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Denis Perry
CEO, Opportunity International Australia
How can the formal and informal sectors of society partner together to achieve the goal of sustainable poverty alleviation?
26 November 2002

Introduction

The issue I will be discussing is: How can the formal and informal sectors of society partner together to achieve the goal of sustainable poverty alleviation. I believe they can, and I will share with you how. To give you a context of why I have been asked to participate and present this topic at this forum, I would like to give you a quick description of the organisation I represent, Opportunity International.

Opportunity International is a global network that focuses on Micro-Enterprise Development (MED). We work with poor individuals to help them build a small business. We provide financial services, business and lifestyle training, and continuing support. Opportunity International is one of the largest Micro Finance Networks in the world. We have been providing services to poor entrepreneurs for 31 years, and today we have operations in 42 countries around the world. Since 1997, we have created over 1.6 million jobs through US$251.8 million in loans. The Asia Pacific is the home of two-thirds of the world’s poor1. Poor clients in the Asia Pacific region account for over 60 per cent of our outreach worldwide.

Opportunity International is a not-for-profit or non-government organisation (NGO), and is a registered charity in Australia. We are identified with the groups named as the informal sector in Agenda 21. The major social groups in the informal sector include: women, youth, labour, indigenous peoples, farmers, NGOs or civil society groups, faith-based groups and other under-represented groups. How, I hear you thinking, can such a group of do-gooders contribute to such weighty issues as our topic of today. By sharing with you the work, strategy and goals of Opportunity International, I do hope to give you an insight into the motivations and working environments of groups within the informal sector.

Historical paradigm

Fifty years ago, ideas of economic development embraced the ideals of state-led, anti-market policies, foreign direct investment, protectionism and price controls. Aid was government to government, with the assumption that governments would implement economic policy for the good of society. Little or no consideration was given to the productive capacity of poor individuals in developing countries, nor of the capacities of these countries to participate and benefit from global markets. Wealth was seen as an exclusive product of the developed world, and, funnily enough, it was considered that the fundamental structures, policies and market forces, which made the developed world developed, would be a hindrance to the development efforts of the developing world. Development was very much approached with a welfare attitude. It is important to recognise that, in certain situations, this approach is absolutely essential; particularly in societies where people live in abject poverty, and for disaster and emergency relief.

New paradigm

Today, thankfully, it has become recognised that the keys to economic development are growth, flourishing markets and fostering conditions conducive to private enterprise. In complete contrast to the traditional approach I have just described, now we know that the developing world and its populations are assets on which we can build a better world. We at Opportunity International strongly believe this; in fact, it resonates clearly in our working mantra—helping people to help themselves; giving the poor a working chance

Mr. James Wolfensohn, President of the World Bank, said, 'Poor people are assets, not liabilities'. By this, he meant the poor can be productive and contributing members of society—if given the opportunity to do so. Furthermore, in a speech given at an Opportunity International corporate dinner in 2001, he said: 'We will not solve the problem of poverty or global peace or stability, unless we change our perception of poor people from the object of charity to the asset on which you build a better world.'

Lord Peter Bauer, who was recently awarded the Milton Friedman Prize for Advancing Liberty, first espoused the idea that development will be achieved through economic growth led by market dynamics. He continually stressed, the concept that opportunities for private profit, not government plans, hold the key to development.

This drives us to the response that increased efforts need to be made through partnerships that combine the strengths of all sectors in society to provide this opportunity. A new form of aid that encourages sustainable programs that foster the economic opportunities and capabilities of the developing world is required.

What could this new form of aid look like?

Mutually beneficial partnerships

During the 2002 World Summit on Sustainable Development held in Johannesburg, the need for partnerships emerged as a strong concept. As a result, the business world, in particular, has been called to action by leading global development organisations. The World Bank and our regional development bank, the ADB (Asian Development Bank), are increasingly advocating the role of businesses and the development of partnerships in an effort to alleviate poverty.

Mutual engagement

The formal and informal sectors can together bring strong synergies for mutual benefit. Let me give you a few facts:
- Out of the top 100 economic units on the planet, 51 are corporations. The other 49 are countries2.
- Trade between subsidiaries within the same parent corporation now accounts for roughly a third of world trade3.
- While the top 200 corporations account for over a quarter of economic activity on the planet, they employ less than one per cent of its workforce4.
- And, the top 200 corporations’ sales levels are 18 times the combined annual income of the 1.2 billion poorest people in the world5.

Needless to say, the formal sector has the capital, the institutional strength, the technology and the influence to make a significant impact in poverty alleviation efforts. However, the informal sector can often bring the technical expertise, experience, single priority, and, more importantly, the distribution channels required to effectively reach the poor.

