Development Channel

For several years now I’ve been following the progress of an innovative new philanthropy: GiveDirectly. Its cofounders, Michael Faye and Paul Niehaus, started the organization in 2008 while doing their PhD’s in economics at Harvard. Their idea was simple. Given mounting evidence that cash transfers are among the most efficient and effective ways to address poverty (and that the poor know very well what to do with money), why not start a charity that skips the rigmarole of providing services to poor people in poor countries and just gives them cash? Satellite imagery allowed GiveDirectly to efficiently and objectively identify the poorest in their chosen test sites in rural Kenya–those living in huts with only thatched roofs. The spread of mobile payments via cell phones provided a reliable and inexpensive way to distribute money. Committed to measuring results every step of the way, GiveDirectly collaborated with Innovations for Poverty Action (IPA) to conduct a randomized control trial and have been transparent with the results. And so far, those results have been impressive: recipients increased their assets and income significantly; their food security and mental health improved; violence against women fell. GiveDirectly achieved these results with an expense ratio of roughly seven percent–far less than what most NGO’s spend. “We want cash transfers to be the benchmark against which everything else is judged,” says Niehaus. Not surprisingly, GiveDirectly has gone from success to success, winning accolades and raising millions from the likes of Google and Good Ventures. But despite these gains, and talk about scaling the organization to disperse billions, it wasn’t clear to me how they were going to evolve from reaching a few thousand recipients now to their lofty goal of reaching millions. With their announcement today of the formation of a for-profit spin-off company, I’m beginning to see the way. The new company is called Segovia after one of the largest aqueducts of the Roman Empire–an engineering feat that carried water for two thousand years. Segovia’s founders hope the name will evoke “good governance.” Essentially, the company will build out a technology platform to make cash transfers efficiently to millions of people, with its eye on governments and other institutions as clients. Undoubtedly, Segovia’s potential market is enormous. A World Economic Forum report estimates that government cash transfers to the unbanked in emerging markets are nearing $550 billion. India’s cash transfer program to workers alone is $14 billion. Already, approximately a billion people are reached by cash transfers in emerging markets, and that figure is only likely to grow as research continues to demonstrate their efficiency and effectiveness at poverty alleviation. Segovia’s goal is to partner with governments and other institutions to streamline those cash transfers–to make the process better, faster, cheaper. The same World Economic Forum report estimates that the potential savings of migrating government cash transfer payments onto a digital platform could be as high as $100 billion. This includes reducing the leakage, transaction, and administrative costs of existing programs and realizing the economic benefits of greater ease and safety for recipients. Michael Faye, who will head up Segovia as CEO, believes that the sophisticated modeling behind GiveDirectly, and the insights they’ve gained by working in the field on cash transfers, give them a distinct advantage in building out the platform and becoming the partner of choice for governments looking to more efficiently manage their cash transfer programs or to start one. Already, Segovia has put together an impressive management team. Chris Hughes, one of the cofounders of Facebook and now publisher and editor-in-chief of the New Republic, will serve as the company’s executive chairman. When we chatted recently about Segovia, Hughes stressed that he was planning to devote significant time to the new endeavor. The opportunity to push the world’s collective thinking on the potential of cash transfers, combined with the attractive market opportunity, is clearly a winning combination for Hughes. Investor Arif Naqvi, founder and CEO of the Abraaj Group, will also play an active role in Segovia–no doubt helping to open doors to governments around the world. GiveDirectly will remain a separate non-profit, albeit with close ties to for-profit Segovia. The charity will continue to be run by Paul Niehaus, who will also sit on Segovia’s board (and Faye and Hughes on GiveDirectly’s board), and it will be a minority shareholder in the new company. It will probably continue to function as an important idea lab, undertaking innovative test cases that governments would be reluctant to do without more data and proven results. Despite the cofounders’ best efforts to rationalize the decision to move into the for-profit space (namely, that a non-profit structure would hinder their work with governments and their march to scale), I’d be surprised if some controversy doesn’t accompany Segovia’s founding. There will be the inevitable brickbat of “selling out.” And with the higher financial stakes, there will certainly be deeper scrutiny of the unconditional cash transfer model which has already generated some grumbling. But I applaud the move. Other examples of non-profits spinning off into for-profits demonstrate that it can be an effective way to attract the capital and talent necessary to get to scale. Unconditional cash transfers are a big idea in poverty alleviation: if Segovia can help build the infrastructure to allow more efficient transfers, while scrupulously measuring impact and learning from those evaluations, the world will be better off for it. So what if a couple of economists get rich along the way?

