Leonie Industries: USAID/DEVEX Winning Essay

Innovative & Insightful Ideas on the Future of Development

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Leonie Industries employees are among six winners of a USAID and DEVEX essay contest which called for innovative and insightful ideas on the future of development. Their essay (reproduced below) has been published in a new USAID publication ahead of the inaugural USAID Frontiers in Development Forum on the campus of Georgetown University in Washington DC, June 11-13, 2012.

Leonie Industries Winning USAID/DEVEX Essay:
Global Tech + Local Trust: A Formula for Sustainable Development

Glen Scott Allen, PhD, Director of International Development Projects, Leonie
Michael Joseph, Chief of Staff, Business Development, Leonie

Mrs. Khan awakens at 4:00 am on a cold morning in her modest house in a remote province of Pakistan. This is the day she makes her monthly trek to a distant market to spend her husband’s remittance check. It’s a difficult journey with a long list of possible obstacles. Will the bus arrive on time? Will it break down on the road to the market? Will there be papers to fill out that she cannot read? If any of a dozen things go wrong, she will be struggling to survive until the next month, and the next journey.

On her way to the bus stop, Mrs. Khan passes a concrete shell of a building. Originally intended to be a local market and exchange, a place where people like her could reliably receive remittance checks, its construction was halted years ago. Its demise was the result of a tangled web of shrinking budgets of foreign aid agencies, the corruption and inertia of the national government, and the local innate distrust of projects created and managed by foreigners.

In ways numerous but not always obvious, Mrs. Khan’s stressful journey and that unfinished building are two symptoms of the same problem.

Mrs. Khan is just one of the millions of people in developing countries who depend for their very survival on remittances. The process of sending, receiving, and using these funds is fraught with difficulties. And while these remittance and Diaspora networks have existed for hundreds of years, the technology supporting them really hasn’t changed. In most cases, a husband or brother or child still puts hard currency into a postal system and hopes for the best.

There are alternatives. The hawala (“transfer of financial obligation”) networks that exist primarily in the Middle East, Africa, and South Asia are more flexible but fraught with their own problems. The strength of hawala networks is that they don’t depend on the actual transfer of hard currency; rather, a remitter may simply establish an “obligation” with a local hawaladar (hawala broker), who then “transfers” that obligation to another hawaladar in the remitters’ native country. The in-country representative can then “pay out” that obligation to the recipient through cash, goods, or services. These networks are especially dependent on trusted ties between families and neighbors, and can sidestep barriers such as governments, banks, and currency transfer fees. However, precisely because they sometimes operate outside the boundaries of governments and businesses, they are unregulated, and therefore come under suspicion of trafficking in illegal transactions—especially as funding for terrorist organizations.

The advantages and challenges of diaspora/remittance/hawala networks are deeply related to the issues faced by any international development agency that seeks to deliver basic health, education, sanitation, or other services to remote populations. However, new technologies could prove key to solving not only Mrs. Khan’s problems, but also those of development agencies working to improve the quality of life for her and millions of people like her.

It is clear that diaspora networks play an important role in the support of their families and communities. According to recent World Bank studies, reported remittances from diaspora networks reached $351 billion in 2011, with untold additional billions in goods and services.[1]
Recognizing the power of such networks, USAID recently established the Diaspora Networks Alliance (DNA), which it describes as a framework that enables partnerships—between USAID, other donor organizations, the private sector, and diasporas—built on “knowledge-generation, engagement, and operational work, with the purpose of promoting economic and social growth in the countries of origin.” The financial potential of these networks is explicitly recognized by USAID as one that could potentially change the very nature of international development models: “Of all of the capital that flows abroad from the United States, an estimated twenty-five percent or more are recorded remittances, which makes them second only to private capital flows ….”[2]

Currently, however, diaspora support programs are generally unorganized, informal, and disconnected from long-term, sustainable development strategies, and none suggest a link between family remittances and local development goals. Many of the diaspora engagement models rely on existing international financial infrastructures, such as brick-and-mortar banks, national ministries of finance, and large international monetary agencies. Each of these enabling structures brings with it a set of limitations and distrusts. Additional problems include lack of grass-roots engagement, discontinuity between micro- and macrodevelopment planning, insufficient knowledge of local needs, research data that is never shared with local professionals, and even local attempts to malign or undermine projects by forces hostile to “foreign intervention.”

