your own comments or other good links in the Comments section below…

The Basics

At its heart, microfinance tries to employ market-based principles to produce developmentally-progressive results. The guru of microfinance is a Bangladeshi professor called Muhammad Yunus, who started an organisation called the Grameen Bank. As the legend goes, around thirty years ago, Yunus came across a group of female basket weavers in his home country who were prepetually in debt because of the high interest rates that local loan sharks were charging them to buy the materials they needed. Unable to get out of debt, these women could never save enough money to invest more substantially in their craft business. Yunus sympathised and loaned them about 25 dollars to get out of debt; to his surprise, they quickly repaid the debt in full. This basic concept laid the groundwork for a concept which serves about 50 million borrowers and another 50 million depositors (with even more growth projected over the next decade).

In the beginning, microfinance worked a lot like a typical bank does, except with much smaller loans/deposits (most less than $100) and with alternative means for establishing collateral (because they don’t have any!). Loans are most often given to rural women who are assembled in small groups, whose collective credit rating depends on each of the members repaying their loans. This forces them to monitor each other and to help them out with business advice or support.

Since then, these microfinance concepts have been expanded to include the urban poor, HIV/AIDS and other sufferers, and even marginalised groups in the developed world such as immigrants and even schoolchildren. Still, the market is estimated to only be meeting between 5 to 10% of estimated demand.

But microfinance has also been challenged by some as a means of keeping poor people in debt or that it does not even reach the poorest of the poor (when these groups should simply be given humanitarian relief). The pressure to repay these loans has resulted in reports of suicides and continued patronage of loan sharks. In other words, it does not empower people but keeps them in a cycle of debt-fed poverty. Others argue that microfinance organisations have simply taken the place of loan sharks and formalised what used to happen on side streets and alleyways. Still others argue that the supposed gender impacts are negligible or even regressive.

Current Microfinance Debates and Trends

There is no doubt that the breadth of microfinance institutions (MFI) around the world has expanded in recent years. A noted example is the Mexican MFI Banco Compartamos which was just publicly listed and gave shareholders whopping returns while being accused of charging excessively high interest rates on its loans to poor people.

Simultaneously, mainstream investment banks have begun loaning increasing amounts of their money to MFIs in developing countries so that they have the funds necessary to grow more quickly. These banks get a set rate of return on their “big” loans (often less than their traditional loan rates) without having to do the work on the ground collecting all of the repayments/deposits and drumming up customers.

So is microfinance just like any other commercial activity or is it a developmentally progressive concept that happens to be market-based? Alex Counts, the current CEO of the Grameen Bank, argues that this is a “false choice”. It can be both, or neither, he claims. In a recent article in the Stanford Social Innovation Review, Counts argues that microfinance moves into previously untapped markets and helps deliver a number of financial, business, and social services to people who had previously not been reachable. Counts terms this microfinance benefit as that of a platform rather than a product. Thinking long-term and high yield (many users) but low margins (low profits per user), microfinance can get preferential regulatory treatment and develop trust in its users and in the general public.

My view is that — as with every growing industry — new microfinance propositions will emerge quickly, but the market will soon choose the “winners” among them and kick the cowboys out. As the industry matures, regulations will become more streamlined and this more easily monitored and reported. In a recent lecture I went to in London, Alex Counts sums up his view: “Microfinance is firmly rooted as non-profit but is just a fairly efficient way of promoting growth and jobs.”

For an overarching review of 90 academic studies of microfinance, check out Nathaniel Goldberg’s December 2005 article “Measuring the Impact of Microfinance: Taking Stock of What We Know”

For all things microfinance, check out: http://www.microfinancegateway.org/