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A Blog about Public and Development Economics

Controversy Surrounding SKS Microfinance

Are philanthropy and profit mutually exclusive ideals? The very successful initial public offering of one of the world’s biggest microfinance institutions is stirring a lot of controversy. Via the New York Times.

An Indian company with rich American backers is about to raise up to $350 million in a stock offering closely watched by philanthropists around the world, showing that big profits can be made from small helping-hand loans to poor cowherds and basket weavers…

[The] I.P.O. for SKS, one of the field’s biggest stock offerings yet, has caused its own type of controversy.The disputes involve two charitable microfinance organizations that helped Mr. Akula put SKS on its feet and financed it through its early days. It is not clear what will happen with the money those groups will make from the I.P.O.

At one of those groups — five Indian trusts that now hold the assets of Mr. Akula’s original nonprofit version of SKS — two board members resigned in March over his plan to steer funds toward his original nonprofit group rather than granting them to many charitable entities.

The other nonprofit ensnared in controversy is a Seattle-based group called Unitus, which holds a stake in SKS that will be worth millions after the I.P.O. The group’s board shocked the nonprofit community this month by saying that all of the organization’s 40-person staff would be laid off and that Unitus would no longer be involved in microfinance activities…

In charity circles, people wondered about the motives of the Unitus board members, at least four of whom had invested in SKS Microfinance themselves and thus would reap profits from the I.P.O.

“If Unitus is closing down, that shows what is the real result of this I.P.O.,” said Muhammad Yunus, an economics professor who is considered the father of microfinance and has been critical of the SKS stock offering. “You are now encouraging the profit-maximizing part, and the nonprofits are closing down.”

New York Times – http://www.nytimes.com/2010/07/30/business/30micro.html?_r=1&ref=asia

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Filed under: Development Economics, Social Enterprise, , ,

A Ph.D. Student’s Rant about Development Economics

From the Economists for Firing Larry Summers blog:

Development Economics is not a “main-stream” Economics field. Most Development Economists are Development Economists because they really do care about the worlds’ poor, they tend to be more liberal and less dogmatic than your average economist, and many of them view other, more mainstream fields such as Macroeconomics or Macro Growth as witchcraft. They often point out that in Macro, you’ve always got these really difficult identification issues, and it’s often impossible to say w/ any certainty that you’ve identified a causal relationship as opposed to just correlation. With Micro-Development Randomized Trials, it is possible to know “things” with much more certainty.

While I can understand the views of Development Economists, I cannot really remember being impressed by any Development Economists, or have ever walked away from a Development Econ presentation/class feeling like I’ve really learned a new, important insight into the fundamental question of Economics: Why are some countries poor? And what can “we” do about it?…

Read the rest of this post on Economists for Firing Larry Summers >

Filed under: Development Economics, , , ,

Can Family-Run Indian Businesses Improve Their Efficiency?

Ajay Shah’s article for the Financial Express points to recent research that suggests that smaller, family-run businesses stand to gain much from modern management science.

Some argue that the traditional family business knows what it is doing, and denigrate the fancy-pants MBAs and consultants. Others argue that the state of the art in scientific management has a lot to offer. In a remarkable recent paper titled Management matters: Evidence from India, a team of five economists (Bloom, Eifert, Mahajan, McKenzie, Roberts) has brought new evidence on the table.

The authors setup a free consulting program for 17 randomly chosen textile weaving firms in Tarapur and Umbergaon… Each of these firms was given consulting inputs from Accenture, a top-end global consulting firm.

The results were impressive. There was a rise in profit of the treated companies by Rs.1 crore a year. Even if the market price – of Rs.2 crore – was paid for the consulting, it pays for itself within two years.

Filed under: Academic Papers, Development Economics, , , , ,

Drought in East Africa Worst in Decades

According to many observers and news sources, the drought this year in eastern Africa is the worst in decades. The Economist writes:

THIS year’s drought is the worst in east Africa since 2000, and possibly since 1991. Famine stalks the land. The failure of rains in parts of Ethiopia may increase the number needing food handouts by 5m, in addition to the 8m already getting them, in a population of 80m. The production of Kenyan maize, the country’s staple, is likely to drop by one-third, hitting poor farmers’ families hardest. The International Committee of the Red Cross says famine in Somalia is going to be worse than ever. Handouts are urgently needed by roughly 3.6m Somalis….

