Fighting Poverty with Markets

In the West, we worry about obesity, but "hidden hunger"—a lack of access to essential vitamins and minerals in the diet—may be a more serious problem. Around the world, more than 2 billion people suffer from micronutrient deficiencies, and half of all deaths among children under the age of five can be attributed to malnutrition.

How can the world solve this problem? The good news is that tackling malnutrition is second only to control of HIV/AIDS in terms of development effectiveness and value for money, according to the venerable economists of the Copenhagen Consensus. The challenge has been to get governments, donors, and, crucially, the private sector to pay attention.

Companies have a huge role to play in combating malnutrition, and they have real incentives to add vitamins and minerals to their food products. Recent research led by the Corporate Social Responsibility Initiative at Harvard has better outlined the business case for corporate action:

Fortified foods provide new opportunities to add value, and economies of scale will lower prices and reach new customers. In addition, raising product quality will stimulate competition and trade. 

The countries whose children are worst affected by malnutrition include many of the biggest emerging markets for private sector investment, such as India, China, Nigeria, Indonesia, and Vietnam, so the incentive is there. Multinational firms are starting to take notice, and the topic featured on the program at Davos this January. 

The boundaries between the real and virtual worlds are fast blurring. Nowhere is this more evident than in the rapid corporate colonization of Second Life. No self-respecting CEO went to Davos without an "avatar" or online alter-ego, a sure sign that Second Life has entered the mainstream. The likes of Reuters, Nissan and Adidas are buying up virtual real-estate and setting up store fronts. Alan Court at the Financial Times reports that IBM has 1,000 of its employees spending time in Second Life. American Apparel hires cyber sales clerks to test new merchandise before it hits stores in the real world. And there's even a conference coming up next month for Fortune 500 companies who need helping devising a virtual worlds strategy.

Why the rush to a place that isn't even real? It's a chance to test new products and strategies (Starwood runs a virtual hotel), get marketing buzz, even find new talent. Fortune reports that people have already found real life work based on their performance in Second Life. The virtual "Linden Dollars" can also be converted to real cash, so the chance to make money is already there. Above all, this represents a fast growing market and a young demographic. There are already nearly 2 million users in Second Life, and while the virtual world is still way behind more traditional social networking sites like MySpace (see FP's related piece on YouTube, Second Life, and other hot Web 2.0 properties), that number is rising fast.

Most coverage of Second Life has focused on Western brands, but it cannot be long before firms from India or China join them. Like with any emerging market, there will be rising competition and new risks.

And firms won't be immune from criticism for their actions on Second Life (such as running virtual sweatshops). How long before there are calls for codes of conduct for virtual activities? Some firms are jumping ahead and aligning cyber ventures with a responsible image, which is why you can visit Mokitown, where every kid learns to cross the road safely—thanks to the good folks at Daimler Chrysler.

Michael Jarvis is a corporate responsibility specialist for the Business, Competitiveness & Development Program at the World Bank Institute. He is a regular contributor to the Private Sector Development Blog. Writers from the PSDBlog contribute a regular series of posts for Passport entitled "Fighting Poverty With Markets."

For the latest news about Second Life, visit Reuters' virtual bureau. 

ANTONIO SCORZA/AFP

A number of tour operators have begun leading curious tourists into some of the world's most famous slums: Soweto township, slums in Kenya, Brazil's favelas, and the "homes" of India's street children. The jury's still out on whether the tours are perverse invasions of privacy or eye-opening experiences that will prompt action on the poverty agenda.

The best-known slums of all, Rio de Janeiro's sprawling favelas, are even enticing permanent gringo residents. This isn't so surprising, given that favela residents are a lot more middle-class than most Brazilians care to admit—about 15 percent according to the 1991 census. And this proportion is rising, due to a lack of affordable housing. The vibrancy of life in the favelas is felt more strongly outside Brazil than within it, thanks to cultural exports like samba music and the movie City of God. Gentrification of the favelas is almost certain to help poor residents, as gringos support local restaurants and help upgrade infrastructure.