In recent years, Opportunity International has taken steps to engage with the formal sector in a way that brings mutual benefits. Through the creation of Formal Financial Institutions (FFI), or Microbanking Institutions for the poor, debt capital, such as savings deposits and loans from capital markets, is being used to provide further services to poor entrepreneurs. NGOs are usually prohibited from accessing and utilising these forms of capital. Our strategy is to have eleven FFIs in operation by 2005. Cumulatively, this will provide over 500,000 loans valued at over US$166 million to poor entrepreneurs. In regards to wealth creation, Opportunity International will have helped the poor save more than US$91 million—savings these people would otherwise not have made due to lack of effective savings services for the poor.

Capacity building

There are a number of macro-level activities businesses can initiate to facilitate, among other things, free trade, demand and supply, and private enterprise. However, there are also activities at the micro level in which businesses can engage.

As an example, one way is through capacity building. We all know that the quality of the product produced by an organisation is directly dependent on the quality of the organisation, and its people. Just as they are for those in the formal sector, institutional strengthening and resource allocation are key organisational considerations for those working in the informal sector—in particular, for those working at the grass roots level, hand in hand with the poor. Accountability, transparency, effectiveness are all common words in the development industry. All together they mean one thing: making absolutely sure that what has been invested in poverty alleviation does exactly that—improves the standard of living of the poor, and alleviates the hardship of the poor.

Accountability

Opportunity International has invested much of its resources into governance and accreditation. Amongst other things, we ensure that our programs operate up to and above the standards of the microfinance Industry. We are an accredit agency with country government aid organisations; and all partners within the Opportunity International Network must adhere to our seven principles of best practice. This process involves operational and performance reviews from internal staff, management and board, and external OI Network representatives. Our accreditation covers seven areas: Vision and Values; Governance; People and External Relationships; Funding and External Relationships; Administration and Control; Operational Performance; and, Transformation (by transformation, I mean measures of the positive changes in people’s lives, from social, economic and character development standpoints).

Sustainable partnerships

We also we want to make sure the programs we implement will, through their own existence, bring benefits indefinitely. We want to make sure that they are sustainable. Corporations can help us achieve all this; let me share with you how.

We have engaged in a number of partnerships with some of the world’s leading corporations. Your peers in corporate social responsibility partner with us primarily through funding of services. BHP Billiton has a three-year multifaceted partnership with us, primary focused on building institutional capacity. This allows us to improve our delivery of MED services to the world’s poor. Similarly, our Leighton Holdings partnership means that more of the funds we raise from the public can go directly and more effectively to those in need.

Nike directly funds an indigenous organisation in Indonesia dedicated to the provision of MED services for the many poor families around Jakarta. Established in 1999, this organisation now has 3,143 poor clients and has helped to create over 4,700 jobs.

Mallesons Stephen Jacques has established a work place giving schemes. This has reportedly boosted staff morale and given back to the community by allowing staff to donate effectively and efficiently to Opportunity International, a charity they believe in.

Rogen International, provides ongoing specialist consulting services and communication skills to fundraising and technical staff in Australia, the UK, the US and Canada.

Consumption, wealth creation and sustainability

These partnerships are not just about throwing money at the development programs or organisations—they also re-orient our thinking about poverty and about the developing world. According to the World Bank, of the total world population, 20 per cent live in the developed world and account for 80 per cent of the world’s GDP, while the other 80 per cent live in the developing world and account for 20 per cent of world GDP. There is room for the developed world to reduce consumption of the world’s resources. However, our partnerships are also about acknowledging that the developed world is an untapped asset on which a better world can be built, and in which wealth can be generated.

If you imagine all of the world’s wealth captured in a pie, we do not want to just re-slice the pie, making the pieces smaller to share them amongst the world’s populations; we also want to make this pie bigger, and this has to be done in a sustainable way, effectively using our resources.

One of the strengths of micro-enterprise development is that the money we use in our programs is recycled and used again to provide services to more people. The loans we provide are repaid and reused.

Conclusion

It is only through partnership and a concentration on sustainability of all resources that poverty alleviation can be effectively addressed. This is not a matter of charity or even social responsibility, it is about survival and self-interest. Sustainable partnerships are a key to a stable world where markets can develop and people access resources providing themselves with the opportunity of a hand up. It is a bottom-up approach to poverty alleviation, as illustrated in the diagram below.

Endnotes

1. World Bank/ADB statistic
2. Top 200, Institute of Policy Studies, 2000
3. Vital Signs 2000, Worldwatch Institute
4. Top 200, Institute of Policy Studies, 2000
5. Top 200, Institute of Policy Studies, 2000