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.

World Development Indicators 2010 Launch and Open Data Initiative announced April 10, 2010. Photo: Simone D. McCourtie/World Bank (Flickr).

Problems cannot be solved without understanding the facts. Because of this, the World Bank launched a collaborative open data website to promote transparency and informed policy-making in April. The website allows users to download, manipulate, and use data freely. And it is available in several languages.

Pooling all this data in one place is helpful because it allows users to compare things like foreign aid dollars and fluctuations in the poverty rate within a country over a set time period. Or correlations between key health indicators and stats on education, and so on. With these tools development practitioners should be able to learn what is most statistically important to reverse poverty.

World Bank President Robert B. Zoellick discussed the importance of public data access shortly after the unveiling:

Statistics tell the story of people in developing and emerging countries and can play an important part in helping to overcome poverty. They are now easily accessible on the Web for all users, and can be used to create new apps for development.

Later this year, the organization will announce its "Apps for Development Competition," challenging users like you to make new mash-ups and tools for development. Keep an eye out for the announcement!

Now that American taxpayers have bailed out Citigroup, AIG and Bank of America (along with a host of others) and are about to finance a massive economic stimulus bill, what about chipping in for a stimulus package that targets developing economies?

That's what Robert Zoellick, president of the World Bank, advocates in a recent New York Times op-ed. After all, why should the poor in developing countries have to pay the price for a crisis they didn't start?

The United States could begin by pledging some $6 billion of its own $825 billion stimulus package — just 4 percent of what was provided to American International Group. With this modest step, the United States would speed up global recovery, help the world’s poor and bolster its foreign policy influence.

Zoellick expects other countries to follow America's generous example; Britain, Saudi Arabia and others have already expressed interest.

Any global stimulus, Zoellick explains, should support investments in human capital, public-private partnerships to supply communities with basic services, small- and medium-sized businesses, and microfinance institutions that lend to the poor.

The current economic crisis has already pushed an additional 100 million people into poverty, reversing a 20-year trend toward poverty reduction. If a global stimulus package has the potential to boost incomes in the developing world — and attaining all benefits that go along with that, from lower disease rates to less crime — Americans would be smart to consider it.