Development Economics

Government is a Prerequisite for Hope in Haiti

The other day I had the chance to hear Michael Schlein speak about microfinance.  Schlein is the current CEO of Accion, one of the largest microfinance organizations in the world, serving over 150 million clients in during its history.  It currently operates 62 microfinance institutions in 31 countries covering 4.9 million outstanding loans.  He said a few things that I found out interesting.

Having only worked as CEO for one year, Schlein spent the better part of 2010 visiting Accion's international operations around the world.  He spoke at length about his experience in Haiti.  After the devastating earthquake this year, the country has been plagued by problems.  Every Accion employee lost at least one close friend or family member in the disaster, including one who lost seven.  Port-au-Prince has effectively been destroyed, with piles of rubble where buildings once stood.  The impacts are staggering:
The 2010 Haiti earthquake was a catastrophic magnitude 7.0 Mw earthquake, with an epicentre near the town of Léogâne, approximately 25 km (16 miles) west of Port-au-PrinceHaiti's capital. The earthquake occurred at 16:53 local time (21:53 UTC) on Tuesday, 12 January 2010.[5][6] By 24 January, at least 52 aftershocks measuring 4.5 or greater had been recorded.[7] An estimated three million people were affected by the quake;[8] the Haitian Government reported that an estimated 230,000 people had died, 300,000 had been injured and 1,000,000 made homeless.[9][10] They also estimated that 250,000 residences and 30,000 commercial buildings had collapsed or were severely damaged.[11]
In a country of 10 million people, a third of the population was affected.  10% of the population had their homes destroyed, and 5% were either killed or injured.   (more…)

Development Economics

Helping Haiti: Microfinance and Natural Disasters

What is the role of microfinance in the immediate aftermath of a natural disaster?   The short answer is that, under the circumstances, microcredit is less effective.  A prerequisite for microcredit is a functioning economy.  Goods and services need to be worth money for capital infusions to make a difference.  For example, an MFI lends money to a woman for the purpose of opening a general store.  The woman uses the loan to buy soap from one retailer and soft drinks from another.  She hires a local contractor to build the addition on her home, or at least purchases the materials.  The money flows around community, and everyone becomes wealthier.  But in the immediate aftermath of a natural disaster, the communities served by microfinance are so devastated that the system doesn't work.  There is no electricity, no fuel, no food, no water, and no shelter.  Homes have been destroyed and people are starving.  A sack of rice becomes invaluable – to a starving person, no amount of money would lead them to part with food.    So it becomes a barter economy, if there is anything to barter at all.  As with everything, these points are best illuminated by example.  The most obvious is the recent earthquake in Haiti.  In reality, Haiti needs aid money, and it needs aid workers to deliver services.  Microfinance - microcredit, in particular - cannot immediately help during the relief period because there is no economy to stimulate. (more…)