Ending Poverty? - something to think about.

21. February 2005


The excellent and informative site WorldChanging ran a feature on 5th January ‘05 around ending poverty

What if we could end global poverty?

What if we could do it on a comparative shoestring?

On of many possibilities raised included this one from eBay founder and philanthropist Pierre Omidyar

Embracing the work of microfinance outfits like the Grameen Bank, Omidyar points out that these models have managed to use small chunks of capital to achieve radical results. How much, then, would it take to extend microcapital to all the world’s poor? ”$60 billion, once and for all.”

Omidyar goes on to explain:

”[M]y model focuses directly on the Grameen Bank model of lending to the poorest of the poor. Admittedly, there are almost an infinite number of “ifs” that go into this number, but here is the logic:

Grameen Bank has pioneered a banking model for the poor. Their borrowers are predominantly the “absolute” poor: heads of families (women) that don’t have enough income to provide the basic necessities of food, shelter, and clothing for themselves or their families.

Without going into all the aspects that I believe make the Grameen model successful, they have found that 50% of their borrowers have lifted themselves out of poverty after five years. They are working hard to get this number to 100%, obviously.

Assuming this model is scalable—and all indications are that it is—I believe this is a great strategy to help people lift themselves out of poverty. Getting that 50% number up to 100% is the big challenge, but over the next 10 years, I’m sure they’ll make serious progress.

Now, the economics. It turns out that at their current scale, it takes an estimated $200 to add capacity to Grameen to add an incremental borrower, and to get to the level of self-sustainability. Grameen uses traditional banking economics; the bulk of loans are funded from deposits of other borrowers. An incremental borrower becomes a profitable customer relationship after about two years. Yes, profitable. That means: no more capital needs for that borrower; no need for aid or grants.

If we assume the very big “if” [that] Grameen (and similar models) can continue to scale to add borrowers at that incremental cost, we figure it will take $60 billion to reach 300 million new borrowers. (And that doesn’t allow for even greater economies of scale possibly driving that $200 number down over time.)

In Grameen’s model, the borrowers are women, and the benefits of financially empowering a woman tends to be felt first by her children and family. Reaching the 300 million poorest women borrowers will effectively reach the poorest 1.2 billion people.

So the numbers that stick in my mind is this: $200 one-time, all-in, non-recurring puts a family on the path to lift themselves out of poverty, once and for all. $60 billion will be needed over the next 10-20 years to reach the 300 million poorest borrowers. These numbers are fantastically exciting to me, because they are absolutely within reach. This isn’t about finding $150 billion every single year. This is about finding $60 billion over the next decade, and then you’re done.”

What a thought! The article then goes on to offer some counter views to this and highlight possible pitfalls. After that some very intelligent comments are posted by visitors to the site again focusing primarily on the many pitfalls in tackling or even defining the global poverty situation.

This is a familiar pattern that is easy to see one has an idea (solution) and presents it to the world at large at which point various people set about dismantling the idea as being impractical or unfeasible in some way. The result likely being another idea squashed unless the originator of the idea is very resolute in his or her vision.dafodillHowever if you look at the “leaders” in society such as Pierre Omidyar you can see that these people tend to take their ideas and run with them often discovering a whole variety other possibilities along the way. Now clearly some ideas are unworkable but in many instances you just do not know until you try or commit. We will never ever know if poverty can be ended unless we try and we will never know personally if we can live the life of our dreams abundantly unless we commit to doing just that. If the mental chatter in our heads is forever wrestling with options and possibilities rather than committing to action then is it any wonder that we find it hard to move forward in life?

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