Sunday, April 22, 2007

Poor Genii

Apparently a UK charity recently lost £16m (~$32m) in an entrepreneurial misadventure.

Obviously not all charity workers are conmen, some like Age Concern are just incompetent; fact is, it's very hard to know whether charities are run efficiently.

The Charity Navigator site does go some way to alleviating this problem, by analysing financial data and ranking according to the proportion of total donations which go directly toward helping the poor.

Unfortunately analysing costs does not help one understand how much benefit is generated through a charity's work -- it may have high admin costs, but it may also be more savvy at allocating funds to those who really need it.

Even if a charity is very efficient, it may in fact do as much harm as good.

Charities can attract those borderline needy, who might actually be able to support themselves with a bit of hard work and diligence. Therefore they may suck people into dependency and out of self sufficiency. Charities can also do untold damage to well functioning markets, for example crowding out existing for-profit businesses which supply a portion of the needy with goods and services.

Such crowding out is less likely in developed countries, because the needy are generally those who find it difficult to function in society (e.g. the mentally ill) and therefore rarely participate in markets anyway. In the developing world, crowding out can have a bigger effect, because the needy are nevertheless often fully involved in society or at least fully capable of involvement.

Mr. Yunus has gone some way to circumvent these problems.

Mr. Yunus founded the Grameen Bank which focuses on lending money to poor people. It is a for-profit, self sustaining organisation. Micro-finance is a great innovation in itself, but the real slam-dunk idea is much simpler.

The Grameen Bank pulls the poor out of the cracks between the meshes of markets which sustain us all, by supplying them a product. It welcomes the poor back into into a respectable, self-sustainable life.

[But, why stop at microfinance? The single biggest market for all sorts of goods and services in Indonesia (the poor, 40 million people and rising) is still largely untapped.]

Social capitalism may be the way to improve the lot of the tired, hungry and wretched, because it helps unlock the genius of the poor themselves.


Denica said...

seems like u're into indoneiandcharity issue these days?

hey try listen to duke special- no cover up. u wont believe the time and effort i put to get that title :)!

johnorford said...

"seems like u're into indoneiandcharity issue these days? "

that i am :)

"duke special" are irish, and quite popular over here. I honestly can't stand them :@ any goodness in them for me has been squeezed out them them by relentless airplay on irish radio...

have fun in singapore!

Oskar Syahbana said...

The model that is implemented by Grammen might indeed work in Indonesia. But so far the government and the majority of banking consensus still sees that big clients (corporate clients that is) is still the main source of income and you cannot make money by lending to the poor (in the contrary Mr. Yunus already showed that it is possible).

Very weird isn't it, BRI which is the biggest bank on lending-to-the-poor industry is now shifting its gear to a more "corporate lending" culture

johnorford said...

I suppose BRI are just following the easy money.

But I still reckon that a company focused on efficiently banking for the poor could do very well for themselves - as could firms from other industries.

Denica said...

duke special is IRISH? walao.

aroengbinang said...

maybe we need to have bank executives and commissionaires who run bri, bni and foreign banks alike, with not only using mind, but also heart and soul, and still making money; knowing that there are so many poor people out there than shall be lifted from their miseries

johnorford said...

i think it's possible to run banks without heart and still help the poor, i reckon there's a lot of money to be made by focusing on the poor as you would focus on the middle classes.

one just needs foresight.