Observations of the USAID Evidence Summit – Day Two, December 13

While there will be videos and summaries on MicroLINKS, I would like to share what I took away from this very interesting meeting. Day Two of the USAID Evidence Summit (in Washington, DC) started with the topic that seems to be the focal point of USAID’s Office of Microenterprise and Private Enterprise Promotion (MPEP):

Promoting Inclusive Value Chain Development

Jeanne Downing moderated and, along with a video presentation by Gary Gereffi, she described the value chain development approach and its history and promise. Thomas Jayne again drew on his deep knowledge of smallholders in Africa to pose the challenges for including the majority of African smallholders in value chains (see Day One). John Magnay described in detail the challenges specific to maize trade in Uganda. He said that lack of finance and knowledge were the key constraints in Uganda. Lack of knowledge was partly ignorance of the higher price that properly dried maize could get and partly lack of knowledge of how to be more productive – he said that data from many African countries show that most smallholders are only 40% as productive as the best smallholders in the same area. The solutions are at the levels of policy (in Uganda, the maize market is dominated by the World Food Program, which does not cooperate with the recommended policy changes) and the agricultural services (including financing).

Elizabeth Dunn presented results from impact research on value chain program participants: evidence of enterprise profits increase but not evidence of household income increase, similar to what microfinance impact research has found. Question: What are people doing with enterprise profits if not increasing household consumption? Impacts also may include employment of others (in the same household and outside the household) and multiplier effects in the community, but more research is needed to test for these. She very helpfully identified the minimum requirements for successful inclusion of the poor in value chains and divided them into two types: capabilities (resources and skills; food security; awareness and information) and opportunities (viable farming and enterprise activities within established value chains to global or national markets – opportunities for “upgrading” either process efficiency or product quality or both).

In the Q&A, I asked for advice to practitioners at the community and household levels for engaging their constituents in value chain development, given the generally low level of expertise in analyzing value chain opportunities and their viability. Elizabeth said that due to constantly changing markets, you can’t pick winners, so the practitioner focused on a particular constituency does best by improving generic capabilities that prepare them for participating in a variety of opportunities that might arise or be identified by others who are experts in picking value chains with short-term and medium-term promise. I interpret this to mean focusing on building resilience assets for risk mitigation and productive assets (land, skills, information, social capital) to increase household income.

Thomas Jayne added that urbanization in Africa is driving huge demand for animal products and vegetables for the urban market, so rural households relatively near urban areas can hardly go wrong by joining that food value chain to local urban markets.

Mobile Solutions

This panel was moderated by Priya Jaisinghani (leading USAID’s team exploring mobile solutions) to review emerging evidence of the role mobile technologies and mobile money can play in helping the poor to smooth consumption and manage risk – by linking individuals, households and smallholders to financial services and markets. Jake Kendall of the Gates Foundation started off with a general review of the evidence of microfinance impacts, covering the same ground as the microfinance impacts panel covered in Day One but with more specificity about the findings of the full range of recent studies. He emphasized that risk mitigation is the key impact seen.

One of these studies, by Billy Jack and Tavneet Suri (2011), dealt with the welfare impacts of e-payments through M-Pesa in Kenya. Billy Jack emphasized that the success of M-Pesa lay in tapping into the “social fabric” (informal arrangements and networks of support) in Kenya, through which it had been hard to move money around due to geography, safety concerns, etc. More specifically the key to M-Pesa success was the agent network that allows people to cash out the transfers via phone. The Jack & Suri research shows that financial shocks don’t hurt users so much as non-users of M-Pesa – a 7-10% difference (so he said; I haven’t read the paper yet).  In addition, they found no evidence of displacement or negative impact on local social networks (people could have relied more on distant relationships than on local ones, thereby weakening the latter – which may happen in the long run – but no evidence of this in the short run).

