Isobel Coleman

Democracy in Development

Coleman maps the intersections between political reform, economic growth, and U.S. policy in the developing world.

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Missing Pieces: Banking for the Poor, Reform in China, and More

by Isobel Coleman
March 5, 2012

A customer has his money ready at a store in the sprawling Kibera slums in Kenya's capital of Nairobi, April 23, 2010 (Noor Khamis/Courtesy Reuters).

In this edition of Missing Pieces, Charles Landow highlights topics from financial services for the poor to Venezuela’s presidential race. I hope you enjoy the selection.

  • Banking for the Poor: Quality matters as much as quantity in expanding financial services to the poor, suggests a paper from the National Bureau of Economic Research. Pascaline Dupas and co-authors first offered a random sample of rural Kenyans a savings account with no opening fees and simplified procedures. More than 60 percent opened an account, but only 28 percent made at least two deposits in the following year. Surveys suggested that many feared “embezzlement, unreliable services, and transaction fees.” Working with another group of Kenyans, the researchers offered vouchers that made it easier to receive loans. Six months later, only 3 percent had started to apply. According to surveys, recipients feared losing their collateral if they could not repay their loan. Clearly, financial services must be appealing and trustworthy—not simply available—if low-income people are to use them.
  • China’s Reform Agenda: China’s “current growth model is unsustainable,” said World Bank president Robert Zoellick last week in introducing a massive report by the Bank and a Chinese government research organization. The report argues that China can continue its robust growth in an environmentally and socially sustainable way—but only with major policy shifts. These center on six pillars, ranging from “structural reforms” of state-owned firms and the financial sector to the expansion of social safety nets. Such steps will meet resistance, the report notes, saying that “much will depend on the wisdom, strength, and determination of the Chinese leadership in pressing ahead with reforms.” The Wall Street Journal offers summary and analysis. CFR’s Evan Feigenbaum also gives his take, emphasizing the question of whether Chinese leaders will recognize the need for a new “political economy” and be able to surmount opposition.
  • East Africa’s Growth: The World Bank is upbeat about East Africa’s prospects for prosperity. A new update on Tanzania notes that the country has grown by nearly 7 percent per year since 2000, though population growth has reduced the per-capita impact. The Bank projects continued strong growth this year and next, though it warns Tanzania to prioritize educational reform and private sector development. A Bank blog post evaluates the whole region, noting that Kenya, Rwanda, Tanzania, and Uganda could all reach middle-income status in the next ten years. Kenya is closest, but its recent growth has been slowest. An Economist piece, meanwhile, highlights business-friendly reforms in Rwanda. But as these sources note, issues ranging from shaky education to woeful infrastructure continue to hold East Africa back.
  • Afghanistan’s Natural Resources: According to a ForeignAffairs.com article, recent surveys in Afghanistan have revealed substantial coal, oil, gas, copper, iron, gold, and more. The total value is estimated at up to $3 trillion. But how can a violent and corrupt country attract the investment needed to develop this bounty? According to the ForeignAffairs.com piece, Kabul must “build a resource-based economy with the support of local Afghans,” which means ensuring that both investors and Afghan elites “spread the wealth” beyond the capital. Kazakhstan, which “enforces strict production and investment quotas” and mandates that investors fund social projects in collaboration with local governors, can point the way.
  • Chavez’s Challenges: Though Venezuela’s presidential election is not scheduled until October, its early stages are proving eventful. First, Henrique Capriles Radonski, a 39-year-old governor, emerged as the opposition candidate by winning an unprecedented primary on Feb. 12. “Voter turnout was massive,” according to the Wall Street Journal, suggesting strong dissatisfaction with Chavez. Reuters, though, notes that he remains popular among low-income and rural Venezuelans. Chavez then scrambled the race last week by revealing a recurrence of cancer. He underwent surgery in Cuba and apparently emerged well, tweeting that he was flying “like a condor.” But should his health falter, a CNN piece argues, his party could well face defeat, portending major changes for Venezuela.

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