Sitting in a safe house, an ocean away, three former pirates reflect on their past lives as ”footsoldiers” aboard skiffs preparing to attack unsuspecting cargo vessels off the Horn of Africa. Our research team is transfixed by their stories.
We listen as they describe to us how they got involved in the piracy business, how much they earned, how they spent their money and, perhaps most interesting, what they know about their ”masters” – the pirate financiers, investors and negotiators.
These footsoldiers were merely small fish in a big sea. They would be sent out to hijack shipping vessels, which would only be returned to the ships’ owners for a hefty ransom.
Following research for our report “Pirate Trails,” studying acts of piracy off the Horn of Africa, we estimate that between US$339 million and US$413 million was handed over in ransom payments between April 2005 and December 2012. The exact amount is very hard to pin down, given the reluctance of the shipping companies and pirates to reveal the cost and rewards of piracy.
Talk about timing! This week has seen back-to-back initiatives that underscore the growing importance of Islamic finance – and the significant role that the World Bank Group can play in unleashing its potential for financing international development.
This Tuesday, October 29, Prime Minister David Cameron of the United Kingdom announced that the U.K. will become the first non-Muslim country to issue a Sukuk or Islamic bond, with a £200 million issue planned for early 2014. Cameron also announced plans for a new Islamic index on the London Stock Exchange. These initiatives are all part of a grand plan by the U.K. government to turn London into a global capital of Islamic finance.
The very next day, on Wednesday, October 30, World Bank Group President Jim Kim inaugurated the World Bank Global Islamic Finance Center in Istanbul. Envisioned as a knowledge hub for developing Islamic finance globally, the center will conduct research and training as well as provide technical assistance and advisory services to World Bank Group client countries interested in developing Islamic financial institutions and markets.
In my previous blog posts on Global Vale Chains (GVCs), I discussed the important role of lead suppliers in linking up with small and medium-size enterprises (SMEs). Since IFC is planning to work with anchor companies to influence supplier-SME relationships, I’m now looking into what type of anchor leads we should work with: those anchors whose business model is built around a Western-style, arm’s-length relationship, or those whose model and business style is based on joint trust, cooperation and support for their suppliers – using a type of keiretsu model (which seeks to enrich a relationship for mutual long-term benefits).
In other words: Should we work with those anchors that only check the inspection documents of suppliers’ factories, or with those who also examine the physical workplace and social well-being of their employees?
To achieve long-term socioeconomic benefits for all – especially to unemployed, unskilled and untrained workers – working with lead firms who embrace key elements of the keiretsu model simply makes sense in our development context. Such a model provides a much-needed upgrading for suppliers who hire such workers, offering clear benefit to them and their products by positioning them in a more relevant role in the GVC.
When it comes to financing for entrepreneurs, this week marked a major event in the financial industry of the United States with immense potential ramifications for the developing world. This week, the US Securities and Exchange Commission’s unanimously approved rules for equity crowdfunding.
For context, equity crowdfunding allows entrepreneurs to sell equity shares of their company to a group of investors through an internet platform, and is a distinct category of crowdfunding apart from micro-finance (Kiva), perks-based (Indiegogo), and debt (Lending Club). The most notable crowdfunding website is Kickstarter which since 2009 has raised more than $840 million, from more than 5 million people, funding 50,000 creative projects. This platform operates on a pre-sale, perks or donation model where funders contribute funds for a future product, reward, or in-kind. Shares or equity were, until the SEC ruling, not part of the deal.
If we hold true that this SEC measure represents a seismic shift in the way entrepreneurs can raise funds in the United States, the question remains, can emerging markets leap frog the developed world to democratize access to finance for entrepreneurs in their countries?
The answer, we believe, is yes.
The issue of financial inclusion seems to be everywhere – from the World Bank Annual Meetings to the new UN post-2015 development goals. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly making financial inclusion a priority through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim recently launched an initiative “to provide universal financial access to all working-age adults by 2020.”
As we know from the Global Findex, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services as incomes rise among the bottom 40 percent, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.
Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone's sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.
On this year’s International Day of the Girl, I was part of the vast audience in the Atrium of the World Bank who had the opportunity to hear Malala Yousafza, the young activist who is inspiring the world with her bravery and courage, speak about her passionate fight for girls’ education.
Just the night before, she had wowed Jon Stewart on his television show with her poignantly articulate and exceedingly wise responses. Among them, she said: “I believe in equality. And I believe there is no difference between a man and a woman. I even believe that a woman is more powerful than men.”
These words, though spoken by a teenager, could scarcely ring more true amid the battle to eliminate poverty. Women are indeed more powerful than men, in the sense that, when you invest in a woman, you also invest in her family, her community and her country at large.
Financial Inclusion Commitments through the Maya Declaration, the G20 Peer Learning Program, and the Better Than Cash Alliance.
