I recently picked up The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It by Paul Collier, Professor of Economics and Director for the Study of African Economics at Oxford University and former director of Development Research at the World Bank. It has been a grim and simultaneously enlightening book, dubbed as a must-read by the New York Times and set to become a classic according to the Economist.
In a nutshell, The Bottom Billion states that our perception of development for the last forty years has been a rich world of one billion people facing a poor world of five billion people. However, this thinking will soon be outdated because most (80%) of the five billion live in countries that are developing, and at amazing speed. The real challenge for development lies in the one billion people at the bottom who live in countries that are falling behind and oftentimes falling apart.
These one billion remain mired in extreme poverty because of four “traps” that must be dealt with. The first trap from which poverty stems is “the conflict trap” – civil wars or coup d’états that are costly and can be repetitive. The second trap is “the natural resource trap” – dependence on certain resources (oil, minerals) that actually stifle economic growth. Third, poverty can come from being “landlocked with bad neighbors” – a lack of access to ports and bad neighbors translates to no trade. The last trap is “bad governance in a small country” – terrible governance and bad policies can quickly destroy an economy.
Collier also proposes several plans of attack on poverty that focus on the bottom billion. Wealthy nations have too often subscribed to the myth that the fight against poverty must focus on poverty everywhere. This might be why microfinance hasn’t been successful in accessing the absolute bottom of the pyramid and eliminating the most extreme poverty. Microfinance institutions have mostly been drawn to the more attractive business case of serving clients who are not in the bottom billion – in fact, only about 5-10% of microfinance funds ever reach the poorest of the poor.
What microfinance needs to begin doing, is to branch out beyond the mainstream to include a focus on the bottom billion. Tom Coleman, founder of Microfinance Consulting and former Director of Research and Development for the Chicago Board of Trade (CBOT), calls it Bottom Billion Microfinance (BBM). How can we re-channel our focus to highlight this population? Two-thirds of the bottom billion live in only four countries – so we can begin there. Further, a modest 15 countries have the highest concentration of people living on less than $1/day, and together represent 80% of all people who live on less than $1/day. A total of 31 countries have over 40% of their people in the bottom billion – most are in Africa.
The important questions we need to answer are: what kinds of holistic poverty-ending services should microfinance provide? What kinds of incentives can increase the number of bottom billion served, and the quality of services they receive? Ending poverty is not a financial services-only business. Microfinance has made remarkable strides since its conception in the 1970s. As our world continues to develop, we must continually revisit how we’ve been fighting poverty. We must establish new techniques and standards so that the bottom billion are not left behind./>