In the Queen’s Speech, the Coalition Government devoted itself to a pledge of ‘value for money.’ And apparently this is central to the government’s aid policy:
‘Using the power of independent evaluation, transparency and results-focus to drive a step change in the effectiveness of Britain’s aid efforts.’
At the same time, the Government has committed itself to spending 0.7 per cent of gross national income as Official Development Assistance by 2013. Following a necessarily austere budget, ring-fencing is a retrograde step.
As research by the TaxPayers’ Alliance has shown, the track record of DfID has been patchy. In 2007-08, approximately £685 million of DfID’s budget (13 percent) was lost to the administrative and other costs of DfID, multilateral organisations (UN, EU) and NGOs (Oxfam, Red Cross). When you consider that DfID’s administrative costs totalled 5 per cent of the £5.2 billion budget you start to realise how aid money has been misallocated, instead of being used for its intended purpose: removing poverty and curable disease, and replacing it with prosperity and health.
If 13 per cent of spending is lost in this way every year, then over £1 billion could be lost to administrative costs this year. Good value for money is crucial, not just for the taxpayers but for the recipients to whom we aspire to lend a hand. Britain’s view of international aid as ‘morally right’ and in the ‘national interest’ is admirable, though it’s essential that the money is allocated more efficiently.
Instead of direct aid, encouraging microfinance would be more worthwhile. With this, the government helps those who help themselves. Small grants are given to pioneering individuals to start up small businesses, instead of relying on regulated aid. With the chance to create a profit-making enterprise, reliance on direct budget support is negated. Furthermore, microfinance has been accredited with achieving other social objectives than financial flexibility – reaching the excluded, empowering women and developing the ability of people to be in command of their own lives.
Monday’s City A.M. carried the story of a Malawian businessman, Wilson Moleni. Mr Moleni grew up in sheer poverty with his father providing a subsistence income. He faced the same challenges many Malawians do today. There are gaps in common knowledge about health, hygiene and HIV, to add to the lack of economic awareness needed to establish a business. In addition, understanding of banking is limited. To open a bank account, a driving licence or passport is needed – something most people do not have. Mr Moleni was helped by Opportunity International, an organisation offering microfinance services to people whose stock may be as little as £20. Mr Moleni joined Opportunity International Bank of Malawi (OBIM) in 2003 and has seen the bank reach 270,000 people.
The Opportunity International project has given people in need a chance. Microloans between £70 and £300 are offered next to micro-insurance and education. Mobile kiosks connect the remote periphery to the banking nucleus and smart cards allow direct control over money. Such projects show that charities are often far more successful than government at effecting real change.
This is an example of successful entrepreneurship. Instead of blindly throwing money at those in poverty, DfID should look at the example of Opportunity International. £4 helps a client gain the know how in dealing with money. £20 funds a loan in rural Africa. With countless success stories, this is far more effective than direct budget support.
By James Dixon