Today at 2 o’clock in the Preston Auditorium, Jim Kim, the President of the World Bank Group – along with Queen Máxima of the Netherlands, the U.N. Secretary General’s Special Advocate for Inclusive Finance for Development – will challenge the global community to focus on transformational change in the level and quality of financial inclusion.
Why financial inclusion? Because it is an enabler for poverty reduction and shared prosperity, as has been recognized by the U.N. Secretary General’s High-Level Panel on the Post-2015 Development Agenda.
Progress in tackling financial exclusion can be accelerated through the current global wave of nation-by-nation financial inclusion targets and commitments; through improved data availability; and through transformative business models for providing financial services.
Photo: When disasters strike – like floods, tsunamis, earthquakes or cyclones – they can cause, not just human suffering, but financial damage. Using well-crafted Disaster Risk Financing and Insurance (DRFI) instruments can help ease the impact of a potential financial catastrophe. Credit: World Bank Photo Collection.
When Tropical Storm Sendong battered the Philippines in late 2011, catastrophic flash floods claimed more than 1,200 lives and damaged over 50,000 houses. In addition to the human suffering, disasters like this often have a devastating effect on the budget of vulnerable countries, leading to the reallocation of scarce resources away from development programs to recovery and reconstruction. Governments also need immediate resources for rapid response to minimize post-disaster impacts.
But the Philippines had taken steps to prepare against such disasters. Just months before Sendong made landfall on the island of Mindanao, the government signed a US$500 million contingent credit line with the World Bank. This provided immediate access to liquidity to help finance emergency response and recovery operations.
Yet questions remain about financial protection strategies and instruments such as this contingent credit in the Philippines. For example: Does a government need to establish prior rules for post-disaster expenditure, or does it otherwise risk a slow and poorly targeted response with low impact on poverty and developmental outcomes? Was contingent credit the most appropriate instrument to finance this risk, or should other instruments, such as insurance, have been considered instead of or in addition to it? And fundamentally: Is disaster risk financing and insurance (DRFI) a cost-effective way of reducing (expected) poverty and improving (expected) developmental outcomes?
We’re now a week away from the Competitive Industries conference on “Making Growth Happen” on October 16 and 17. With more than 20 high-level speakers – including our keynoters Joseph Stiglitz and Don Graves, and with more than 500 internal and external participants already registered – the conference seems poised to be a landmark event.
Through this conference, we aim to start a discussion on a controversial topic in a non-controversial way. Prominent academics, from Stiglitz to Dani Rodrik, have explained that the world is turning massively to industrial policy pushes. The U.S. government, through Graves’ work at the President’s Council on Jobs and Competitiveness, is demonstrating that this movement is also affecting the countries that have the strongest reputation for non-interventionist economic policies. Nevertheless, these approaches are complex and difficult to implement, and they run the risk of allowing rent-seeking behavior and economic distortions without social returns.
We therefore also wanted to hear from other economists, and we launched a call for papers, asking for new ideas and research on the theme of the conference: the “how to” of growth and jobs. We wanted to focus attention on possible lessons that could have immediate policy implications in our country work.
The Selection Committee for these papers was composed of Vijaya Ramachandran of the Center for Global Development (CGD); Shanta Devarajan, the World Bank Group’s Chief Economist for MENA; Mary C. Hallward-Driemeier, the Lead Economist in DEC; Martin Rama, the Chief Economist for South Asia; and myself. We are pleased to announce that the winning papers are:
- Bob Rijkers, Caroline Freund, and Antonio Nucifora, Bob Rijkers, Caroline Freund, and Antonio Nucifora, The Perils of Industrial Policy: Evidence from Tunisia
- Olivier Cadot, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo, Olivier Cadot, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo, Are the Benefits of Export Support Durable? Evidence from Tunisia
- Luke Jordan, Sebastien Turban, and Laurence Wilse-Samson, Learning Within the State: A Research Agenda
- Kenneth L. Kraemer and Jason Dedrick, Who Captures the Value in Technological Innovation? The distribution of benefits in the GMR-based global storage industry
This is a diverse set of papers, ranging from rigorous studies of individual policies to new frameworks for thinking about policymaking.
The first World Bank Competitive Industries conference on “Making Growth Happen” is just two weeks away. There’s been a thrilling addition to the impressive roster of speakers: A Nobel Prize-winning economist, Professor Joseph Stiglitz of Columbia University, has agreed to deliver one of the keynote addresses on Wednesday, October 16.
What makes this particularly exciting is that Stiglitz – a former Chief Economist of the World Bank – will talk to us not only about his prior work, but will be giving us a taste of what’s coming next. His forthcoming book, co-authored with Bruce Greenwald, “Creating a Learning Society: A New Approach to Growth, Development, and Social Progress," promises to hold a wide range of policy implications.
In anticipation of the talk, and judging by his analyses on his website, I thought I’d share some of my reflections on this theme in Stiglitz’s work and on its relevance for us – as well as some questions that I hope we will tackle during the conference.