Critics say developed countries have broken promises for international aid. Photo: UK Department for International Development (flickr)

With cause for concern about the future of international aid amid the financial crisis faced by rich countries, some developing nations find microfinance playing an increasing role in fueling local growth.

At last week's 4th High Level Forum on Aid Effectiveness in Busan, South Korea, powerful advocates including U.S. Secretary of State Hillary Clinton and U.N. Secretary-General Ban Ki-moon pressed for continued financial assistance from rich countries and better transparency for aid programs, according to the Washington Post.

But is "continued assistance" enough? Is it the kind of assistance that will lead to actual change? The European head of Oxfam International says the EU failed to take a leadership role at the summit, despite previous promises of aid allocation. Natalia Alonso says “donors are not on track to meet the Millennium Development Goals. In 2000, all rich countries recommitted to spend 0.7 percent of their national income as overseas aid by 2015, but a number of EU governments, such as Italy and Germany, are pretty far from this.” Oxfam found that amid the economic crisis, EU overall aid last year was just 0.43 percent of income, leaving a $65 billion shortfall to 56 poor countries.

It may signal more trouble for traditional international aid, the flow of cash or food aid transfers from richer to poorer countries. The economic crisis and criticisms of the summit leave the trajectory of aid in question.

As the world's wealth shifts to developing nations, some Western leaders want to be sure their aid is paying off. Former British Prime Minister Tony Blair wrote in a Washington Post opinion piece that “leaders of emerging economies must ensure that they are able to attract high-quality, sustainable investment.”

World Bank president Robert B. Zoellick also points to this shifting paradigm, stating that “the time has come to envision a world “beyond aid” – a world where the shift is from the paradigm of charity to one of mutual economic benefit.”

One way in which some developing countries are expanding local markets in the era of questionable international aid is through successful microfinance programs. While the long-term solvency of some forms of microfinance are in question, other examples point to successes engineered by both developing countries’ governments and private local banks.

Government funded cash-transfer programs in Mexico and Brazil have been recognized as quite effective at reducing poverty and spurring local market growth, The New York Times reports. These programs provide small infusions of capital to low-income residents for both entrepreneurial and cost-of-living expenses, feeding local economies. Indonesia’s state-owned Bank Rakyat has successfully demonstrated similar results in recent years through a mixed savings-credit model, according to Elisabeth Rhyne in her article, “Five countries where microfinance works,” for China Daily.

Rhyne also highlights Bolivia’s BancoSol, a for-profit bank dedicated to serving the poor that operates within a strict regulatory framework. Competition among similarly modeled microfinance banks has spurred growth with low interest rates in Bolivia. Cambodia and Mongolia are two countries where replication of the Bolivia model has allowed microfinance banks to be “market leaders and innovators,” according to Rhyne.

In Columbia, where 96 percent of businesses are small, demand for microfinance has grown fast in the years of the global financial crisis, according to IPS news. Microfinance in Columbia “grew at a steady rate of 15 percent between 2007 and 2010," states a Visión Económica study. Small companies fuel demand for microfinance because "they generally do not meet the requirements set by commercial banks,” Jorge Varón, the manager of the development credit fund of the Colombians Supporting Colombians (CAC) programme, told IPS. And in a country with so many small businesses fueling market growth, this is a divergent route from typical aid pathways.

The financial crisis hasn't killed international aid. But it has people talking about what's next. Microfinance looks like a big part of the answer.

Erik Mandell is a graduate of Middlebury College in Vermont. He is currently pursuing a master's degree in public administration and global leadership at Portland State. Read his other contributions to Global Envision.

A man cooks over a wood-burning fire in Kibera. Over 1 million working poor live in Kibera, with few opportunities to make a comfortable living. Photo: Crissy Olson (flickr)

Even UN Secretary-General Ban Ki-moon was surprised by the large number of people who greeted him in Kibera, the largest slum in Nairobi, Kenya. But his surprise quickly became concern when he was told so many young people came to see him because they couldn't find work.

Inspired to act, Ban donated $100,000 of his own money to a UN-sponsored program that helps unemployed youth acquire vocational skills like carpentry, masonry, electrical wiring, plumbing and management. It's called the Youth Empowerment Program (YEP).

Students learn their trade through hands-on activities as they build a training facility that will allow YEP to expand its participant ranks. After graduation, many of the youth are placed in jobs or apprenticeships with private companies or UN-sponsored construction projects in Kibera.

The training program is part of a greater state- and UN-sponsored initiative to upgrade services and infrastructure in Nairobi's slums. Youth skills training also complements another UN-funded effort, the Urban Entrepreneurship Program, that helps to establish construction collectives and aid them in bidding on contracts.

Linus Sijenji, a youth coordinator in Kibera, notes that the combined efforts of the two programs are inspiring the youth and have opened up opportunities for them.

Our aim is to form our own companies that could competitively bid for such contracts on equal level with big companies. Much as this might seem far fetched, the idea is viable, especially with more training opportunities and resources like bank loans.

If these programs work as advertised, Ban will get an even bigger reception next time he comes to Kibera.

Keeping with a UN target of committing 0.7 percent of national income to alleviating poverty and hunger, Jose Luis Rodriquez Zapatero the prime minister of Spain has pledged 1 billion euros to strengthen food security around the world.

UN Secretary-General Ban Ki-moon says the global food crisis has increased the number of hungry people to "an intolerable 1 billion."

Spain is giving a billion for a billion. Check out how other countries measure up at the Millennium Development Goals Monitor.

UN Secretary-General Ban Ki-moon. Photo: Thomas Hawk (flickr)

Leaders of the world’s 20 major trading countries will meet November 15 to hash out reforms to the international financial system in the wake of an economic crisis that has shattered stock markets and balance sheets.

The BBC says Europe will make the case for new rules on banking supervision and will propose an IMF bailout package, but it points to the important role of China as well as emerging economies at the table.

UN Secretary-General Ban Ki-moon plans to attend the meeting, and says he'll urge leaders to focus on the plight of the world's poor. "We must do everything we can to alleviate the impact of the economic crisis on world's most vulnerable people," Ban told reporters.