| By Gavin Chait,
on 10 April 2007
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 Where do I plug in my iPod? Aid agencies managed to look a little sheepish but the OECD still reckons that, between them, 31 poor-country governments received 10 837 donor "missions" in 2005, almost one a day. As Jon Carrol at the San Francisco Herald wrote, "Mistakes, as they say, were made. Words were written. Ideas were promulgated. These ideas may not have been accurate, although I have no memory of intending to deceive anyone. It is not my way to blame my subordinates, although they are indeed at fault." Highlighting, once again, the need for thorough external evaluation of aid organisation effectiveness to ensure that overlaps, and concomitant underlaps, are kept to the minimum. A poor credit environment drives up banking costs and, by extension, a poor aid environment drives up development costs. It doesn’t have to be that way. The housing market is a case in point. The whole world is suffering from a housing bubble. Part of the problem has been easy access to credit. Banks don't look at the value of the investment, they look at the applicant's ability to pay back the loan and their credit record. The asset can easily be resold and so a fixed income combined with no history of bad debts will allow bank largesse to flow. And it has. The failure has come from banks not watching how the housing market is overheating, and that they have done less monitoring than they should on people’s real incomes; the so-called "sub-prime" lending market. Even so, all they are doing to ameliorate their excess is to bundle up the debts and sell them as a hedge fund. Microfinancing solutions work in an aggregated credit model. Grameen has perfected the model but, largely, all microfinance banks work in the same way. A self-help group comes into being; impoverished women (men are not regularly involved in such things) with little income form a collective to pool their resources and lend to each other. They develop an understanding of the needs of each other as well as their capacity for risk and repayment. Records are kept. After a year of successful activities a microfinance bank will approach them and offer to lend them an ever-escalating amount of cash which they will use to buy the things they need (usually personal expenditure, like treats, clothes, health care and the like). The model works well. It is a way for the banks to hedge their risks by lending more to a larger group over a range of different needs. Aid agencies could learn from this. Usually a development organisation will raise funds for a single project or even for a single year of business. This doesn't allow an investor to hedge their bets and they are at risk to a single project or a single year’s activities. On the other hand, if agencies worked with other organisations to present a single unified request for capital covering an integrated approach this would act to hedge the investment. If one or two agencies out of ten fell down under the strain an investor would know that the other eight could still ensure that the overall project was delivered. Alternatively, a single entity could collect a range of unrelated projects and present them as a single investment vehicle. Again, the hedging is present over a range of different activities. All of this relies on the good name of the organisations concerned. If eight organisations with a great record work alongside two organisations who are new and little known then all ten can gain finance to perform a single large-scale integrated project. In other words, get over yourselves and click on the little button above that says, "get rated, free".
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