Filed under: Development Economics, , ,

Professor Esther Duflo of MIT Awarded MacArthur Fellowship

The MacArthur Foundation released its list of fellowship honorees for 2009 (also know to many as the “Genius Award”). Among the 2009 Fellows was Professor Esther Duflo, whose work could not be more deserving of such an accolade. Professor Duflo’s work centers around economic research aimed at ending the vicious cycle of poverty in underdeveloped countries. Along with Professor Abhijit Banerjee, also of MIT, and Professor Sendhil Mullainathan of Harvard University, she co-founded the Adbul Latif Jameel Poverty Action Lab, which facilitates policy research in poverty-stricken regions, primarily in Africa and South Asia. Her own research is principally rooted in large-scale randomized trial experiments that help identify the most effective policies for alleviating poverty in various regions. Kudos to Professor Duflo as well as her colleagues and collaborators for their excellent work in development economics.

Filed under: Development Economics

Child Mortality Rates Fall Worldwide

The Economist reports that, according to a report published by Unicef, mortality rates for children under five years old have declined throughout the world, including in most major regions and in countries with little development to full industrialization. The Economist writes:

The child mortality rate—the number of under-fives dying per thousand live births—declined from 90 in 1990 to 65 in 2008, a drop of over a quarter. The number of deaths has fallen from 12.5m in 1990 to 8.8m last year, the lowest since records began in 1960. The biggest improvements are in Latin America and the former Soviet Union, where mortality rates have fallen by more than half. Progress in sub-Saharan Africa, which now accounts for half of all deaths, has been slower, but Niger, Malawi, Mozambique and Ethiopia have seen reductions of more than 100 per 1,000 livebirths since 1990. The report notes that despite big improvements in preventing malaria, one of the three main causes of deaths, much more needs to be done to treat the other two causes, pneumonia and diarrhoea.

Falling Child Mortality Rates (via The Economist)

Falling Child Mortality Rates (via The Economist)

Filed under: Development Economics, Health Care, Public Economics

El Salvador to Get $250 Million from World Bank

Like many developing countries throughout the world, El Salvador has been quite adversely affected by the global financial crisis. It is estimated that its GDP will contract by 1-1.5% in 2009, in stark contrast to the 4.8% growth that it enjoyed as recently as 2007. To make matters worse, El Salvador will be receiving far less external funding, which has been principally comprised of remittances from developed countries like the United States.

The World Bank has committed to a substantial $250 million loan to El Salvador to help mitigate the economic fallout from the contraction by funding public programs and social programs and to fuel job creation in the ailing country. From the World Bank’s press release:

Regional World Bank vice president Pamela Cox explained that these funds will focus on social protection, education, health care, job creation and the public sector, among other areas.

Cox emphasized the Bank’s commitment to supporting government plans “to promote inclusive development with opportunities for all, especially now that the global economy is facing a crisis.”

In fact, a large part of this amount —about $100 million— will be earmarked to support social expenditures, one of the most vulnerable areas in light of the global crisis. Part of the money will also be allocated to job creation, said Cox.

Newly elected president of El Salvador, Mauricio Funes, remarked “These loans are essential for us, without them we would not be able to implement the job creation programs we need to face the financial crisis.”

Filed under: Development Economics, Fiscal Policy

As California’s Finances Go, So Do Programs for the Less Fortunate

The Economist has a good summary of California’s financial distress and what it means in real terms. In essence, Californians have been voting their way to more and more spending funded by greater borrowing. Triggered by the recession, that debt has become unmanageable, and California has started losing its good credit rating. At the same time, California is reluctant to increase taxes to help ease the shortfall. That leaves viable only one option to mitigate the fiscal mess—cutting back social programs. The article reads:

The largest part of the budget, and thus the biggest target for cuts, is education. Mr Schwarzenegger has proposed suspending a spending formula that voters explicitly chose at the ballot box. In response, the powerful teachers’ union sent a gesture, in the form of 10,000 protesting postcards, to one of Mr Schwarzenegger’s branch offices. But teachers and schools will suffer, which hurts children and thus parents.

The next largest part of the budget is the state’s social safety net, including its health-care programme for the poor. Mr Schwarzenegger wanted to eliminate entire programmes wholesale, but now appears ready to settle for shrinking them. The debate, such as it is, is now about how many children will lose coverage, how many elderly Alzheimer’s patients will stop receiving visits from nurses, whether to treat drug addicts and so forth.

The pain thus seems likely to flow to the bottom of the social hierarchy. But all Californians will notice. Their parks may close, their neighbourhoods may become less safe.

Filed under: Fiscal Policy, Health Care, Public Economics

Hello world!

This is the maiden post on Econ for Progress. I hope you enjoy reading about public and development economics and join the discourse. I welcome any suggestions on improving this blog and its content. –Sergio

Filed under: Academic Papers, Development Economics, Environment, Fiscal Policy, Health Care, Labor Economics, Monetary Policy, Public Economics, Uncategorized