I absolutely agree with my hon. Friend. Such events are vital. The more connection we have with markets in the developing world, the more we can trade and invest—both ways, these days—and the closer our relationship, the better. That is why I welcome DFID’s focus on livelihoods and on bringing in British
business. My right hon. Friend the Secretary of State took British businesses to Tanzania to help with development work in that country through enterprise. That is absolutely vital.
My hon. Friend the Member for Reading West (Alok Sharma) has already mentioned finance. Once someone wishes to start a business, or take a business on to the next stage, they soon find that the next obstacle is finance. Banks provide very little credit to businesses other than those that are well established and fairly large. One might think that that is a familiar refrain even in this country, but what is true of this country is far truer of developing countries, where it is almost impossible for anyone other than a fairly well established, medium to large-sized business to obtain much credit from banks. There are various reasons for that. Bank overheads are high, which means that minimum loans are often far greater than the loan required by a business because the banks need to generate enough income from the loan to sustain their overheads. Bank salaries in some developing countries are not far short of bank salaries in this country, certainly at branch level.
In my experience, banks are also reluctant to lend without substantial security, which is often worth far more than the value of the loan—perhaps 200% of its value. Indeed, central bank rules in some countries may make that compulsory, so any business that does not have a lot of additional security to offer against a particular loan is almost shut out of the market.
Additionally, in countries where the Government run a substantial deficit and dominate bank borrowing, it is often safest and simplest for banks to buy Government bonds. As we learned last week, until recently that was the case in Sierra Leone, where Government bonds were offering something like 30%, well above the rate of depreciation, so it was easiest and simplest for the banks to sit back, buy Government bonds and watch the money come in. There was no need to take the risk of lending to small or even medium-sized businesses.
Of course, there are many good initiatives that assist the provision of finance to businesses in developing countries, although at the moment those initiatives provide just a fraction of what is necessary. Microfinance has been around for some time; although people tend to think of it as more about lending for consumption, microfinance has increasingly been involved in lending to micro and small enterprises—MSEs—as well as for personal consumption, which I am glad to see. This morning I was speaking to the chief executive of a microfinance bank based in Botswana that has operations all over sub-Saharan Africa and is now entering the MSE market.