notions x thabi

Tale of Two TED Talks

First by young entrepreneur Sangu Delle on how large-scale finance would lead to large-scale impact across the African continent. Second one by Joy Sun, who advocates for microfinancing as a means of allocating funds efficiently.

Going Big

Think the Marshall Plan … for Africa. After the devastation following World War II, Europe was not rebuilt using small microloans. Delle discusses this by first dispelling the misconception that every African is an entrepreneur – or at least a subsistence farmer.

This is a powerful idea, one I’ve discussed with friends at length; that most people in fact just want jobs. They become entrepreneurs in the absence of industries which could provide decent work.

So why wasn’t there a Marshall Plan in Africa?

I’m not going to get into the nuances of our complicated relationship as a continent with the West ; See The Internet for More. However one thing that made the difference between the success or failure of the Marshall Plan was the presence of strong institutions.

The Marshall Plan saw the formation of the Organisation for European Economic Co-operation, which was the predecessor to the OECD and the European Union. This body allocated financial aid from the United States to countries across the region. Loans were made to private businesses and the repayments were used by governments to in turn fund infrastructure projects.

A favourite factoid in the area of development is how the economies of South Korea and Ghana were roughly the same size in the 70s, but the Korean economy powered ahead while Ghana faltered. Korea had the Marshall Plan-type aid programme, Ghana did not. If you need to grow quickly, you need to think a bit bigger than giving every household just enough money to buy a goat. You need to build industries and nurture the industrial titans that come with them.

Something for Everyone

Microfinance is about financial inclusion. Many people in developing countries who would otherwise not have access to financing are now able to gain access to financial services. Microloans have been a powerful tool in alleviating poverty across the developing world.Like macro-finance, the success of micro itself lies within disproving another popular fallacy; “Poor people are poor because they can’t make good decisions”

In this talk Joy Sun goes out to dispel the myth, with some interesting insights.

She explains that empirical evidence shows that in many cases, individuals had repurposed aid given to them; that is, sold donated goods for cash. This cash was used to actually improve their lives. It’s sometimes a cruel thing we do by taking away the autonomy of those we seek to help.

Sun showed that people who received cash were able to work harder while the costs of cash transfers were much lower than regular aid.

The success of microfinance in Africa, and the perhaps the failure of macro, could be attributable again to state of institutions on the continent. It is in a way going around many governments who have been known to misappropriate foreign financial aid. It this achieves a significant degree of efficiency in the developing world. Mobile technology on the continent has also made it a lot cheaper and easier make funds available to individuals.

I saY we go big

I am one for the grandiose. I’m an idealist who believes we could clean up our act and push towards macro-finance as Delle suggests. I think that small transfers are only palliative, and a reaction to a failed system. We need a Samsung, VW or Airbus. We need a Marshall Plan for Africa.

I cannot discount the good microfinance has done across the world. What’s your take on the issue?