When the Taliban were in power in Afghanistan, they shuttered girls’ schools, segregated many aspects of public life, including the workplace, and prevented women from leaving their homes unless accompanied by a male relative escort. Since those dark days, Afghan women and girls have pushed diligently to expand their rights and remove gender restrictions on access to education, work, and health care.Today, an unprecedented number of Afghan girls are enrolled in school and millions of women have returned to the public sphere. Many have entered the workforce, including government posts, and some have run for office. Women are now an essential component of the post-Taliban order, and have played a significant role in reconstructing the state and its institutions. Over the past decade, a new constitution and new or reformed laws have been adopted to further the protection of women’s rights. Afghans are clearly ready to take charge of their own future—as demonstrated by the recent presidential elections and ongoing transfer of security responsibility to Afghan authorities. Despite threats from the Taliban, women’s turnout was strong in the second round of presidential elections on June 14; women were estimated to be about 38 percent of voters, according to the country’s Independent Electoral Commission. However, the significant gains that Afghan women and girls have made are tenuous and could easily dissipate, particularly if international aid assistance significantly diminishes or the security situation deteriorates along with a reduced U.S. footprint. Furthermore, the transition to a new president and possible peace efforts with the Taliban raise uncertainties about whether the future leadership in Afghanistan will protect gender equality. In a new Council on Foreign Relations’ working paper, “Women and Girls in the Afghanistan Transition,” I urge the United States to act now, in coordination with Afghanistan and its international partners, to cement and extend women’s gains, prevent reversal, and close remaining gaps. Significant gaps remain in terms of the rule of law, education, health, political participation, security, and economic opportunity. Additionally, Afghan women still face some of the worst literacy, poverty, maternal mortality, and life expectancy rates in the world. As President Obama recently noted, in outlining his timeframe for the complete withdrawal of U.S. troops from Afghanistan by the end of 2016, “[O]ur relationship [with Afghanistan] will not be defined by war—it will be shaped by our financial and development assistance, as well as our diplomatic support.” To strengthen the progress already made, the working paper recommends that the U.S. national security adviser designate National Security Council senior directors to coordinate all agencies that work on Afghanistan, in order to better leverage the United States’ unique ability to continue supporting Afghan efforts to improve women’s security and leadership opportunities through diplomacy, defense, and development aid. The paper argues that securing and extending women’s rights is not just a human rights issue, but also an economic and a security matter, as the improved status of women correlates to prosperity and reduced rates of conflict and violence. In short, Afghanistan’s economic growth, political development, and stability hinge on greater opportunities for women and girls. Afghans recognize this and overwhelmingly support greater opportunities for women and girls, notwithstanding the threats and opposition of extremists. The United States can and should play a supportive role in maintaining and extending the rights of Afghan women and girls; however the opportunity is diminishing as U.S. troops withdraw and security is handed over to Afghan authorities. Read the full working paper here.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Heidi Sumser, senior associate at A2F Consulting in Washington, D.C., and former environmental management coordinator at Banco Los Andes ProCredit, Bolivia. Green finance—banking that takes environmental and energy concerns into account when lending and providing financial services—is taking root in developing countries. At the forefront of this movement is the Frankfurt-based ProCredit group, which includes twenty one development-oriented banks and financial institutions across Latin America, Europe, and Africa. In its pursuit of promoting sustainable development, ProCredit has recently adopted a three-pillar approach to making green finance a company priority. One pillar focuses internally on promoting, implementing, and measuring resource efficiency. The other two pillars target clients: managing the environmental and social risk of lending on the one hand and promoting and granting loans for green investments on the other. Green loans are categorized into three groups of investments: energy efficiency, renewable energy, and environmentally friendly measures. Banco Los Andes ProCredit, a leading bank in Bolivia where I served as environmental management coordinator until the end of 2013, began adopting this approach in 2011. Doing green banking in Bolivia quickly proved to be a challenge. Energy efficiency, renewable energy, and green technologies are rarely incentivized and are not commonly understood by government leaders, financial institutions, clients, suppliers, and the general public. This is due largely to highly subsidized energy prices, a low level of environmental and energy awareness in the market, and a lack of legislation that promotes energy efficiency, renewable energy, and green technology. As a result, there is little incentive to seek out or offer sustainable energy options. But the need is still there. Government-subsidized prices mask an energy sector that is increasingly dirty and inefficient. Most machines and equipment used in the industrial, trade, and service sectors are outdated, averaging around twenty five years old, and the main driver of investment decisions is initial cost rather than longer-term value. New, more efficient machines and equipment can be three to four times the price of their twenty-five-year-old alternative, creating the perception among small businesses that energy efficient investments are not feasible. In addition to being less efficient, older machines also cause greater environmental damage. The older machines require larger quantities of fuel and produce higher levels of CO2 emissions. These machines are often manual or semi-automatic, so they are also less productive and more prone to human error, thereby generating more waste. Waste also results from the fact that the machines are increasingly difficult to refurbish or recycle in a low-technology market. Finally, older machines are loud and are often accompanied by poor working conditions, which create noise pollution and health problems. To promote green investment in this climate, Banco Los Andes ProCredit started internally. First of all, we needed to develop our internal capacity by enhancing our environmental policy and creating the Environmental Management Committee and Department, which included hiring an environmental/energy specialist. We then analyzed the bank´s business strategy and loan portfolio, established and adjusted standards and procedures for green lending, and comprehensively trained staff country-wide on green finance. Training included teaching basic concepts about energy efficiency, renewable energy, fossil fuels, pollution, and climate change; energy and environmental challenges and opportunities in Bolivia; how to identify potential green investments and their benefits; and lending procedures and attractive conditions for green loans. One of the main outputs of this project was the development of a standard internal catalogue of investments with objective eligibility criteria that staff could consult when granting green loans. This has helped branch staff, who are not experts in energy efficiency or green lending, understand the advantages of green investments and link them with customers’ needs. The bank’s newly developed internal capacity, institutional commitment to green lending, and integration and institutionalization of new policies, procedures, and trainings make the future of environmentally conscious finance bright. At the end of 2013, Banco Los Andes ProCredit had a green loan portfolio of more than 720 loans to small businesses, more than 90 percent of which was for energy efficient investments. One of the most important lessons I learned while charting the uncertain territory of green banking was that I could not do it alone. Much of my work focused on convincing leaders at the bank and in the financial sector, public sector, and NGO community that environmentally conscious finance was a worthwhile and mutually beneficial enterprise. I approached environmental management as a business and treated green loans as a new product. Another crucial element was personalized communication of the economic, environmental, and social benefits of green lending so that parties inside and outside of the bank understood how green finance fit with their priorities, objectives, and needs. It is through this communication and relationship-building that Banco Los Andes ProCredit, and future enterprises, can make finance an environmentally friendly endeavor.