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Memo to DFID – please do not take microfinance seriously

Today I received, from the Globalisation Institute, a press release, which began as follows:

Monday 6 November – A new report released today by the Globalisation Institute says that microfinance is not being taken seriously by the Department for International Development.

In October, it was announced that the Nobel Peace Prize would go to the founding father of microfinance, Dr Muhammad Yunus, who created the Grameen Bank in Bangladesh. However, microfinance remains tiny in Africa and receives scant support or encouragement from DFID.

Okay, cards on the table. I am a big fan of the Globalisation Institute and of its bosses Alex Singleton and Tom Clougherty. I write quite frequently for the Globalisation Institute blog, my latest posting there, about mobile phones (which makes much of a comment at my blog by Michael Jennings on the subject), having gone up there only last Friday. Tonight, I am attending a Globalisation Institute do, to which I have been invited so that I can take photos. David Cameron will be present, and they want to be sure that his presence there is immortalised pictorially, so that they can blog about it and impress their many donors with their political plugged-in-ness. Very sensible.

But… and you could hear that word coming a mile off couldn’t you?… I have severe doubts about these latest pronouncements of theirs. The point being that DFID stands for Department (as in Government Department) for International Development. And, as a general rule, international development has taken place in spite of – at the very least in a manner that is indifferent to – all such Departments.

Consider those mobile phones, that I wrote about for the Globalisation Institute on Friday (I mentioned them here also). Mobile phones have been (a) one of the very few economic development success stories to emerge from Africa in recent decades, and (b) entirely done by selfish and freely trading tradesmen, all trying to make a buck and generally further their own interests. This is absolutely not a coincidence. Mobile phones have emerged as Africa’s way of getting around government departments. The fact that, when mobile phones were first hitting their stride in Africa they were “not being taken seriously” by organisations like DFID is all part of why they were so successful. The right people – the people who really, really wanted them and were willing to pay a lot for them – got them. And the right people – those wanting to make money out of them and hence devoted to the interests of their African customers (note that word) – supplied them, with no input from the likes of DFID whatsoever.
[UPDATE: Er, not so. In fact: bollocks. See first comment. DFID were heavily involved in mobile phone development in Africa. However, I still think the basic argument of this posting just about stands up. Just about. And the final paragraph makes more sense than ever.]

Just imagine what a colossal screw-up mobile phones in Africa might have been if the Development Industry had been in charge of it all, on account of them taking mobile phones seriously. It does not matter nearly so much when these idiots get excited about a bad idea. But when they get excited about what might have been a good idea, they can do serious harm. Development, for instance. That is a good idea. Or, it was.

No, what I want from my politicians is malign indifference. Indifference because I do not want the malignance to be too active, and because indifference means they will not meddle, either by flailing about with regulations or with great and unpredictable tidal waves of other people’s money, and malign also because that means that everyone can depend on this indifference – i.e. non-interference – lasting for a decent while.

As for DFID getting interested in microfinance, well, it seems to me that it will be just as easy for a government department to do serious harm to an idea by spending a large number of small amounts of other people’s money, as it has long done harm by spending a smaller number of larger amounts.

But, the internet is the of all things the thing that means you do not have to take anybody in particular’s word for it. You can read the Globalisation Institute blog posting on this topic here, and the entire report [a 25 smallish pages .pdf file] here.

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4 comments to Memo to DFID – please do not take microfinance seriously

  • Jim

    “The fact that, when mobile phones were first hitting their stride in Africa they were “not being taken seriously” by organisations like DFID is all part of why they were so successful.”

    Blimey, could you be any more clueless? I wonder have you heard of Celtel. If not, don’t worry – it’s only the biggest mobile operator in Africa. And when it started up in 1998, guess who invested in it(Link)?

    Celtel’s second-largest investor was DFID’s private-sector development arm, CDC, which gave Celtel management advice, encouraged it to apply good employment practices, and paved the way for other organisations to invest in the company. When MTC of Kuwait bought Celtel in 2005, CDC received a 500% return on its investment – money that will be spent on new development initiatives.

  • Jim

    Thanks and I stand corrected. I have heard of Celtel (see the Samizdata posting I linked back to), but not that DFID invested in them.

    Live and learn.

  • Paul Marks

    There would be plenty of mobile phones in Africa without the Department for International Development.

    Let us say that one supports the existance of the state – that one holds that without a formal government structure with the power to tax, people could not organize their defence by voluntary interaction.

    This still does not justify the existance of the Department for International Development (or most government departments).

    Countries develop economically because of work and investment (real investment not government spending called “investment”).

    Nations like Britian and Germany did not become industrial powers in the 19th century because of “aid”, there was no aid as there was not for any nation.

    Even Taiwan and South Korea (oft cited examples) did not really develop economically till after American economic aid dried up.