In traditional development circles, pro-poor tourism is about helping the poor market goods and services to foreigners, not marketing their own misery to the rich. My take: There's room for tour operators who respect the poor and help the rest of us better understand their lifestyles. Who better to lead favela tours than favela residents? As I wrote last week, there are plenty of positive things happening in the slums that we would do well to understand. After all, the first step to helping the poor is to ask them what kind of help they want.

Christine Bowers is a consultant at the World Bank Group and the godmother of the Private Sector Development Blog. Writers from the PSDBlog will be contributing a weekly series of posts for Passport entitled "Fighting Poverty With Markets."

For more on life in the favelas, Janice Perlman's work is a great place to start. Also, check out this blog on squatter cities.

VATSYAYANA/AFP

In rural India, half of all schoolchildren are in private schools, but it's not because they're from wealthy families. And the phenomenon goes way beyond India. British Professor of Education James Tooley and his research team also visited slums and shantytowns in China, Ghana, Kenya, and Nigeria, where they found, surprisingly, that "the vast majority of schoolchildren were found to be in 'budget' private schools" in the areas surveyed.

Entrepreneurs from these communities have started small schools, hiring teachers from the communities and charging just a few dollars a month. Students are performing better, teachers are more dedicated, and even the school facilities are better in most cases than at public schools. And all of it costs much less per student.

You can find these so-called "slum schools" in Somaliland, Zimbabwe, Sierra Leone, Malawi, Uganda, Pakistan, the Caribbean, and the list goes on. While they may be microscopic compared to their larger, richer cousins in, say, Andover and Exeter, these shoestring operations are where the action is in the developing world.

How can the international community support slum schools? One way is for microfinance institutions to reach out to private school owners by providing small loans to help them upgrade facilities. Since these businesses are operating on a quasi-legal basis, owners have little hope of getting a traditional bank loan. Another possibility would be offering school vouchers—always a hot topic in American domestic politics—so that poor families can give their kids a better education.

Christine Bowers is a consultant at the World Bank Group and the godmother of the Private Sector Development Blog. Writers from the PSDBlog will be contributing a regular series of posts for Passport entitled "Fighting Poverty With Markets."

For more information on this topic, check out James Tooley's E.G. West Research Center.

LIU JIN/AFP

Call it the Panda, Inc. phenomenon: Threatened species attract attention, but not in direct proportion to the threat they face. The World Wildlife Fund didn't choose the panda over the Hispaniolan solenodon for its logo by way of scientific method. Pandas are big business, because everyone loves the cuddly black-and-white furballs. Just ask the China National Tourist Office, and closer to home for me, the National Zoo in Washington, DC.

For those of us concerned with biodiversity—which should be everyone, given the stark implications of a worldwide ecosystem collapse—this presents a problem. How can we attract scarce dollars and attention to lower-profile animals like, say, the cave snail, who may not be cute, but is a key player in the global food chain? Here are my top four suggestions:

1. Sell the place, not the species. In a recent paper in Science magazine on global biodiversity priorities, the authors contrasted the 'Last Chance to See' approach, meaning the description of highly vulnerable species, with the 'Shangri-La' approach, promoting conservation of the world's few remaining pristine spots. They rightly suggested more attention for the latter tactic. This has worked for Costa Rica, a country that's built a massive tourist industry out of its astonishing biodiversity.
2. Monetize. Without realizing it, we all receive free services from the environment. Examples include water purification, pest control, climate regulation, and raw materials of all sorts. All those so-called ecosystem services would be prohibitively expensive to replicate using technology, so we need to keep the whole complicated web of an ecosystem in good working order. Ecosystem services have a theoretical market value, but we've been freeloading on them for a while now. Some serious people want to change that. Goldman Sachs recently awarded Woods Hole a grant for research in this area (focused on forests), and the Natural Capital Project was launched in the last quarter of 2006. You can even read an equation-filled academic paper on the application of portfolio theory to ecological services.
3. Outline the stakes. An authoritative, Stern-like review of biodiversity assessing the cost of action now versus deferral to the next generation would sharpen a lot of minds.
4. Rebrand. It may sound hokey, but giving the 'A Bug's Life' treatment to key unloved contributors to the world's biodiversity riches could do a world of good. Imagine Billy Crystal as the voice of Steve the Sardonic Cave Snail, a witty sidekick for Simone the Panda, played by Whoopi Goldberg (hey, she could use the work).

