Tayo Akinyemi

Conference Report: Financial Inclusion, Innovation, and Investment

Cornell conferenceWell it appears as if last week was ?conference week? here at NextBillion, so it’s my turn to dish on my recent attendee experience. Ready? Here I go.

I was fortunate enough to attend ’Financial Inclusion, Innovation, and Investments,’ a symposium organized by the Emerging Markets Program of the Department of Applied Economics and Management at Cornell University. In a happy bit of serendipity, a professor with whom I had corresponded informed me about the event just in time for me to change my itinerary. (I had planned to be in Ithaca the week before.)If I were to summarize the proceedings in three sentences or less, I would say that the ?financial inclusion? portion of the program fostered a discussion of research regarding ?the role of foreign capital in local financial development,? the scaling of micro-finance efforts, defining critical issues for African firms, and mitigating risk in financial markets. The ?innovation segment? addressed the effectiveness of agricultural biotechnology in alleviating hunger and poverty. Finally, the ?investments? portion of the program covered foreign direct investment (FDI) as a mechanism for growth, the role of FDI at a microeconomic level, and the state of FDI in Africa.

Admittedly, much of the material was a bit over my head. After all, I was sitting in a room full of economists, agronomists, plant geneticists, and many other impressive-sounding ?-ists.? Nonetheless, I gleaned a number of interesting tidbits, and made a few ?big picture? observations.

Let’s start with the symposium itself. I was very interested, if not surprised, at the answer to the following question: How effective is foreign direct investment (FDI) in encouraging growth/alleviating poverty? (Please note that I, not the presenters, framed the question this way.) The answer is: ?It depends.? In the case of FDI, Eswar Prasad of Cornell University indicated that if you ?look the right way at the right things,? FDI delivers indirectly, through ?potential collateral benefits such as financial market development, institutional development, better governance, and macroeconomic discipline,? instead of directly in the form of growth.

In fact, FDI tends to work only if these ?threshold conditions? are in place. If not, well, not so much. As a result, financial integration is more likely to be a conduit of these benefits than an end unto itself. If so, how would you answer the following question: ?Do countries with less foreign experience growth or decline?? The answer is: ?They experience growth because domestic financial systems cannot [always] effectively channel [the influx of capital.]?

Can we think about that for a second? FDI is predicated on the existence of effective systems through which to channel it. No wonder so many forms of FDI (I?m thinking of official development assistance in particular) fail. Many of these interventions are predicated upon the assumption that effective systems (financial, civil, political, economic) exist at the receiving end. Too often, they do not.

Groundbreaking? Perhaps not. But wait, it gets better.

Susan McCouch, Professor of Plant Breeding and Genetics, described the way that free markets influence how science is done in her field. In a session entitled, ?Have Financial Markets and Biotechnology Failed the Poor?? she envisions a market-driven, decentralized system of science in which work is exported to where it is done the most cheaply and effectively, facilitating the transfer of technology as a result.

In her view, the role of the private sector today is ?to inform and change the way people deliver [public goods] like food and health.? Sounds eerily familiar, doesn?t it?

My final conference-related ?aha? moment occurred during the same session, in which Joyce Cacho of the Corporate Council on Africa indicated during the Q&A following the session, ?Have Financial Markets and Biotechnology Failed the Poor?? that MNCs can participate in the push towards ten percent growth in Africa if they are ?incentivized to participate in the formal economy? and ?markets are quantified.? My heart leapt as images of WRI’s report ?The Next Four Billion? danced in my head. I doubt that’s what she had in mind, but really, what better incentive is there than a thirteen trillion dollar market?

Overall, the symposium offered an alternative, policy-based perspective on BoP issues. I use the term BoP not only in recognition of the conference content but also because Yvonne Pinto (formerly of the Gatsby Charitable Foundation, now with the Gates Foundation) spent a good chunk of her presentation entitled ?Harnessing Technology to Accelerate Economic Development, the first of the day, discussing BoP. Although there was nothing ground-breaking about her BoP shout-out, she hit all of the right notes, recognizing a shift in thinking about how business is done, citing several popular case studies (Grameen Bank, n-Logue, Scojo), focusing on the poor as ?central agents? both as entrepreneurs and consumers, and identifying the BoP as a future market.

What then, is there left to discuss? Not much, but I?ll leave you with some food for thought.

One of my ?20 Questions? involves the role of institutions in BoP business development. I will post more extensively on this topic at a later date, but I?ll introduce it here.

Broadly speaking, I wonder where and how the policy-makers, planners, aid-givers, etc. and the implementers intersect at the BoP. To borrow from Julia’s comments about the role of development agencies in micro insurance, perhaps they support market creation by ?plugging in? the funding gaps. Or perhaps more BoP professionals will make it to Rob’s aptly-titled ?show? via initiatives like Generation Challenge, which help to build the capacities of national scientists, among other things. Whatever the case may be, institutional actors, as Nitin pointed out, would do well to create an enabling environment–one in which the values that promote good health, business, education, etc. are preserved. If only it were that simple…

Note: A compendium of the symposium’s proceedings will be available by the end of the year. It should make for interesting reading, so check it out.