Recent innovations in communications technologies offer an excellent opportunity to effectively engage diaspora networks in these larger issues of development programs while maintaining their local authenticity. The goal is creation of a self-sustainable, long-term model that can be replicated for different diaspora networks across the globe—a model that leverages pre-existing streams of money, information, technology, and, most important, trust. We call such a model the Facilitated Diaspora Network, enabled by the latest Internet and telecommunications technology, initiated by international development entities, but then handed off to members of the specific diaspora network to manage and maintain.

The first step in creating a Facilitated Diaspora Network is the establishment of a web-based “hub”—a clearinghouse website to be used as a central point of entry and information for current remitters, including family, community, and third-party donors. Such a website would include background information about a community, forums for discussions about local issues, a catalogue of local development needs, links to international development agency efforts and resources, and tools to enable contributions directly to specific family recipients and development projects.

The second step involves utilizing the hub as a centralized link between remitters/donors and receivers/projects, and would draw on innovations in mobile communications that enable direct monetary transfers, by-passing many of the obstacles encountered not only by Mrs. Khan, but by the aid agencies as well. An estimated 5.5 billion people in the world already have cell phones, and recent innovations in microcell technology, smartphone capabilities, and mobile- money support have demonstrated that mobile device-based approaches are effective even in some of the most remote areas of the world. The GlobalGiving and Aceh Besar “Midwives with Mobile Phones” programs are examples of this success.

In its simplest form, such a network would allow a remitter to sign into an account at a “hub” website, make a payment to the network’s central fund, and designate a family recipient. The recipient would receive notice of the transfer, and their mobile device would store the information, which could then be used at a market or with a local agent to pay for goods and services. The facilitating entity would handle the actual transfer of funds. As an option, the family remitter could designate a portion of the donation to a particular local aid project which, depending on the project’s scale, might be overseen by an international or a local entity. For community-based remitters and third-party donors, the hub would serve as a convenient portal for making contributions (similar to GlobalGiving) and accessing real-time information about development progress. For the remitter and receiver, the process would be painless, efficient, and reliable. For donor and recipient countries, and the facilitating international entities, it would be centralized, accountable, and transparent.

Still, even with such a streamlined remittance/donor process in place, one might ask how the remitters can be convinced to divert even a small portion of their limited funds to local rather than family aid. The key will be making a clear case for how local development is aid to their families: a market that makes Mrs. Khan’s long trek unnecessary, a clinic that improves her health security, or a school that educates her children. For many remitters, such contributions will fulfill religious obligations for charitable giving. In other cases, the donations might go to local businesses, serving as investments offering future returns. Additionally, a portion of the facilitating entity’s revenue would be re-invested in the development projects, providing a sustainable base of funding. Taken together, these factors result in diaspora participants who are invested in aid efforts as their projects—to an extent they never have been for projects conceived and financed entirely by foreign donors.

Admittedly, there are challenges to this approach, such as concerns about the diversion of funds, and the differing monetary exchange, as well as the security policies of the donor and recipient countries involved. However, there are several reasons both types pf nations would welcome and even actively support such networks. Diaspora “hubs” will allow for much greater oversight and transparency than currently exists, particularly with the essentially invisible hawala networks. Money  that enters the facilitated network is not available for the illegal networks. Perhaps most important, many nations have declared their desire to dramatically increase remittances and are fully aware that they receive no taxes or fees from the invisible transfers, suggesting they will be highly motivated to work with facilitating agencies to overcome these and other regulatory and security challenges.

Ultimately, diaspora and hawala networks survive on the trust they engender among their constituencies:
·       They comprise relatives, neighbors, and acquaintances.
·       They are granted credibility by word of mouth among networks of people who know one another.
·       They are often a source of pride among the people from the village, town, or region they serve.

Therefore, any model that seeks to capture their dynamism and flexibility must recognize the importance of maintaining their specific and local authenticity.
By tapping into the philanthropic potential of diaspora networks, enabling them with innovative technologies, and coordinating their efforts with those of international aid entities, we believe it is possible to expand and strengthen community relationships, engender local and sustainable development efforts, increase the funds available for such efforts, and create a new and stable model of international development.

[1] Sanket Mohapatra, Dilip Ratha, and Ani Silwal, “Outlook for Remittance Flows 2012–2014: Remittance Flows to Developing Countries Exceed $350 Billion in 2011,” World Bank Migration and Development Brief 17, http://siteresources.worldbank.org/TOPICS/Resources/214970-1288877981391/MigrationandDevelopmentBrief17.pdf.
[2] USAID fact sheet, “Diaspora Networks Alliance: Framework for Leveraging Migrant Resources for Effective Development & Diplomacy,” http://pdf.usaid.gov/pdf_docs/PDACM860.pdf.