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26 Jan 2010 : Column 202WH—continued

10.22 am

Mr. Andrew Mitchell (Sutton Coldfield) (Con): It is a great pleasure to appear under your chairmanship once again, Mr. Gale.

I should perhaps explain to the House that my hon. Friend the Member for Cotswold (Mr. Clifton-Brown), who is the shadow Secretary for international development and for trade, is on a campaigning visit to Sunderland and I am appearing, as it were, in his place.

First, I wanted to respond to the point made by the hon. Member for Berwickshire, Roxburgh and Selkirk (Mr. Moore), the Liberal spokesman, about Haiti. I hope that we will be discussing Haiti again in the House before too long and I completely echo the hon. Gentleman's sentiments. Having said that, of course there will be a time for us to look at the way that the international community has co-ordinated the relief operation in Haiti and at the lessons that need to be learned from that operation. Indeed, my party has made it clear that if we were to win the next election, we would immediately set up a review of the way that Britain makes its contribution in this area of relief work. In the much-used words of Douglas Hurd, it is an area where Britain punches "above our weight" and we have a very big contribution to make, to ensure that the necessary lessons from the tragedy in Haiti are learned.

For now, of course, the main effort must be on bringing some hope and relief, particularly in providing shelter, food and medicine for the poor people in Haiti who are still, so many days after the earthquake struck, in desperate conditions. I am sure that we are all immensely proud of the contribution that British fire service personnel and NGOs are making to that effort.

Mr. Moore: The Minister would be expected to praise the staff of the Department for International Development. None the less, may I suggest that we add them to the list of staff that the hon. Gentleman has just cited, to pay tribute to the work that they are doing on the ground in Haiti too?

Mr. Mitchell: The hon. Gentleman is absolutely right. I am usually the first to pay such tribute and I happily do so again today.

I want to refer to the speech by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) on the very important area of microfinance. Together with the hon. Members for Mid-Dorset and North Poole (Annette Brooke) and for Berwickshire, Roxburgh and Selkirk, he has done a great service to the cause of microfinance, highlighting the importance with which it should be viewed. It is perhaps not surprising that my hon. Friend, who is the Member of Parliament for the centre of the world's financial services industry, should speak with such eloquence and knowledge on this vital extension of financial services to some of the poorest people on our planet.

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In his opening remarks, my hon. Friend made some general comments about the support for development in the downturn that we are experiencing at the moment and about the countries that Britain seeks to support, which was a point picked up both by the hon. Member for Chorley (Mr. Hoyle) in an intervention and by the hon. Member for Berwickshire, Roxburgh and Selkirk, in a comment about China.

I just wanted to say a word or two about my hon. Friend's comments about the countries that we support. As our right hon. Friend the Member for Witney (Mr. Cameron), the leader of the Conservative party, has said-I paraphrase his remarks-"At a time of economic hardship, now is not the time to turn our back on the poorest in the world, who are hit first and hardest and who are least able to cope with these circumstances, but to reaffirm our promises to them." I am sure that my hon. Friend and indeed the whole House would join me in saying that those sentiments are absolutely right. In view of the economic climate that my hon. Friend rightly identified, it is worth making the point that this approach to these matters is not sentimental but very hard-headed, which explains why, in these times of economic difficulties, we say that we should ring-fence the international development budget and reaffirm our commitment to reaching the target of giving 0.7 per cent. of gross national income to international development by 2013.

There are, above all, two reasons why my hon. Friend referred to the importance of giving this support. The first is that it is morally right to do so. Our generations have a real opportunity to make a big impact in this area. Because of globalisation and because of what we know, the discrepancies of opportunity and wealth around our world today are obscene and we have the ability to do something about those discrepancies. That is, if you like, the moral case.

However, the second point is that it is absolutely in our national self-interest to support strongly the cause of development in some of the poorest and most difficult parts of the world. I want to make that point very clearly; this is not only an issue of morality, although that in itself is a sufficiently important reason for many of us to give support, but an issue that is of absolute importance to our national self-interest.

