Donor organisations which receive their funding in the Euro, Sterling, Australian and New Zealand dollars have suffered a double whammy. Not only has the global economic downturn created a constriction of their sources of income, they have also witnessed the depreciation of their currencies by as much as 25% over a four month period. US dollar denominated funding has not been spared either, with the deepening recession and loss of asset values in the United States, resulting in the tightening of the charity dollar.

All this could not have been envisioned as recently as July 2008, thereby adding the speed of onset as a new dimension to the current funding crisis facing many NGOs.

After this, what next?

An obvious knee jerk reaction to compensate for the income loss would be to cut project budgets across the board. This would be a mistake. Projects traditionally respond to this short-term type of request by cutting activities, while leaving spending on payroll, headcount, and capital expenditure intact. The global economic crisis is going to be prolonged, lasting at least two or three years, requiring a longer-term response. NGOs need to be both pragmatic and judicious by cutting projects which have not been performing, as well as those which do not fit their strategy. This course of action would then permit these NGOs to have the leeway in their funding to consider new project opportunities, rather than just maintaining the status quo.

Viewed positively, the global economic crisis has the effect of compelling decision makers to take a careful look at their current portfolio of projects and move forward by only continuing to support existing or new projects which are aligned with their global strategy. Improvements to the assessment of project outcomes, as well as the measurement of effectiveness and efficiency, take on added importance as donor and implementer NGOs alike struggle to be able stewards in the wake of the shrinking charity dollar.

James Meyer

Yes, because poor entrepreneurs now have the opportunity to access seed capital, which would not be normally available to them from commercial banks, due to their lack of collateral, or record of accomplishment in business.

Yes, because poor farmers now have access to capital to help them ride the seasonality of their incomes, instead of pre-selling their crops or services to intermediaries at bargain basement prices.

Yes, because microcredit lenders usually advance loans to groups or individuals in groups, where peer pressure to repay serves as an excellent form of collateral. This makes for better group bonding and resilience, when they collaborate to compete. This cohesiveness has a knock-on benefit in terms of group advocacy, as a voice to pressure local officials for access to opportunities, services, and fair treatment.

No, because in an urban situation, microcredit lenders do not research the market on how much of a particular service could be absorbed locally. In a poor developing country, there is a limit to the local demand for rickshaw services, grocery shops, or tailoring services, and the like. The limited range of small business opportunities have a saturation point beyond which diminishing returns set in. With limited demand for their services, the inexperienced entrepreneur is unable to service the loan, contributing to the deterioration of their financial situation.

No, because many microcredit lenders pride themselves on obtaining a 100% repayment record. This is an illusion. Either they are lending to the wrong group of people who already have the resources and skills to lift themselves out of poverty, or alternatively the borrrowers are obtaining credit from elsewhere to repay them. I would also examine the process for identifing non-performing loans, as supervisors on the ground have been known to fiercely resist re-classification, being an admission of failure.

No, because gaps in the loan monitoring process mean that funds originally intended for direct income generation purposes leak into other uses, like paying for dowry, house repairs, or to pay off other loans from elsewhere. The leakage to non-income generation purposes effectively turns the microcredit scheme into a poverty trap, as these borrowers lack the resources or cash flow to repay.

So has microcredit made a positive impact on poverty reduction? The answer depends on whom you ask.

James Meyer

Reflecting on the impact the internet has on the developing world, countries like India, Bangladesh, and Indonesia, and their hierarchical structures comes to mind. Nothing gets done without endorsement from the top. Notice how their power structures at organisational and community level have shown little real progress over the past few decades, where conventional wisdom, and the authority that comes with it, is still the monopoly of the male-dominated formal organisational leadership. The continuing limited access to information would perhaps have the intended consequence of entrenching the institutionalisation of power, and reinforcing the dominance of authority within the existing social structure.

While I am not advocating that access to the internet and its attendant benefits is the universal panacea for progressing community development and empowerment in developing countries, the greater penetration of the access to information together with the internationalisation of knowledge and idea mobility, would go a long way in loostening things up.

A powerful catalyst for change in developing countries would be greater access to knowledge and ideas through wider and cheaper internet broadband in homes and offices, better computers which open web pages faster, and low cost availability of genuine software.

Authentic change would then come from within. And it will be organic change which will spread by itself.

James Meyer