    Government “development” money is like welfare – accept, as has often been noted, it tends to go to get into the hands of elite groups in poor countries.

    Africa will only really develop economcially when aid is cut off – whether it is intended to set up “micro credit” schemes or anything else. The same was true for India – which only began to develop when it allowed the people to act (by getting rid of some of the “permit Raj”) whereas decades of aid had achieved nothing.

    Indeed aid for “micro credit” is absurd, as the whole point of this idea is that money is lent to people on the basis of personal knowledge of them (not assets that overseas administrators could measure).

    Indeed the micro credit idea reminds me of the “friendly societies” of Britain or the “fraternities” of America (before “fraternity” just meant group of college student drunks) – it is really about mutual aid.

    It is hard to think of something which government aid is less suited for.

    Organizations like the World Bank and the I.M.F. should not exist. Especially not following their new (neo con) policies.

    “We will lend you this money (or forgive you existing debts) if you set up government education or health schemes or…..”

    A rich country may be able to afford Welfare State schemes (at least for a for several decades – although eventually such entitlement schemes will grow to be unsustainable) but a poor country simply can not – they will strangle any real development.

    It is not just a matter of (with the example of education) loads of people with bits of paper (“qualifcations”) demanding government admin jobs because (as they are “educated”) they regard work (whether as farmers or as traders or in any productive capactity) as beneath them – it is also the question of “what happens next year”.

    So the “international communoity” gives a “third world” governement enough money to set up (say) a goverment health service. What happens the following year? And the year after that and the year after that….?

    The budgets of such schemes always grow (no matter how ineffective they are) and the local government will either have to tax or to borrow money to sustain the schemes – thus undermining any hope for long term economic development (any hope for the real reduction of poverty).

    It is all very well to pretend to be Captain Kirk (in one of the episodes where the script writers have forgotten about the “prime directive”) and promise “schools and hospitals” to the “poor aliens” (often in the name of “freedom”) – but in reality such government aid policies are not a good idea.

    Nor does it make sense for people who are supposed to be free market to support this Star Trek – President Johnson style politics.

    Tomorrow a lot of Republicans may find out that delivering development projects for their voters at home, and supporting President Wilson style wars for democracy overseas are not the way to get reelected (not that it is correct to walk away from a such a war once it is started – for example going to war in 1917 was a mistake, but walking away before victory in November 1918 would also have been a mistake).

    Developent projects at home or overseas tend to turn (no matter how honest one’s first intentions were) into pork.

    And wars for democracy tend to become unpopular when people start to see the price (both in money and human lives).

    Not that people will tend to admit that they are against wars for democracy of course. They will tend to deny that the war was to spread democracy (“you had evil corrupt motives”) or they will say that the people in charge were “incompetant” or other such (even though there would be more body bags comming home if the critics had been in charge). It is much the same in African politics – people denounce “corruption” failing to understand that even a government of saints could not make the schemes work.

    The sad thing is that the people who look set to lose tomorrow will be replaced by people who want to spend MUCH MORE money – both on “development” at home (such as even bigger subsides for the universities) and yet more world government “development” in other places in the world (and setting up world financial services regulators and so on).

    Some of the truly conservative (in the American sense) voters look like staying home, and the statist voters will vote for extreme statists, not the moderate statists presently in control of Congress.

    The desire to “safeguard the majority in Congress” by spending money on this and that, will be the very thing that loses the majority.

    Still at least the United States still has lots of people who understand the concept of limited government (even if they are not in control of one of the big two parties, and do not exist in the other one). Britian is more most African nations, in that in Britian only a tiny number of people understand the concept that government should be limited.

    The British view (whether it Blair, Brown, Cameron, Campbell – or vitually any other politicians) is that government is there to serve the needs of the people. These needs to be defined as anything the people want and anything that the wise and good think they people should have (even if they have not got around to wanting it yet) whether in terms of government spending schemes, or regulations (“more resources for X” or “there should be a law against it, or a law making it compulsory” – this is the British way).

    This is a very “third world” view of politics. Which is why Britain will end up being a “third world” country. I am not sure that the United States will end up as such – there is a lot of resistance to such ideas in the United States (although it is not very obvious at the moment).

  • darkbhudda

    Celtel’s second-largest investor was DFID’s private-sector development arm, CDC

    Not the largest investor, not the first investor and no proof it was the best investor.

    Just because the DFID invested in it and got lucky doesn’t change anything. Government schools produce smart kids in spite of the school system, not because of it.

    Jim wouldn’t be appear so “clueless” if he provided a link of all the DFID investments and showed us they had a very low failure rate. Instead he provided a link to the usual government PR waffle. If the government released a deadly flu virus they’d issue a press release saying how they benefited the local pharmacies.