The document that I have given a hard copy of to the Minister of State is the Conservative party's Green Paper on development, "One World Conservatism"; I should point out that he is handling it with a pair of tongs, as it were, in his seat. I hope that it eloquently makes the two points that I have made about the importance of international development. However, it also makes the point that we will only maintain public support for this spending if we are able to demonstrate through independent evaluation that the money is really well spent-that for every 100p we take from the hard-pressed British taxpayer, they are receiving £1 of real value. Independent evaluation, which I have been banging on about tediously for the last four years, is absolutely essential if we are to maintain public support for this vital development budget. We need value for money and transparency. Transparency is important, because we need to hold ourselves accountable not only to the British taxpayer but to the poor people in the developing
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world who we are trying to help. That is why transparency, as well as value for money and independent evaluation, is so vital.

The second point that my hon. Friend made in his opening remarks was about the countries to which we are giving support. I think that DFID is currently giving support to 102 countries around the world. We have made it clear that if we were to win the general election, we would immediately set up a review of every country that is receiving support from the British taxpayer through the development budget, to ensure that that money is well-focused.

My hon. Friend was asked about India after he mentioned China, which the hon. Member for Berwickshire, Roxburgh and Selkirk discussed as well. The Conservatives said some time ago that if we are elected, we will stop aid to China, which recently spent £20 billion on the Olympics and which, thanks to the international trading system, is roaring out of poverty. India seems to be a different case. There are, after all, more poor people in India than in all of sub-Saharan Africa. It is a country with which we have deep historical links through the Commonwealth, and it is in a different position. In the event of a Conservative victory at the election, that would be a matter for discussion under review.

Turning directly to my hon. Friend's comments about the importance of microfinance, I associate myself entirely with what the hon. Member for Mid-Dorset and North Poole said. She and my hon. Friend spoke eloquently about the vital importance of microfinance in poor countries as well as in less poor ones, where the principles of microfinance can be enormously valuable. Not only does it help people to help themselves, as my hon. Friend said, but it goes directly to women. As I hope to explain in my remarks, it is women in every sphere of activity who bear the brunt of poverty throughout the developing world and who are particularly helped by microfinance.

In terms of our support for microfinance, I draw my hon. Friend's attention to page 40 of the Conservative Green Paper on international development, where we say strongly that the lessons learned about how to make microfinance as effective as possible are important, and that we will embrace them and do everything that we can to help spread microfinance's beneficial effects.

Professor Yunus, the father of microfinance, first became heavily involved in it three decades ago and founded the Grameen bank. Some 160 million people in the developing world now benefit, but I should point out that according to a recent World Bank report, 3 billion people in developing countries have no access to formal financial services. We need to ensure that we do everything possible to spread that access to help people increase their incomes and improve their lives.

In his excellent book "Banker to the Poor", Yunus wrote about how he started the approach that led him to set up his bank, which demonstrates many of the most important aspects of how microfinance works. I had the pleasure of spending a day with Professor Yunus some time ago at the Grameen bank in Bangladesh, where I saw many of the characteristics that have made the bank and his approach to microfinance such a tremendous success. The bank has 6.5 million borrowers, 96 per cent. of whom are women, lends more than £2.5 billion and achieves a recovery rate of 98 per cent. Before the current financial crisis, I used to point out
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that that was a higher recovery rate than that of Barclays bank, but in view of recent events, I think that it is no longer appropriate to make that point.

My hon. Friend made the critical point that microfinance helps people to help themselves, empowers women, is self-sustaining and provides financial services to the poorest. He also said that it underlines an eternal truth about development: although conflict, dysfunctional societies and bad leaders are the key reasons why people remain mired in poverty, wealth creation, private enterprise, property rights, the rule of law, contracts and an independent judiciary, as the Liberal spokesman also said, all help lift people out of poverty.

My hon. Friend's point about the importance of free trade reminds us that we should not give up on the Doha trade round, which was originally conceived in the aftermath of the terrible events of 9/11 and was always meant to be a development round. We are close to making significant progress on it. In my view, Ministers should redouble their efforts to ensure that the Doha round gains are not lost. There is no authoritative survey that does not show that success in the Doha round would make everyone in the world-rich and poor alike-richer. Perhaps the Minister of State, in replying to this debate, will say a word or two about where the Government stand in respect of the Doha round. The negotiations are carried out not bilaterally but through the European Union, of course, but I am sure that the House would welcome his comments on where we are.

