Prosperity Unbound

Guest Contribution by Rachel Beach

Microcredit and property rights reforms, how do they connect? The Panel Group was first asked to connect the dots between financial services to the poor and security of property in discussions with organizations such as the World Bank, Gates Foundation and International Trade Agency (ITA). The exercise brought to light a multiplicity of connections, and in the process we discovered that this is actually a very relevant and necessary discussion to promote. Indeed, it is a relationship whose identity is increasingly touched upon in current development debates.

An increasing number of articles and platforms address the importance of securing wealth bound up in physical real estate, small entrepreneurial activity and intellectual property as incentive for further investment and economic growth.  In a recent profiling by Fast Company, June Arunga – celebrated by the magazine as one of this year’s 100 Most Creative People – is asking a very common question but coming up with an answer at once banal and profound:

‘Why is Africa so poor?’ says the Kenyan, from her current home in Ghana… ‘What should be encouraged is the fundamental right of people to own land and the products of their labor, which are then recognized by courts, and can be exchanged at the market.” Asking for aid, she says, is part of the problem. “I doubt there is a parent that raises their child to become a beggar,” she says. “Gain respect. Keep your promises.”

Security and legal recognition of property for the poor is something development agencies are slowly waking up to. It is something De Soto recognized and has been both praised and vilified for – tapping into the wealth of the poor. One side criticizes him for finding another brilliant way to extort the poor, “formalizing their wealth” so it can be taxed by the government and their property sold to developers. The other side recognizes something elemental in development: access to credit and securing of property (i.e. not simply physical real estate but all forms of wealth) are essential. Between these two elements are a host of incentives. And their interplay entertains many fields of study: the psychologies of security and self-improvement, incentive to invest, the dynamic of trust and credibility between a State and its citizens, hope.

The connection between the credit-access and property-security is not merely curious, it is fundamental to development. In fact, it is a symbiotic relationship. Without a reasonable guarantee that property will be protected both from expropriation or theft, the acquisition and maintenance of investments and other assets in a given economy is illogical, as many an African dictator’s holding of properties abroad (read: securer states) and Swiss bank accounts will attest to. On the other side, without access to credit, the ability to invest is severely restricted.

Capitalism has struggled to find meaningful ways to bring the poorest brackets of society (and those operating in the “extra-legal” sectors due to any number of structural and financial barriers) into the market economy. Financial services for the poorer sectors look very different than the services to the wealthy. However, the risks they face, the way they operate, and types of basic services needed should not be treated as an exception to the standard middle-class or wealthy citizen’s fundamentals of wealth management and financial services. Indeed, the middle-class and wealthy are the minority in this world we live in.

Micro-credit is not simply a well-meaning, social business enterprise that should be patted on the back and politely applauded while we go about our business in the real world. Micro-credit is the type of financial service needed for a great majority of the world’s population. It is more than finding creative ways to “help the poor”. Micro-credit allows the impoverished to slowly rise out of a cycle of poverty. Securing of property rights for these small enterprises and private citizens gives owners legal, socially-recognized protection of their newly acquired parcels of wealth, however minute. Any high-school lecture about compound interest will attest to the benefits of savings and investment, however small one’s start. This creation of wealth then slowly builds on itself.

Neither Peru nor Bangladesh are anecdotes (as Peter Shaefer seems eager to claim in his Foreign Policy article). Yunus’ Grameen bank is expanding operations on five continents, including successful start-ups in the United States and the birth of one in Italy. Our work at Panel Group explores insecurity of property rights around the world – as Elena did in Peru during the 1990s – partnering with municipalities and governments to strengthen, streamline, and even create socially, legally recognizable ownership of physical property (i.e. real estate) where none existed before. Without the dual-expansion of financial services for the poor and security of their assets, the poor will remain in a cycle of poverty.