Innovative finance for development - instruments of social integration and responsibility in lower-middle-income countries

Novák, Tamás (2015) Innovative finance for development - instruments of social integration and responsibility in lower-middle-income countries. IWE Working Papers (212). Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Budapest. ISBN 978-963-301-620-6

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Abstract

Existing proposals for transforming the system of de velopment assistance and especially in relation to middle income countries are manifold. The idea of cutting assistance to middle income countries gained ground parallel with the ques tioning of the rationale to use only per capita income as an eligibility criterion for assis tance. LMICs 3 have much in common with LDCs but the operation and structure of their domestic ec onomy and politics may be significantly different. My proposal is not to disregard middle income countries as potential targets of development assistance as a whole; rather my study ar gues that focus should be placed on lower-middle-income economies. The LMIC strategy woul d be different from the one that targets the least developed countries. I tend to coi n this policy with the term of “convergence assistance” – an innovative allocation and spending m echanism. Convergence means the reduction of internal disparities and the elimination of the dual structure of these economies. Against this backdrop successful adaptation of develop ment banking models of developing and advanced economies can support the establishment of a n economic incentive system based on efficiency requirements coupled with concentration, expertise, the knowledge of the local market and people. By incorporating the best practic es of microfinance institutions from the developing world and those of the institutions with th e objective of economic inclusion in advanced countries, a development bank may be a good ch oice in LMICs. This institution ideally may function as a window for all development or conve rgence financing independently from their origin and nature. The proposal is not meant t o prefer LMICs to LDCs but a pilot project is more likely to be feasible in their case.

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