> Posted by Kanika Metre
Recently, a friend of mine recommended that I read Dambisa Moyo’s book Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa. This provocative New York Times bestseller, argues that aid (specifically government-to-government aid) has been an unsuccessful development tactic in Africa and has in fact, been detrimental to economic growth in Sub-Saharan African countries.
Whether you agree with Moyo or not, the book provides significant insights about why Africa has lagged behind Asia and Latin America, and her recommendations for pulling Africa out of poverty are well thought out. Though her dominant focus is on the necessity of changing trade policies and increasing foreign direct investment, she also makes a point of highlighting microfinance, which she calls “a powerful development tool” in her chapter on “Banking the Unbankable.”
Beginning with Grameen Bank, Moyo’s chapter on microfinance as an alternative to aid focuses not only on the success of microloans but also on the value of Grameen Bank’s expansion into “a host of other financial services (beyond also insurance and pension schemes) to the poor-microenterprise, scholarship, and housing programs.” Accion is also applauded in this chapter as a different but related approach to microfinance.
Moyo also argues that despite developments in the microfinance industry in Africa, the supply of microfinance products does not come close to matching the demand for such services. She estimates that while “only about 5-6 percent of the population [in Ghana and Tanzania] has access to the banking sector… some 80 percent of households in Tanzania would be prepared to save if they had access to appropriate products and savings mechanisms.” Interestingly, ACCION works in both these countries, having launched EB-ACCION Savings & Loans with Ecobank in Ghana and investing in Akiba Commercial Bank in Tanzania. Clearly, there is a lot of work to be done.
According to Moyo, the development of microsavings products is another crucial step. She points out that an “absence of credible, formalized banking system” causes significant inefficiency among financial markets in Africa. Here at the Center for Financial Inclusion, we couldn’t agree more.
Though I hesitate to discount aid completely, the points that Moyo brings up in Dead Aid are certainly important to consider. Moreover, while the lessons she provides may be particularly significant for African countries, where aid has generally held a greater share of GDP, Moyo’s arguments about aid alternatives are valuable not only for re-examining equitable economic growth in Africa, but also for understanding how to create sustainable solutions to poverty throughout the world.