Name: The Blue Sweater
Rating: 4.6 (12 reviews)
Author: Jacqueline Novogratz

Introduction

What’s in it for me? Find out why traditional charity is failing, and what can be done about it.

After just three years as a Wall Street banker, Jacqueline Novogratz decided that she wanted to make a bigger difference in the world. She abandoned her promising career to try to help people suffering from poverty in Africa.

At first, she was a rather naive Westerner with little idea of what people in the developing world really needed or desired, but soon she began to understand. She found that experts in the West who tend to assume they know what poor people need are often wrong: aid and charity frequently wind up going to the wrong people or is squandered on poorly planned projects.

What people in the developing world want is not handouts, but rather the dignity that comes from being able to help themselves.

As the author traveled through Rwanda, Kenya and Tanzania, among other countries stricken by poverty, she realized that making people in developing countries accountable for their aid projects makes them far more likely to succeed.

In the following blinks, you’ll find out:

why it’s actually more difficult to give away your money efficiently than it is to earn it in the first place,
how a man named Innocent was anything but, and
how development aid can work better if you demand the recipient pays it back.

Key idea 1 of 7

Local women play a vital role in eliminating poverty in developing countries.

Anyone who has watched the news knows the devastations of poverty in the developing world. People in the West have tried to lift the developing world out of poverty with various approaches like government aid and charitable organizations, yet, time after time, they have failed. Why?

Often, aid and charity is not directed to the right people – women. In the developing world, it is women who generally decide how a family should spend its money, which makes them the most responsible spenders in their communities. Giving them the aid is most likely to yield effective results.

Novogratz came to this conclusion when she wanted to help the poor in Rwanda. She had helped found a micro-credit company called Duterimbere, which makes very small loans to poor people who wouldn’t qualify for traditional bank loans. Soon she found that many women in developing countries were taking out loans to expand their tiny enterprises, mostly involving selling vegetables like tomatoes and onions.

Duterimbere turned out to be very successful, and its success was largely because it let local women, rather than so-called experts, decide where money should be spent. This method went against the prevailing aid industry logic that dictated that experts should direct aid, with locals getting little say.

Although these micro loans effectively helped poor communities rise out of poverty, Duterimbere was faced with the problem that a lot of women were not paying them back.

Novogratz found a solution in making borrowers more accountable.

Key idea 2 of 7

In order to lift people out of poverty, you have to make them accountable.

Many poor people face a frustrating catch-22: they can’t get bank loans because they are considered too poor to qualify, but without a loan, they can’t start an enterprise to earn a proper livelihood.

This vicious cycle is partly because of a prevailing bank (mis)conception that poor people suffer from a culture of poverty: they don’t even want to better themselves, so they would squander any loan given to them and never pay it back.

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Key idea 3 of 7

Give poor people dignity by letting them work themselves out of poverty.

Many people think that those in poverty can lift themselves out if they just receive enough charity. But in fact, money is not enough. People need to feel dignity to be truly encouraged to transform their lives. The only way to give them dignity is by letting them work their own way out of poverty.

Consider a small bakery that was set up in Kigali by the Rwandan government for poor women to work in. The bakery was backed by two charities, and it sold its goods to government offices while employing 20 women.

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Key idea 4 of 7

Where there is a lack of accountability, corruption is allowed to stifle progress.

While there are many unfounded myths about developing countries, one is true: corruption is rife and it is stifling prosperity.

Where does corruption stem from? Simply put, it stems from a lack of accountability.

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Key idea 5 of 7

Trust is a vital commodity for building a better society.

People in the developed world often take trust for granted. When, for example, you hire a builder, you probably trust her to deliver a house that is built according to regulations. And if the builder cheats you, the justice system will hold her accountable.

But in the developing world, trust cannot be taken for granted in the same way, there being a lack of regulatory agency or lawful judicial participation.

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Key idea 6 of 7

Patient capital combines the benefits of traditional aid and business investment.

One truth that often surprises people is that giving your money away so that it is used efficiently is actually much harder than earning it! This problem is evidenced by the frequent failures of philanthropic schemes in the developing world.

And not only is philanthropy failing to lift people out of poverty: traditional financial investment is too. Investors are falling short because they often refuse to lend to poor people, viewing them as unlikely to provide immediate returns.

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Key idea 7 of 7

Final Summary

The key message in this book:

Traditional development aid often fails because the recipients of the aid are not held accountable, and because local people are not empowered to decide how to best use it. A new form of philanthropic investment called patient capital has shown some promising results in addressing these issues.

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The Blue Sweater summary