MNCs and MDGs: A private sector for development (by Wojciech Gryc)

In light of 2005 being an important year for the Millennium Development Goals (MDGs), the United Nations established it as the International Year of Microcredit. Initially, the reasons for connecting credit and private business with the MDGs may seem vague, but private business is a key player in the fight against poverty.

When promoting development, one focuses on a number of goals and issues. Sustainable development, for example, promotes economic, social, and ecological sustainability. Traditional views of development tend to focus on economic growth. In many cases, if a state is to become independent and prosperous on a global level, its economy must experience growth.

One cannot depend on non-governmental organizations (NGOs), foreign aid, or even debt relief for long-term economic growth. NGOs have limited resources, and foreign aid is pitiful compared to what may be available through private business. Debt relief, while it can help promote an initial boost in development, needs to be combined with other strategies to ensure it is not squandered.

Enter microcredit. While multinational corporations (MNCs) have been criticized for exploiting poor nations and the citizens thereof, microcredit schemes promote localized entrepreneurial spirit by supplying citizens with loans they can use to start businesses, improve their dwellings, or make other investments.

Hundreds of millions of people live on less than a dollar a day, and for them, a loan of even a few dollars can improve their lives significantly. Indeed, a World Bank study in Bangladesh showed that 48 per cent of households with access to microcredit were able to rise above the poverty line. Such statistics show much promise, both for the members of poor communities and those working to meet the MDGs.

In many cases, private enterprise in the form of small businesses is stifled, even when microcredit is available, due to governments not giving entrepreneurs the support they need to be successful. Most microenterprises are informal and lack any legal protection, as these processes tend to be too expensive or time consuming to benefit microentrepreneurs. With government support, however, microentrepreneurs can achieve far more than they have at the present.

Due to the lack of business ventures, communities suffering from poverty also experience a lack of competition in private industries. Not only does this mean less formal jobs, but most goods and services also cost more for poor people. In one slum near Mumbai, studies showed that slumdwellers paid 1.2 times more for rice, 3.5 times more for water, and 10 times more for medicine than their middle-class counterparts.

Sadly, these are not luxurious commodities - all three goods are necessary to maintain healthy lives. Poor states cannot be relied on to provide their citizens with public health care programs or water utilities, but private enterprise can, if the incentive is there. Cultivating regional entrepreneurship can promote the creation of businesses that compete with food and water monopolies, and lower prices for all while providing jobs for local people and driving economic growth.

Indeed, there is a correlation between entrepreneurship and macroeconomic growth. As one increases, so does the other.

These benefits are not limited to economics. The majority of informal, microentrepreneurial activities are run by women, giving them more independence and promoting equality. In Zimbabwe, for example, two thirds of microenterprises are run by women. Many large businesses cultivating fledgling microcredit and microenterprise programs specifically target women. The majority of poor families working with Cemex, a construction company in Mexico, deal with the company through the women in the household. ICICI Bank's microfinance initiatives in India, on the other hand, target women as members of the community who can educate people about microcredit.

Such benefits also apply to healthcare. Closely related to microcredit is the idea of microinsurance. By pooling their resources together, and with the support of missionaries or NGOs, poor people can often protect themselves from unforeseen health problems by buying microinsurance - health insurance offered at extremely low prices, but with enough resources to provide its customers with generic drugs, hospital care, and other medical requirements.

Microinsurance can also be used to promote microentrepreneurship. The Indian State Crop Insurance Scheme, for example, helps lower the risk of crop failure for small farmers, allowing them to stay competitive and increase economic gains from their farms.

The resources needed for effective and sustained microinsurance practices, however, depend on the support of large firms, institutions, or government bodies. Without access to large numbers of people or a strong organizational infrastructure, it is difficult to create an effective insurance policy. The Community Health Plan (CHeaP) in Kisumu, Kenya, suffers from this problem. Localized insurance policies are difficult to sustain without outside support, but the potential for helping disadvantaged groups through the use of credit, insurance, and risk management cannot be disregarded.

While the MDGs have received a great deal of attention from charities and non-governmental groups, and are officially supported by the world's governments, the private sector has kept relatively quiet in terms of their support or opposition.

If the public and private sector worked together to cultivate entrepeneurial spirit and create microcredit and microinsurance programs, the economic benefits would be substantial. This is no easy task. Governments must promote entrepreneurship, lessen the legal workload of starting formal businesses, and must work with an international scope to level the playing field between the rich and poor. The private sector must accept that the poorest half of the world's population is a viable market, and must set social standards to ensure equality. The two groups must work together as well, to facilitate financing, sustain competition, and promote goods and services delivery.

By doing the above, not only do private, profit-oriented firms work with the public sector to promote development and help the disadvantaged, but the MDGs come one step closer to being achieved.

Sources

Commission on the Private Sector & Development. "Unleashing Entrepreneurship." United Nations Development Programme. 2004. 29 May 2005 <http://www.undp.org/cpsd/indexF.html>.

International Year of Microcredit 2005. 2005. United Nations. 29 May 2005 <http://www.yearofmicrocredit.org/pages/whyayear/whyayear_aboutmicrofinance.asp>.

McCord, Michael J. "Community Health Plan." Microsave. 9 Dec. 2002. 29 May 2005 <http://www.microsave.org/relateddownloads.asp?id=11&cat_id1=149&Page=Free
&cat_id=104&title=Product+Innovations+%3E%3E+MicroInsurance>.

Prahalad, C.K. The Fortune at the Bottom of the Pyramid. United States: Wharton School Publishing, 2005.

van Oppen, Charles. "Insurance: A Tool for Sustainable Development." The Microinsurance Centre. Jan. 2001. 29 May 2005 <http://www.microinsurancecentre.org/index.cfm?fuseaction=resources.detaildoc
&showcontributorID=21>.

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