Some of us have seen microfinance in action. In Bangladesh, I saw how microfinance can reach even the poorest of the poor with considerable effect. I saw the work of BRAC, still the biggest non-governmental organisation in the world. A couple of weeks ago, in Athar village in the Punjab, I saw the direct results of microfinance on the community. It has allowed the start-up of small enterprises, some of which I sampled, and lifted the standard of living in that poor community. There is now clean water for all the local population, and 100 per cent. of the children attend primary school. That is a direct effect of the microfinance approach.

Other innovative approaches are being taken as well, not least by RESULTS UK, a brilliant British organisation. offers peer-to-peer loans to entrepreneurs in developing countries. It is a model of transparency and public engagement. Some $170 million of loans have been made through Kiva, with 661,000 lenders and 290,000 recipient entrepreneurs. It achieves a repayment rate of 98.27 per cent., and 83 per cent. of loans are made to women. Hon. Members might be interested to know that that remarkable endeavour's youngest lender is one year old and its oldest is 101.

Through, members of the public can choose where they invest, including in microfinance. My hon. Friend referred to the Arcubus bond, and the Liberal Democrat spokesman mentioned the CDC announcement and the recent International Finance Corporation aim to raise money for microfinance. A bond issue targeted at Japanese investors to support microfinance programmes has made $300 million. The IFC is considering raising funding in the European bond markets as well. New delivery technologies such as branchless banking through mobile phones are highly
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innovative efforts to take forward the microfinance agenda and reach the poorest in communities throughout the world.

I congratulate my hon. Friend the Member for Cities of London and Westminster on an interesting contribution to an important debate and on reminding us of the importance of the international development budget and the absolute importance of the private enterprise, free market development agenda, which is so important in helping people lift themselves out of poverty.

10.38 am

The Minister of State, Department for International Development (Mr. Gareth Thomas): In the usual way, I congratulate the hon. Member for Cities of London and Westminster (Mr. Field) on securing this debate. I also congratulate my hon. Friend the Member for Chorley (Mr. Hoyle), the hon. Members for Castle Point (Bob Spink) and for Mid-Dorset and North Poole (Annette Brooke) and the Opposition spokesmen, the hon. Members for Berwickshire, Roxburgh and Selkirk (Mr. Moore) and for Sutton Coldfield (Mr. Mitchell), on their contributions.

I will reply to a number of the observations made by the hon. Member for Cities of London and Westminster before I come to the substance of his remarks. I have been interested in microfinance for a considerable period, starting in part with my chairmanship of the UK Co-operative party. The Co-op party has a long-standing interest in credit unions and social enterprises that can help enable access to low-cost finance for people in the UK.

The hon. Gentleman made some interesting remarks that, in a sense, highlighted the continuing potential for microfinance, not only in developing countries, but here in the UK. I hope he will forgive me if I draw the attention of my right hon. Friend the Secretary of State for Work and Pensions and her ministerial team to his remarks about the potential for microfinance in the UK. For a short period, I was responsible for consumer affairs as well as development-an interesting mix if ever there was one-and as part of that I considered what else we could do to crack down on illegal moneylending. That involved helping to ensure not only that responses from the police, housing associations and so on were clear and united, but that effective alternatives to the use of illegal moneylenders became increasingly available. I was delighted that the Treasury made additional finance available for cheap loans, but I suspect that my right hon. Friend will be able to do more justice to the potential for microfinance in the UK than I can during this short debate.

Some time ago, I had the privilege of meeting Professor Yunus and sharing a platform with him. There is no doubt that the work of the Grameen bank has inspired a considerable interest in microfinance and its potential across the developing world. As other hon. Members have described, microfinance has been taken up by organisations such as RESULTS UK, which does an excellent job.

However, I must part company a little with the hon. Gentleman: I do not think there is a choice between aid and trade. That is a false choice. There is both a role for aid to encourage trade and a role for trade-indeed, trade must be the long-term route out of poverty for
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developing countries. We can use aid budgets to do many things to help accelerate the development of trade, and we are considering exactly that. I would not want the House or those who follow our proceedings to run away with the notion that the Department for International Development does not face tough questions. We are regularly examined by the Public Accounts Committee and the National Audit Office, and there are a series of different ways in which our various programmes are evaluated. As a Minister in DFID, I have certainly never felt that I am not under scrutiny all the time-I know my officials have a similar view.

