While the effectiveness of traditional aid is heavily discussed at the moment, the position of aid organisations in emergency aid remains undisputable. But even in cases of emergency aid, traditional emergency funds appear to be less effective than private sector alternatives…..

The aid sector is under fire. Its traditional opponents are gaining ground with their complaint that aid doesn’t work and even beneficiary countires like Rwanda doubt the effectiveness of aid just as our new government wants to drastically revise the Dutch aid program. And although the role of aid organisations hasn’t been questioned too much around emergency aid because of their quick response and extensive outreach, a comparison of the two heaviest disaster areas in the world at this time, Pakistan and Haiti, shows that aid organisations are falling short and that they’re being surpassed by the private sector.

Dutch magazine Elsevier published an article on aid in Pakistan which we know all too well. Millions of dollars have been pledged by a range of countries, but most victims haven’t seen a penny of those promised funds because a dreadful bureaucratic procedures. A hassle that, according to some, was intentionally created by the authorities to fill their pockets. Unfortunately, aid in Pakistan is again frustrated by a lot of corruption, politics and abuse of power.

On the other hand, the New York Times came up with a very different story on aid from the private sector in Haiti. Micro finance institutions were heavily hit by the earthquake (600 out of the 1,800 people working in this sector lost their homes and most institutions wrote off more than 25% of their portfolio), but they showed their resilience by re-opening almost directly after the earthquake. Fonkoze, one of the largest for-profit micro finance institutions in the country, wrote off a quarter of its loans, but immediately lended $125 to all it clients. And it reached out to communities with loans of $25, saving clubs and health programs. Ever since, Fonkoze has managed to sign up 3,000 new clients, or to put it differently, it has helped 3,000 victims of the earthquake with rebuilding their life. Moreover, Fonkoze has 200,000 saving accounts, totaling $14 million, which it uses again to lend to new clients.

Although aid organisations operate under extremely difficult circumstances, this must never be an excuse for delays, corruption and abuse of power. Why? Because the private sector has to deal with the same, if not even harder, circumstances. The private sector simply appears to be a more effective vehicle for aid than the traditional aid organisations, sometimes even in the case of emergency aid. Why? Because the interests of the custodian and the beneficiary of aid are inter-linked (economic prosperity and stability), the terms are crystal clear (contractually defined) and corruption doesn’t stand a chance against the market dynamics (margins are simply to low to allow for pocket money).

 

I hope that this is a lesson for aid organisations and for our new government that wants to involve the private sector in the Dutch aid policies.