Finance: Poverty Alleviation with Private Sector Power and Capital | expert network

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Traditional approaches to estimating poverty focus on monetary methods, most notably the World Bank’s International Poverty Line (IPL) of $1.9 per day. Amazingly, almost one in ten inhabitants of the planet still live below that amount. Although poverty essentially encompasses economic elements, it is also related to social factors, such as lack of access to education; health factors, such as hunger or malnutrition; And with physical elements, such as access to electricity, clean cooking fuel, water and sanitation and of course, adequate housing. In addition, it includes cultural aspects such as inequality, social discrimination and exclusion, and even political elements, such as lack of participation in decision-making processes. It is inextricably linked to the lack or absence of fundamental human rights.

So how can we capture these more nuanced elements of deprivation as an effort to understand, address and eradicate poverty? A Multidimensional Poverty Index (MPI), such as that developed by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Program (UNDP), can indicate the extent to which one is poor, and has been adopted There is an official measurement by the UNDP, the World Bank and more than 30 countries.

This multidisciplinary approach is examined in a new report (City GPS: eradicate poverty) Published jointly by Global Insights researchers and data scientists from Citi, one of the world’s largest investment banks, in collaboration with the Oxford SOPHIA team (a non-profit partner of OPHI), this landmark approach is being developed more generally in the world. to help bring. of business and finance.

Examining this granularity takes serious reading and sheds light on a much deeper and more widespread problem than monetary measures alone, such as the 2.65 billion people worldwide who do not have access to clean cooking fuel. , or 2,000 million who do not have access. Basic hygiene.

Poverty alleviation can spur economic growth, create a better workforce, and increase consumers’ purchasing power.

The benefits for the public sector are clear: it allows policy makers to identify the underlying causes of poverty and develop targeted programs accordingly. But beyond the obvious ethical arguments, why does it matter to the business and financial community? Well, quite simply, eradicating poverty can significantly boost economic growth, lead to a larger, better educated, healthier and more committed workforce, as well as increase consumers’ purchasing power. , could create entirely new sources of customers and demand: a virtuous cycle, both socially and economically. Even though companies in developed markets tend to believe that they are not directly affected by poverty, the reality is that they are all, if only at the base of their supply chain.

These questions are also becoming more relevant for investors, given their increasing desire to invest for social and environmental impact as part of the increase in ESG investments. The assets under management of signatories to the United Nations-backed Principles for Responsible Investment now exceed $100 trillion, and investors are increasingly adopting the United Nations Sustainable Development Goals (SDGs) and adapting their investment strategies to the 17 Goals. aligning, the first of which is of course: to eradicate poverty.

Capital is not only there, and ready to invest responsibly, but also wants to demonstrate how to invest sustainably, another area where MPI metrics can be a game changer. The task of the financial community is to raise this capital, creating appropriate investment vehicles that allow this capital to flow, as its lack is largely the cause of the current stagnation.

Blended finance, combining different sources of capital with varying risk appetites, offers enormous potential in the form of innovative new financial instruments such as social, sustainability and KPI-linked bonds. In the latter case (where the achievement of a key performance indicator, which KPI stands for, can effectively replace coupons in bonds), an MPI can help identify the most important KPIs for a program. . Poverty can be further generated and direct that capital to the most effective investment areas.

But it’s not just about the carrot of opportunity; There is also a stick, because over time, if efforts are not made to improve social and economic factors, it can become more difficult, more expensive, or ultimately impossible for companies, states to provide or invest capital. Poverty eradication.

The report identifies a total investment opportunity related to MPI items of $1.6 trillion per year. However, we should not fall into the trap of treating the fight against poverty as a cost; At the macroeconomic level, investments aimed at fighting poverty can have a dramatic impact of between two and sevenfold through their significant multiplier effects on economic growth.

To conclude, poverty is not a niche, isolated or specific problem. It is everywhere, it takes many forms, and it is ruining the lives of many. How many times have we been faced with a trillion-dollar investment opportunity, with ready-made funds, with attractive returns and multiplier effects on offer, that can yield immeasurable benefits to society and significantly improve the quality of life of billions of people. can improve? Worldwide? The fight against poverty represents exactly that opportunity. We have a moral obligation to accept that challenge and build a better and more inclusive future where no one is left behind.

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