Traditional approaches to foreign aid versus innovative ways to tackle development at international level

Abstract

The history of foreign aid starts in colonial times when the dominant empires provided grants for infrastructure development or food aid to their colonies. The aid flows intensified after the World War II, with the successful implementation of the Marshal Plan in Europe. Despite huge amounts of money that were given especially to the African continent, results have failed to appear, leaving the continent even poorer than before. Therefore, the objective of the thesis is to understand what are the typical approaches to foreign aid and to explore the alternatives, putting an emphasis on microfinance. With the help of statistical indicators from the World Bank and Mix Market data base, an analysis was made about microfinance´ impact in four countries, namely: Bangladesh, India, Kenya and Uganda. We find that microfinance is important for the economy of all countries analyzed in the thesis. The sector outreaches directly and indirectly a significant part of the population. Besides loans, savings seem to be more significant to the African countries, rather than to the Asian ones. The Net ODA received, as a percentage of the Gross National Income is heavier for Kenya and Uganda than for Bangladesh and India; and it grew at a higher CAGR than the average loan per borrower. In the latest countries, the reverse situation is observable. In what concerns poverty reduction, all indicators decreased for the period of analysis. In Bangladesh and India, women are the main microfinance clients, with a proportion of 90%, while in Kenya and Uganda the proportion is equal to approximately 50% with a tendency to decline. The results suggest that microfinance doesn’t necessary help women enter the labor market or secure jobs. In what concerns the business sector, the number of microenterprises financed by microfinance institutions grew at higher CAGR´s than the countries´ total number of new businesses registered (with the exception of Kenya). All countries of analysis were downgraded in the World Bank Doing Business Index, when compared to their position in 2006. However, the business sector undergone significant positive changes.

Date of Award	2013
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Susana Frazão Ferreira Fernandes Pinheiro (Supervisor)