Tag Archives: donor

Bonds

There has been a lot of chatter in the last few weeks about social development bonds. Basically, they are financial investments that are spent on social-welfare development which pay-out at a fixed point only if there is good evidence that the social-welfare efforts were successful, and not at all if not.  They are currently being pioneered in England by the group Social Finance.

There are two queries that I have about these bonds.  First is that since they are linked to a cost-benefit measurement before paying out they are really a cross between a bond  and a share.  The bond holder will be expected to take great interest in the service delivery etc to ensure a return, but that is hardly current bond holder practice. Second, can the impact of an intervention be determined reliably and even if it could be how would we determine what is a ‘successful’ project?  There is more mileage in the ‘share’ analogy here since there will be a price-over-earnings consideration that is not normally considered by bond holders.

Which brings me to the question of risk.  If these complex bonds, which have share-like dependency on performance, are to be commercially traded, who is going to take on the additional risk?  To make the bond attractive the interest rate will have to be high, and that additional risk will be paid for by the government when it pays out.  The externalities are positive (successful project) but the whole thing rests on the idea that the benefit from private sector involvement is greater than the additional cost to the government in borrowing.  I am not so sure that this argument is sound.

Leave a comment

Filed under Uncategorized

Accountabiltiy

Interesting debate here at LSHTM last night: “Does development assistance help or hinder?” with Rifat Atun, Imperial College London,  Andy Haines, LSHTM and Nuria Molina, Save the Children.

Everyone agreed that there was a need for greater accountability in the aid industry.  Which led to the inevitable calls for more governing bodies, and impartial seers.

But what, then, of the idea that poverty is a lack of choice?  All of this planning is just another imposition on poorer (less powerful) people.  The aid industry has huge power – through NGOs or governments – and is not inclined to give it away to the people.  A selfish bureaucracy reigns.

Would it be so terrible to side-step the bureaucrats and give the money directly to the people who need it?  Not top down, literally a monthly or yearly living allowance in their pockets.  Without all that schmoozing to do and wasting time fighting at summits, aid agencies could focus on attracting people’s custom by offering the best services.  Investors might invest in promising start-ups who could show innovation in the field of helping people.  The people who are supposed to be gratefully receiving the benevolence of the aid industry would have, for the first time, a position of power and a position to choose.  The aid agencies would answer to them.

Radical? Right wing? Not really.  This is about shifting power from the richest to the poorest people in the world.  While we’re falling over ourselves to please donors, do we ever stop to think about how we’re pleasing the people we claim to want to help?

Leave a comment

Filed under Uncategorized

Critical ALNAP

The  Active Learning Network for Accountability and Performance in Humanitarian Action (ALNAP), established in 1997, is probably the most respected inter-agency body looking at accountability in the humanitarian sector.  So, you can imagine how I responded to this update on the Humanitarian Performance Indicators Working Group in their annual report:

Launched in 2009, the ALNAP Working Group  on Humanitarian Performance Indicators set out to provide a forum for members to share their experiences and thoughts on approaches to organisational and programme performance indicators within the humanitarian system. After discussions in the group about the difficulty of establishing a clear direction, it was decided to dissolve the group for the time being and to incorporate discussions on performance indicators into the development of the methodology for the next iteration of ‘The State of the Humanitarian System: Assessing performance and progress.’ In 2011/12, ALNAP will decide whether there is additional value in reconvening the Working Group

If you can stifle your laughter or manage not to choke on your coffee then you’ve done well.  The group convened, discussed difficulties and the dissolved within two years.  Reminds me of another critical issue.

Leave a comment

Filed under Uncategorized

Amoral hazards

In the last post we saw that humanitarian aid agencies are not gathering data on the outcomes of their work (such as years of life saved, average weight increases etc).  Not doing so has some dangerous ramifications, but before looking at these I want to characterize the interplay of motivations that leads to this situation.

Lord Ashdown is clear: donors are as allergic to measuring outcomes as the aid agencies themselves.  In fact, once a contract is determined there is no reason to distinguish between the two tiers; agencies are putting DFID priorities into action.  The distinction between the two tiers should be important when DFID or AusAID or USAID are choosing which agency to fund during a particular crisis.  How do they choose?  They use the process evaluations that the agencies are using to monitor themselves.  For example, who can shift the most food? Who can buy the most tents?

Donors like these types of ‘outcome’ because they are easy to interpret and sell to the public.  They don’t offer budgets for proper monitoring and evaluation and so the agency doesn’t have a choice but to continue with the status quo.  Maybe that’s all, but these agencies have clout (Oxfam, Save the Children) and the British public rarely scrutinize DFID reports to see how that money is being spent.  And yet the agencies don’t say anything, and they don’t put sufficient pressure on DFID to think differently. It is a closed loop: agency and donor benefit when costs are not compared to returns.  The risk of a poor strategy, like wasted food or worse, is borne by the recipients of aid.

This is a moral hazard.  A moral hazard is an economics term for when an agent (person or company etc) behaves differently because they do not bear the consequence of risk taking.

The situation is a bit like the banking crisis.  Aid agencies are ‘too big to fail’, inasmuch as we need them for when the next crisis comes along.  In the banking crisis, it was tax-payers’ money that went via the government to the banks.  With aid agencies, the aid recipients do not themselves contribute money (they’re normally too poor after all) but money is spent on their behalf by governments so that that aid can be given to them (the ‘process’ output often measured).  In both cases there is very little thought to whether or not the bearer of the ultimate risk (tax-payer in the UK, aid recipient in Somalia) is getting a good deal, that couldn’t be better supplied by someone else.  The life-blood of these agencies is recipients in their camps, they need them, but all of the risk is pushed onto the  same recipients.  For example, Oxfam won’t be outcompeted by Save the Children even if Save the Children could actually help 3 times as many people per pound spent in a crisis; we wouldn’t know.  All we know is what they are spending: how many tents? How much food? How many aid workers?  It is the people in Oxfam’s camps (who else!?) will bear the brunt of this inefficiency, alone.

So, no-one in the system need care about the quality/efficiency of services because the risk is passed on to the recipients of aid.  And, like the banks, they probably are too big to fail, indicating the need for tight, independent regulation.  Otherwise there is a run-away feedback of motivation: DFID spend more and the agencies spend more.  Perhaps the ‘good-will’ of the agency members is expected to stop this but, as Lord Ashdown says, the not insubstantial costs of doing so are not covered by DFID grants.  We cannot blame the aid workers themselves because the system has closed in.  However, if they felt the true risk of bad aid delivery then perhaps they’d be complaining with a louder voice.

3 Comments

Filed under Uncategorized