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Plenary Session: Ensuring Impact

International Year of Microcredit

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Paul O'Neill, former United States Secretary of the Treasury
Original transcription by Rebecca Kooshakjian

If you examine the economic history of the last 300 years, it's easy to conclude that there's no absolute limit on world economic product. That is, economic prosperity is not rooted in some people getting more by taking someone else's share. Rather, the world economic pie is limited only by our imagination. Human beings applying their imaginations within a framework of social institutions, infrastructure, and resources create value. A necessary ingredient for value creation is a means of providing capital to those who seek to make new ideas into reality. That is, to entrepreneurs. It doesn't matter if a new idea is building a satellite linked to a data processing center in Akron, or putting a dairy cow in an empty barn in Kosovo. In developing economies and even in the more developed world, microfinance plays a crucial role in delivering seed capital to these entrepreneurs...

I've had the pleasure of witnessing the success of these programs in recent visits to developing nations and the real world results are inspirational. For example, in Uganda, I met a woman named Lukia Saminobias, who opened a restaurant with microcredit funding and a lot of hard work. Lukia had lost her husband about a dozen years ago and had to feed her four children without any income. Indomitable, she borrowed $50 from the local branch of a microfinance NGO and used that and subsequent microcredit loans to build two businesses: a restaurant and then a tailoring shop. Now, she employs about a dozen of her neighbors, supports her family, owns a home, and has become a leader in her community. Critical to her success was an advisor from the microcredit finance NGO who taught Lukia about inventory management and pricing...

We have been working with World Bank to create a small business lending program for Africa. Funds would be invested in and loaned to existing local African banks and would also sponsor the creation of new local banks to create a pool of capital these banks would lend to small businesses. Training would also be provided to local bank staff to create the know-how to serve small businesses profitably. These loans would allow African small businesses to expand their operations, invest in capital equipment to raise productivity, and finance imports and exports.

Lukia, the woman I met in Uganda, demonstrates what's possible with microcredit support. As she has grown her enterprises, she's become a small business owner; and a small business development lending facility in Africa will ensure that she and others like her will continue creating jobs in their own communities. Whether in the world's largest economies or in the smallest, in an industrial conglomerate or a small town tailoring shop, jobs are created and lives are changed one at a time, person by person. Microcredit programs enable individuals to lead that change to make a difference in their lives, their communities, and ultimately, their economies. In fact, I believe, that programs that target small businesses can often make a much bigger difference than investments in giant projects because small businesses are homegrown and develop the skills and talents of local people...President Bush has called for the creation of a new instrument to speed economic development, The Millennium Challenge Account, that will reward nations who are taking positive steps to create an atmosphere where their people can succeed. With the understanding that microfinance is only one important element in this mix, The United States Government, under the leadership of President Bush, has made a commitment to promoting microfinance as a means of private-sector led growth and poverty reduction.

Question:
...you mentioned The Millennium Challenge Account. It's an account that President Bush proposed earlier this year, which would grow over the next three years to some $5 billion additional. Could you say just a few more sentences about where you see sustainable microfinance for the very poor within The Millennium Challenge Account?

O'Neill:
Since the President announced this initiative earlier this year he asked Colin Powell and I to work on a regime for how this new initiative should work...We're going to support counties with this money who've demonstrated critical aspects of leadership and I mentioned some of those critical aspects which include—recognizing that some of these things are works in progress but that national leadership that's dedicated to the proposition of a rule of law and enforceable contracts and on an everyday attack on the forces of corruption. Because we do believe that these are threshold principles and that without the national leadership of governments being committed to these principles it's very difficult to get the kind of results that we believe and know are possible when these conditions are present...

Now within this context and to the issue more directly of microfinance and microcredit, I'm a believer. I really do think that as small amounts of money has been made available to the people that I mentioned to you....it's been demonstrated this is a way to develop a society where the other basic conditions are in place that can become the hope of the future. The Millennium Challenge Account will reinforce these ideas.

Question:
Has President Bush seen a microcredit program and if not will you take him to one?

O'Neill:
I don't honestly know, although I suspect he has. But some of you probably know he is going to Africa early in the year. And, believe me, he will have the opportunity to see microfinance at work, to meet the people, to understand the importance of this, idea.

... Have no doubt, this is a person that cares deeply about these issues, and he's the one providing the leadership. The Millennium Challenge Account is his idea of how to break the inadequacy of what has happened in the last 50 years as a lever to demonstrate that we can achieve results and that we don't have to wait forever to see it. This is a results person who cares about people.

Read remarks by Jack Litzenberg