Dr. Maura O’Neill is Senior Counselor and Chief Innovation Officer and leads Innovation & Development Alliances at USAID
As part of USAID’s 50th Anniversary, the Agency is celebrating Public-Private Partnership Week October 17-21, 2011 to highlight the mutual benefit that development and business have in establishing public-private partnerships (PPP) and to celebrate the 10th anniversary of the Global Development Alliance (GDA) program.
As an entrepreneur several times over, I am always struck by the constraints that hard-working businessmen and women face across the world. Whether you have a small enterprise in Indiana or in sub-Saharan Africa many of the problems are the same. Am I selling a product that people want? Can I find people that will be great reliable employees? Can I buy materials in sufficient qualities that allow me to mark it up and offer the product at a profitable and compelling price to my customers? On that last point, the entrepreneur in a developing country often faces many fewer options to finance their inventory than we have in the U.S. Imagine for a moment the challenge of a small-scale shopkeeper in Africa. To afford his inventory, he must make small and frequent—and ultimately more expensive—orders to his supplier. He can only afford certain non-perishable goods, and rarely in bulk. If he could get access to trade credit, allowing him to borrow from suppliers and pay back over time, then he could grow his inventory, expand his business, and eventually escape the trap of a great business opportunity that never scales. But most of the time he can’t, because of another dilemma:
Imagine now the challenge of the trade creditor. To extend credit to small shopkeepers, she needs to be able to get and monitor repayments. She needs to have a way to enforce or find a remedy if the entrepreneur becomes a deadbeat. However, the costs of doing so outweigh the revenue she would make from providing such small credit. So she often doesn’t. The result is a missed opportunity, multiplied many times over, for fledgling entrepreneurs and trade creditors to mutually profit and generate economic growth. And the family and community income remains stuck at very low levels.
World-class researchers at Innovations for Poverty in Action (IPA) in collaboration with Financial Sector Deepening (FSD), Coca Cola, Safaricom, and Equity Bank, Kenya’s fastest growing bank came up with an innovative way to solve this problem using two technologies. It was just the kind of solution that USAID through its Development Innovation Ventures wants to invest in- ideas that dramatically reduce costs and a solution that could scale to millions of entrepreneurs. I am very pleased to announce today our investment in this partnership that aims to address this problem and unlock the potential of entrepreneurs in the developing world.
The first technology is an electronic inventory management software system developed by a Kenyan software company. The software system provides real-time inventory data and enables efficient, automated, flexible and centralized monitoring of inventory levels and credit repayment histories—this information lowers the cost to small firms of building a reputation for repayment. The second is a mobile phone-based money transfer system, which lowers the transaction costs to the borrowers making repayments. They can send small and frequent payments for the price of a text message.
To see how well the new product works, DIV will fund IPA to conduct a randomized control trial involving 900 Kenyan retailers selling Coke products, of which a third will receive the trade credit. The study will assess the commercial viability of the product and its impact on business development and employment creation.
I am particularly pleased that we are announcing this DIV award during Public Private Partnership Week. As I wrote on this blog earlier this week, partnerships contribute more than just leverage – they also bring to bear the private sector’s creativity, technology, expertise and resources to address tough development challenges and shed new insights and learning about what works. Dr. William Jack, Georgetown professor and primary investigator of the study, explains the implications of this partnership for solving the entrepreneurs’ dilemma:
“If we find sizeable impacts, coupled with sustainable repayment performance, the potential for scaling and adoption by other private sector participants could be an important component of strategies to enable broad-based business development.”
The results, as Jack points out, could mean the arrival of “sorely needed financial services” for millions of small businesses worldwide.
Visit www.usaid.gov/pppweek for continuous updates and new announcements, and to view a live-stream of the October 20th Partnership Forum: The Strategic Value of Connecting Business & Development
To view a map of USAID public-private partnerships around the globe, visit http://idea.usaid.gov/