Luis Alberto Moreno, Guest Writer

Moreno

Is it ethical to profit by providing essential services to the poor?

Few people object when a private company makes money by selling food to low-income consumers, even though food is arguably the most basic human need. But what about drinking water, electricity, telecommunications or housing?

Government's duty

Many people believe that governments should provide at least some of these services. Some go further and argue that the State should subsidise part or all of the cost of such services for families that have a limited ability to pay.

Many specialists in foreign aid and international development also resist the notion that the private sector can be instrumental to alleviating poverty. They argue that such activity undermines the State's fundamental role as a guarantor of basic services.

In fact, governments that encourage these types of enterprises recognise that public spending and loans from multilateral institutions will never be sufficient to eliminate poverty.

They also recognise that the poor pay a penalty for their situation - in the form of money spent on trucked water, hours wasted on commuting to distant jobs, work days lost to preventable diseases, or high interest rates paid to informal money lenders.

The private sector can help to reduce that penalty by offering goods and services tailored specifically to low-income consumers

This debate was the subject of a seminar hosted by the Inter-American Development Bank (IDB) in Montego Bay last week. The seminar, entitled 'Exploring New Models to Serve the Majority: Public, Private and Civil Society Partnerships', drew representatives from eight countries who exchanged ideas on how these partnerships can solve concrete problems for low-income consumers and producers.

Presentations on the Caribbean's growing microcredit industry demonstrated how this sector is expanding access to vital financial services.

In addition to extending small loans to people shunned by traditional banks, microcredit institutions are now offering savings accounts, debit cards, housing loans and money-transfer services. In some cases, these services are helping to capitalise on the billions of dollars that Caribbean immigrants send home in remittances.

As a result, numerous entrepreneurs are now able to leverage their modest income and grow businesses that generate personal wealth and jobs. The microfinance market has become so enticing that the region's big commercial lenders are starting to offer new products and services geared specifically to low-income customers.

In the housing sector, government programmes to promote land and property registration in marginal areas are having some success, as people with legal title more easily obtain small loans for home improvements.

In Jamaica, private developers are also showing interest in the low-income housing market.

The IDB is now working to encourage real-estate developers to offer housing that is affordableto the working poor.

The Bank has proposed a pilot project that would bring together private hotel chains, construction firms and building societies to build affordable housing for entry-level hotel employees.

The IDB's Private Sector Department would provide financing, but local hotels and builders would carry out the construction, thereby generating local jobs and low-income housing opportunities at the same time.

In telecommunications, the rapid spread of cell-phone networks has revolutionised life for millions of people who never had access to traditional land-lines.

Mobile telephones have allowed the microentrepreneurs to contact customers and access market information much more rapidly.

Here in the Caribbean, Digicel has become a world leader in the installation of low-cost cellphone networks.

Digicel 1.4 m customers

Since it launched its service in Haiti in May of 2006, for example, Digicel has signed up an astonishing 1.4 million customers.

Today the challenge for governments is to scale up these successful experiences by creating an environment that encourages more public-private partnerships that benefit the majority.

Greater competition and regulatory reform can expand the range of services available to the poor and lower transaction costs such as those associated with receiving remittances sent by relatives abroad.

The Inter-American Development Bank's Opportunities Initiative seeks to identify successful examples of this type of cooperation and replicate them throughout Latin America and the Caribbean.

Several sectors discussed at the May 18 seminar show particular promise. These and many other successful experiences can and should repeated.

The IDB is rethinking its entire approach to development with the goal of enabling these types of partnerships, because we are convinced that they can unleash the latent energies, talents, and consumer power of our region's hard-working people.

Luis Alberto Moreno is president of the Inter-American Development Bank.