The hon. Gentleman raised the interesting subject of the debates taking place in some quarters about whether we should continue to give aid at current levels. The hon. Member for Sutton Coldfield pointed out that, of course, there is a very strong moral case, of which Haiti is the latest reminder. However, in the past five or 10 years alone, the notion that we can stay within our island and not worry about what happens in countries around the world has disappeared, if it were ever true before.

The hon. Member for Castle Point brought home the truth of that with his reference to Afghanistan. We know that drug lords in Afghanistan have occasionally been the only source of credit in local communities and that 90 per cent. of the heroin that ends up on Britain's streets starts off in the opium poppy fields of Afghanistan. To bring us back in a circular route to the debate, the microfinance programme that we are supporting in Afghanistan, which has helped more than 440,000 Afghans to get access to loans, is just one way that aid for another country can help to make a difference and protect the UK. So there is both a moral case and a case in terms of our self-interest for continuing to invest in development assistance.

The hon. Member for Cities of London and Westminster made a number of comments about Bangladesh and the size of the aid programme there. I do not accept that our aid programme in Bangladesh is in some way unaccountable, but I accept his point that we must keep the number of programmes we have under review at all times. I will obviously draw his remarks to the attention of the Under-Secretary of State for International Development, my hon. Friend the Member for Worcester (Mr. Foster), who has responsibility for our programmes in Bangladesh. However, I suspect that the nature of the hon. Gentleman's visit meant that he did not have a chance to have a lengthy conversation with staff in Bangladesh. That might have given him more reassurance about the way in which we are keeping what we do in that country under close review.

Nevertheless, I welcome the opportunity that this debate provides to raise awareness of the difference that microfinance can play in transforming the lives of so many of the world's poorest people. Roughly 2.7 billion people have no access to formal financial services and instead depend on an income that is both irregular and unreliable. As other hon. Members have said, those people sometimes also depend on risky informal financial services, such as rogue moneylenders.

Across Africa, fewer than one in five people use formal banking, and in countries of particularly acute poverty the figure is fewer than one in 10. As other hon.
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Members have said, that makes it harder for such people to start businesses or to contribute to their country's economic growth, and it makes them particularly vulnerable to natural disasters. For many people, a small loan and a savings account can make all the difference. As we have said, access to those things can prevent a farmer from being forced into opium cultivation, a child from being sent out to work instead of getting a proper education or, indeed, a local business from having to stay small rather than expand and create more jobs.

We need to recognise the potential and the limits of microfinance. Microfinance is not the only type of financial service that we need to increase the reach of, but nevertheless it is an important one, which can lead us to recognise that poverty and risk do not have to go hand in hand. The real challenge for those involved with microfinance is one of sheer scale, and in order to achieve depth and breadth of reach a number of things must happen. First, banks and investors must get more involved in the sector. In recent years, there has been some positive progress in that direction and many international banks have already increased their participation in the sector-more than 100 microfinance investment funds have been set up-but we need more of that to meet the level of demand.

Secondly, Governments and regulators have a responsibility to remove any unnecessary policy or legal barriers to the expansion of financial services. Through our funding of the financial sector reform and strengthening initiative, DFID is providing help on regulatory issues in the financial services sector to more than 60 countries. Governments are also in a position to test new technology, such as using branchless banking to pay wages and pensions, which can help the extent of the reach of microfinance initiatives. There is no reason why branchless banking-perhaps using mobile phone technology-could not be extended to microfinance. Customers would benefit from the speed and ease of access, and banks themselves would enjoy greater flexibility.

Thirdly, Governments can encourage the private sector to set targets for extending access to financial services to more poor people. For example, in India, just four months after the Government had urged banks to offer no-frills accounts to low-income people, 500,000 such accounts had been opened. That needs to be replicated across the developing world although, of course, we must recognise that no two countries have identical requirements and the solution must always be tailored to meet specific needs.

Fourthly, we need to teach more people about financial services. Some people can feel ill-informed, anxious or confused when dealing with financial matters. That is particularly relevant when talking about people in the developing world who may be using financial services for the first time. However, it is also relevant to people here in the UK, which is one of the points the hon. Gentleman implicitly made. With regard to the developing world, that is why we set up a financial education fund over a year ago to help people across Africa to understand better the financial choices available to them.

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