Just how little improvement millions of dollars of aid actually brings to poor countries has vexed policymakers for decades. How can a country like Sierra Leone receive some £50m annually in British aid, yet its healthcare system be so bad that one in six of its mothers still dies in pregnancy or childbirth? Alex Renton’s piece in the forthcoming April issue of Prospect tries to find out—but in the meantime, news of an innovative microfinance scheme called Deki offers hope that things won’t always be this bad.
Microfinance is one of the ways around unscrupulous elites who divert aid into their own coffers. It works by arranging loans for poor businesspeople. The foreign lender makes a contribution of, say, £10 via a local microfinance company, which then administrates the loan and repayment. Interest rates are a lot lower than local moneylenders’ and there’s no shortage of investors.
Deki, though, adds a new incentive by introducing lenders to borrowers via a website where each applicant has a profile picture, accompanied by a short pitch for their business. The lender is free to browse amongst the needy before deciding where their loan will be put to best use. Once it’s done, they can keep track of the improvements their money is making. Like most microfinance schemes, Deki’s local partners only lend to women: research has shown that men are more likely to default.
Oxfam-meets-Dragons’ Den is a strong brew. The scheme may not twang the heartstrings in quite the same way as traditional NGO and charity campaigns—which tend to focus on headline-grabbing privation—do, but using the internet to link the haves with have-nots in mutual interest is an excellent idea. It provides a real incentive to view aid as investment—which is what those millions of dollars need to be if they are ever to have a lasting benefit.