Guy Stuart, working with Monique Cohen and Microfinance Opportunities (MFO) and recently replacing Monique as MFO’s executive director, presented results from financial diary research in Kenya, Uganda and Malawi. In all three countries, the diaries revealed similarities to the Portfolios of the Poor – lots of cash handled, predominantly aided by use of informal financial services. He focused on the results from Kenya and particularly the way M-Pesa is used. Almost all remittances received through M-Pesa were immediately cashed out or sent onward to make payment to a vendor (very little saving on the phone). More specifically, over long distances, there were lots of sending money home, and very locally, what Kenyans call “M-Pesa me” which is a quick transmission of money from a local source to pay a local vendor (like asking a friend for a quick, small loan to buy lunch). Not much use for business purposes or, more generally, transactions with people outside the existing social network of the user. Guy emphasized the importance of “trust issues,” citing an example of a restauranteur in Nairobi not daring to send an order and an e-payment to a Lake Victoria fish wholesaler in lieu of traveling across Kenya with the money to pay directly and bring the fish back to Nairobi. The implication was that such trust could be built over time, as users of M-Pesa build trust in the technology and also a more dispersed network of trust in their vendors and buyers. But for the near future, transactions are likely to be confined to those whom we personally know and trust – family and friends mostly. (My colleague, Megan Gash, points out that there is a clear business opportunity for a fast, efficient and accountable within-country delivery service like UPS or FedEx, but until this develops, there may be no way this restauranteur will be comfortable unless she just goes to Lake Victoria herself with cash in hand to get her fish.)

Evidence to Practice Roundtable

After a lunch discussion of inclusive rural and agricultural finance, there was a “roundtable” discussion by USAID senior officials, facilitated by Kate McKee of CGAP. They were supposed to comment on the implications of the evidence presented in the Summit for the work of USAID. However, it was notable that the people of the roundtable were not in the room for the great majority of the evidence presentations, so this was mainly about how various bureaus/offices of USAID are contributing to the development of inclusive markets. It was particularly significant that Tony Pipa, DAA for Policy, Planning and Learning (PPL), focused on the new agency-wide “resilience policy” just released and how it emphasizes the “interdependence of lots of program elements” in different sectors or sub-sectors of USAID’s humanitarian relief and development work. The concept of “resilience” seems to be emerging as an over-arching organizing principle for USAID’s work and a major rationale for inter-sectoral integration of services. Mechanically, this seems most likely to happen through the means of “joint planning cells” which have been successful in a few cases already (like Horn of Africa work, I think).

Particularly relevant to the work of organizations like Freedom from Hunger was the statement by Dina Esposito, Director of the Office of Food for Peace (in DCHA), which claimed a focus on the very poor and vulnerable with development food assistance, the use of VSLAs (savings groups), risk mitigation and mentoring to help the very poor navigate into value chains – very similar to the components of the graduation pilots for the ultra-poor. Jason Wolfe (Office of HIV/AIDS in Global Health) cited a focus on upgrading money management by women caretakers of AIDS victims, including orphans. Finally, regarding support for women in particular, Carla Koppell, Senior Coordinator for Gender Equality and Women’s Empowerment, cited data on mobile phone ownership—350 million fewer women than men own a cell phone. She also mentioned an important tool for measurement of “agency” in women—USAID’s Women’s Empowerment Index.

Key Take Aways

Throughout the two days of this Evidence Summit, this was the central question: How to connect the poorest to markets? The centrality of this question is in itself a significant take away, signaling a trend in “donor” (at least USAID to date) thinking about market-based solutions to poverty. The question reflects a fundamental frustration with attempts to engage the very poor in effective programs to offer them viable opportunities to participate in the mainstream economy of their nations and the world. The answers that are emerging within the body of evidence from good research were not explicitly articulated or summed up at this Evidence Summit, but I think they were there in the room. Here is what I heard through my selective (i.e., biased) listening.

First, the poor, especially the poorest, have a first order of business before they can participate seriously in the marketplace – risk mitigation. It is encouraging that un-tied, general-purpose microfinance services seem to build the capability of poor households to mitigate the risks of consumption interruptions and financial shocks. More research is needed to explore the importance of this kind of benefit, but if truly important, microfinance as we know it may in fact be a major success story. Continued innovations, like mobile financial services, seem likely to deepen and expand the benefits of general-purpose microfinance.

Second, to seize opportunities offered by the market economy, most of the poor need to build generic “capabilities” (in Elizabeth Dunn’s terminology): resources and skills, food security, awareness and information. Note that these capabilities include some of the same elements of capacity for risk mitigation, but they are more than just tools for avoiding or weathering financial shocks. They include tools for productive participation in viable value chains connecting to the larger regional, national and global economies. More than microfinance is needed—microfinance plus a variety of other services.

Third, a key practical and psychological need must be honored—trust. The poor need empowerment, or “agency” as economists seem to prefer, in order to engage in programs or systems that build their capabilities. This is most reliably achieved by tapping into the existing “social fabric” (as Billy Jack called it): building on the foundation of trust that underpins “informal arrangements and networks of support.” Therein lays the elusive but ever-so-fine art of successful poverty reduction.