Richard Caines once studied sea anemones, but now plies his trade as a manager in the Environmental and Social Development Department of the World Bank's International Finance Corporation. Richard is a regular contributor to the Private Sector Development Blog. Writers from the PSDBlog contribute a regular series of posts for Passport entitled "Fighting Poverty With Markets."

Digg this!

What's the most revolutionary cell phone in the world today? Hint: it's not Apple's new iPhone. It may not run iTunes or switch seamlessly to Wifi, but an ordinary, hand-me-down phone can be revolutionary (pdf) when used as a virtual bank. "Yawn," the gadget geeks will say—mobile payment options are old hat in places like Japan, where mobile phones linked to credit/debit cards have become as much a part of the culture as sushi. But mobile banking, or m-banking for short, is about more than just added convenience; it's about giving millions of poor people in developing countries access to financial services for the first time. And that could change the world.

The World Bank estimates that in many countries, over half the population—"the unbanked"—has never had a bank account. The poor tend to be terrified of banks, since they're often humiliated or ignored when they try to enter them. That means they can't leave their savings anywhere safe, pay a bill without walking the cash to the office, or prove that they're credit-worthy. Meanwhile, mobile phone penetration is through the roof, especially in Africa. In 2000, fewer than 8 million Africans had a mobile phone - now over 100 million do. That's one in nine. Now, anyone with access to a cell phone has a place to keep his or her savings without needing a traditional bank account. We won't see millionaires suddenly emerging from the shantytowns just because they're "banked," but even a small nest egg needs a safe resting place.

At the moment, enthusiasm for m-banking has outrun its implementation. For one thing, regulators break out in a cold sweat at the thought of all the overlapping issues involved. But there are success stories. Leading the way is the Philippines, with over 3.5 million users split between G-cash and competitor SMARTmoney. South Africa is the other heavyweight, with MTN Mobile Banking and Wizzit both entering their second year of operations. In Brazil, m-banking may even surpass Internet banking in just five years. And on January 22, SafariCom, partly owned by Vodafone, is set to expand its M-Pesa pilot to all of Kenya.

These telecom companies aren't offering m-banking out of the kindness of their hearts. They like m-banking because it's a way for them to attract new customers by doing what they already do well—processing millions of tiny transactions. Banks aren't as interested, because they don't expect to profit from poor clients who won't be taking out a mortgage anytime soon. But the telecoms could start siphoning away bank customers who don't need all the bells and whistles.

Remittances is where m-banking will really be world-changing. In Latin America, for instance, fewer than 10 percent of remittance recipients have bank accounts. That means they're hiking to Western Union to pick up their money, which cost somebody a 15 percent commission to send. In the Philippines, SMART's customers are already sending an estimated $50 million in remittances each month via their mobile phones, and that's only the tip of the iceberg. In most of the world, remittances account for more financial flows than foreign direct investment or foreign aid combined. Lowering transaction costs even one percent would mean over one billion extra dollars would directly reach the poor each year, and that's not chump change.

Christine Bowers is a consultant at the World Bank Group and the godmother of the Private Sector Development Blog. Writers from the PSDBlog will be contributing a regular series of posts for Passport entitled "Fighting Poverty With Markets."

For more information about m-banking, see:

• m-Banking for the Poor from infoDev
• Mobile banking takes off from PSDBlog
• Vodaphone's New M-Banking Reports from NextBillion.net