Examination of Witnesses (Questions 157
- 159)
TUESDAY 28 MARCH 2006
MR JAY
NAIDOO AND
MR ROBERT
ANNIBALE
Q157 Chairman: Good morning gentlemen.
Thank you very much for coming in and giving evidence to the Committee,
which, as you know, is investigating the scope of private sector
development to help poor countries grow out of poverty and the
contribution that the private sector can make. I wonder if you
could introduce yourselves—we obviously know who you are—first
of all, to make sure we have the pronunciation of your names correct
and if there is anything in particular you feel you wish to draw
to our attention, and then we will proceed perhaps to questions.
Mr Naidoo: I am Jay Naidoo. I
am a South African based in Johannesburg. I chair the Global Alliance
for Improved Nutrition, which is a foundation based in Geneva
that does work on fortification, working particularly with the
private sector, to deliver vitamins, minerals and nutrients to
basic foodstuffs. I also chair the Development Bank of Southern
Africa, which is one of the largest infrastructure banks in the
southern African region. Prior to that I was a member of the Cabinet
of Mr Mandela and prior to that I was a trade union leader.
Chairman: Sounds like enough for now!
Mr Annibale: My name is Bob Annibale.
I am the Global Director for Citigroup in Microfinance. I have
worked for twenty odd years around the world, part of that based
in the UK for Citigroup. We base our global microfinance business
out of the UK and we cover some 30 countries from here in that
area. I also represent a number of microfinance networks, such
as the Council of Microfinance Equity Investors. I have also served
at the University of London, including the Institute of Commonwealth
Studies and St Anthony's College, Oxford, the Centre for the Study
of African Economics, and I have looked for many years from a
commercial perspective at how we can expand access to financial
services, particularly through the efforts of microfinance.
Q158 Chairman: Thank you very much.
Obviously you are here because of the background that you have,
which we hope will help to inform and enlighten the Committee.
One of the things I have to say on a personal basis that slightly
concerns me is that, having decided that we ought to look into
private sector development, a number of people, witnesses and
others who have written in, have said, "We are glad the Committee
is doing this because it is becoming important to recognise the
role of private sector development in tackling poverty."
I think there are many of us who have felt that that always should
have been central to solving the problems of poverty, but I just
wondered if, perhaps by way of a start, you could comment on how
the Department for International Development is putting an emphasis
on strengthening the financial sector in a number of initiatives
that they have taken as part of their strategy of poverty reduction.
How do you think you can address financial reforms in ways that
benefit the poorest people in the poorest countries, because that
seems to me the nub of the problem?
Mr Annibale: How we can or how
you can?
Q159 Chairman: How can the financial
sector be reformed in a way that would deliver, and to what extent
do you think what our own Department for International Development
is doing can assist in that?
Mr Annibale: I think the whole
premise that there is a role for the private sector in development,
particularly in financial development, and financial inclusion
is key. I think there has been a great deal of work done by great
innovators in this area, many of them funded initially by donor
programmes. We can go back as far as Bangladesh, the Grameen Bank,
BRAC and other professional units and people who have been innovators
for a very long time around providing financial access to reform
out of many years of support, and I would say the same has come
out of Latin America. We particularly see examples there of successful
institutions which were founded with either donor money, through
bilateral and multilateral funding, as well as increasingly with
private sector funding. We found institutions that came up with
very innovative ways of reaching much deeper certainly than commercial
banks. Commercial banks have to be very humble in this whole context
because they created the gap. Clearly, as banks, we did not reach
the majority of people in the countries where many of us operate,
and we are in 102 countries. We can clearly see in a very large
number of those countries people are extremely under served. The
private sector, I think, brings with this innovation that we see
coming out of sometimes very, very focused, niche players, if
you will, of say the microfinance institutions that we are all
familiar with. We find that we can probably bring to the table
issues that they have not all reached, which is scale. How do
you reach large numbers of people at a low cost in an affordable
way? Most of us are used to having our banking services today
primarily in a hole in the wall. Very few of us go into a branch
and speak to our banker regularly; we do it on the web, we do
it on the phone, we do it by card. One of the issues of bringing
the cost down for the poor is to reach scale. I think one of the
things that the financial sector has is a history of reaching
scale. The other is that an enormous amount of money has already
been spent in the private sector on technology to achieve scale.
It has not been leveraged, however, around this population, and
in some countries that could be the majority of the population,
but we have the technology, we have the product knowledge, we
have experience of developing institutions and microfinance institutions
have found alternative ways of assessing people's risk and capabilities
and with incredibly impressive repayment histories that commercial
banks envy in many countries. But we have not merged these two
skills very well, and I think what is a challenge and something
that we are looking at very closely is how do we link our capacity,
our capital, our franchise, our investors and technology with
the objectives and some of the really specific skills developed
by the microfinance sector to reach much greater access to financial
services for the poor. I think that is an area where DFID has
put some focus, and has been a good area because it has been about
trying to combine some of the skills of these two sectors into
actually saying: what can we learn from what has been done in
the Grameens of the world, if you will. Then you have to merge
these strengths and have them work with the HSBCs and the Citigroups,
and, more importantly, maybe even the large domestic private banks.
I think this is an area which has been focused on, and it is one
where there has not only been a need necessarily for large capital
so much as there has been a need for more research and data also.
There has been a lack of knowledge around the majority, in the
sense of what financial services should be provided by the private
sector, and that is an area, I think, which is being challenged
but is one area where DFID seems to differentiate itself from
many other donors that we deal with or see.
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