Over the past decade, aid organizations have moved from handouts and giveaways to making markets work for, and by, the poor.
Traditional charity provides immediate, short-term relief, but its benefits are limited and can lead to a level of dependency that threatens all efforts for sustainable growth. Instead, aid groups have shifted their focus to building local markets for the poor to become buyers, sellers, and agents for long-term economic development.
Building inclusive markets is a key approach that allows the poor to join with powerful partners in fighting poverty. If you’re wondering what this aid approach looks like, here are four programs that promote market-based solutions to poverty.
Like its mothership, the United Nations, the Growing Inclusive Markets initiative is a research-producing machine. The initiative states that massive economic growth in developing countries will only be achieved if the poor are seen as consumers, producers, business owners, and employees, and not just the beneficiaries of corporate social responsibility dollars.
If you want case studies, Growing Inclusive Markets has case studies – the UN initiative counts more than 120 inclusive business models, "rigorously documented and reviewed," that follow its advice on how to include the poor in core business activities.
What it doesn’t do: Anything that's purely philanthropic. A development program may be altruistic but if it's not commercially sustainable, Growing Inclusive Markets isn't interested.
What it looks like on the ground: In Burkina Faso, the French organic cosmetics company L’Occitane invested in local women’s cooperatives, helping 15,000 employees produce and export quality shea butter and generate $1.2 million in profits. Growing Inclusive Markets wants more of these success stories, and it is documenting as many examples as possible to make it easier for the next company to follow suit and, ultimately, alleviate poverty.
Opportunities for the Majority – Inter-American Development Bank
Mirroring its parent business, Opportunities for the Majority focuses on projects in Latin America and the Caribbean. The initiative helps poor people become key players in expanding local markets and earning profit by sponsoring building projects in sectors ranging from agriculture to infrastructure, and improving the poor’s access to these newly created jobs.
The initiative promotes sustainable business models that connect companies, local governments, and communities to the poor. The ultimate task is to identify local demand for high-quality products and show all parties that partnering with the poor can be both profitable and sustainable.
The bank offers a variety of financial services to encourage engagement with poor communities, creating incentives for companies to expand operations and build long-lasting partnerships with the poor. And those at the bottom of the economic pyramid reap the benefits by receiving affordable goods and services, greater job opportunities, and access to the formal economy.
What it looks like on the ground: In 2011, Opportunities for the Majority loaned $2 million to support FINAE, a Mexican financial institution that provides student loans to middle- and low-income students.
The FINAE loans cover all tuition costs, and include training and tutorial support to the students. In turn, students must be in good academic standing to receive a loan. They pay only the interest on the loan while in school, and repay the full amount progressively after they leave school and find jobs.
Inclusive Business Models Group – International Finance Corporation
The International Finance Corporation, an arm of the World Bank, promotes inclusive business as a private-sector approach to provide goods and services to the poor. By thinking of poor people not only as customers but also as potential suppliers, distributors, and retailers, the group develops successful partnerships with the poor while building up inclusive business models across the globe.
In 2012, the companies that worked with the IFC reached more than 173 million farmers, students, patients, and utility customers directly, provided more than 13 million microfinance loans and created 284,000 jobs.
The Inclusive Business Models Group offers its business clients a collection of resources and networks to help scale up their models and, in turn, develop more mutually beneficial partnerships with the poor.
What it looks like on the ground: ECOM Agroindustrial Corp. Ltd, a business client of the IFC, works directly with small-scale coffee farmers throughout Central America. By providing opportunities for farmers to finance their production and access business training and technical support, ECOM has given farmers the tools to get both more quantity and quality out of their crops, boosting the value of their produce and the cash in their wallets.
Between 2006 and 2012, ECOM purchased more than 81,000 metric tons of certified coffee to sell to branded product manufacturers like Starbucks and Nestlé Group, providing an additional $14.7 million in income for farmers.
Private Sector Development – The Donor Committee for Enterprise Development
The Donor Committee for Enterprise Development champions private-sector development to help the poor find jobs, improve incomes, and escape dependency on foreign assistance.
The committee uses a number of approaches that encourage risk-taking in public-private partnerships and takes into account the potential failure of markets or governments. By nudging investment behavior in a new direction, the committee seeks to expose uncharted investment opportunities that can promise profit for firms while improving markets and opportunities for the poor.
Expanding the private sector means that governments of developing countries can boost tax revenues needed to invest in health care, education, and public infrastructure.
What it looks like on the ground: Vietnamese entrepreneurs used to face hundreds of regulations, making it nearly impossible to start new businesses, generate additional income, or create job opportunities. The committee, in collaboration with Australia and the UN Development Program, provided support to the Vietnamese Parliament to draft and implement a new Enterprise Law, which was enacted in 2000.
In just three years, 55,000 new businesses had registered, creating more than 1 million jobs. The law now creates an estimated 750,000 jobs annually by reducing some of the largest barriers involved in starting and operating a business in Vietnam.
These four programs prove that poor people can be important partners in the fight to eradicate poverty. When influential donors and aid organizations nudge businesses, governments, and communities to promote inclusive markets, they create a powerful solution to poverty.
The best solution, after all, will be one that lasts long after the dust has settled, and all of the aid workers have packed up and gone home.