Home, Land, Security

Pierre Omidyar discovers that property rights are the key to helping the poor

In 1995, when Pierre Omidyar, a Silicon Valley-based software designer, launched the website that would become eBay, he didn’t know how rapidly it would grow from a hobby to a digital bazaar linking millions of buyers and sellers each month. But Omidyar did know that people would have to trust strangers if they were ever going to feel comfortable using his website. As Adam Cohen recounts in The Perfect Store, with traffic on eBay growing exponentially during its initial months, Omidyar noted a rash of arguments between buyers and sellers. In response, he created a Feedback Forum where the community of users could set and enforce expectations among themselves. With a firm belief in the power of marketplaces to benefit consumers and their communities, Omidyar was confident that a few rules to incentivize good behavior could make sure the auction website was safe and effective. As it turned out, standards recognized by the online community that injured customers could fall back on were just what users needed to boost their confidence and make billions of purchases.

Twelve years later, Pierre and his wife Pam picked up Hernando de Soto’s 2000 book, The Mystery of Capital. “The hour of capitalism’s greatest triumph,” declares the famed Peruvian economist, “is in the eyes of four-fifths of humanity, its hour of crisis.” De Soto explains that for many people in the developing world, the land on which they live is their only asset. If that property is not publicly recognized as belonging to them, as is common in Third World nations, they cannot make good use of it. These people remain isolated from rural or urban services, vulnerable to exploitation from individuals who make false claims of ownership, afraid to leave their property unattended, and unable to turn their primary resource into a means of accessing credit.

Omidyar built eBay on the fundamental principle that the Internet provided more and more opportunities for individual buyers and sellers to interact peaceably through direct commercial transactions. He made the power of the free market more accessible for everyone. So he could see the parallels between eBay’s need for community standards and the developing world’s need for property rights. Many in the world still looked at capitalism with suspicion at best. In de Soto’s book he saw an answer to this quandary: Secure and recognized land tenure could bring the dynamism of the marketplace to the poor around the world.

A macro look at microfinancing

The Omidyars’ interest in de Soto’s claims was also fanned by the growing popularity of microfinance. Thousands of organizations around the world had begun lending small amounts of money to poor farmers and artisans in the hope that these “microloans” would spur a cycle of profitability. By founding their own social-impact investing organization in 2004, Pierre and Pam became leaders in this burgeoning field.

The Omidyar Network was launched with the same fundamental beliefs that had guided the creation of eBay: People are inherently capable and fundamentally good, and, given opportunity, their potential is limitless. In a departure from the traditional structure of philanthropic foundations, the Omidyars designed the Omidyar Network  as both a grantmaker and an investment firm. Just as non-profits could reap the benefits of the Omidyar Network’s strategic giving, private for-profit companies demonstrating a potential for social impact could receive investments, with an expectation of at least partial returns that could be reinvested.

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They've got (land) rights. Photo courtesy of Landesa/Deborah Espinosa.

The first $100 million of funding distributed by the Omidyar Network  went to 28 organizations, about half of them for-profits and half non-profits. The organization joined forces with some colleague organizations like the Clinton Foundation and the Gates Foundation in channeling money to entrepreneurial citizens across the globe. In 2007, during the peak of microfinance fever, Forbes magazine ranked the top 50 microfinance institutions, and banks like Citigroup and Morgan Stanley began providing socially motivated investment products.

As microfinance became a multibillion-dollar industry, though, observers began to see some limitations. While many individuals used the microloans to found or expand small businesses, or gain access to a new market, others applied the money to everyday living expenses. As in the rest of the world, some residents of the developing world have a flair for commerce. Some don’t. It became clear that other mechanisms beyond loans were needed to bring the power of markets to the poor.

Taming the wild

Hernando de Soto traced U.S. economic history from the untitled lands of the wild west to the robust property rights of today. Omidyar helped lead a similar taming of the Internet. A 1995 study by the Pew Center found that only 8 percent of Americans felt comfortable using their credit card on the Internet. Cyberspace was a wild west of its own.

Omidyar’s creation of eBay’s Feedback Forum was thus a seminal event in the development of the online marketplace. After Omidyar established his new rules, eBay published every user comment publicly. If someone repeatedly made unduly negative comments, he or she would be banned from the site, but otherwise all buyer-seller commentary of each transaction became part of an open record. Sellers with consistently good reviews became known as trusted vendors. The Feedback Forum brought accountability and security to cyberspace.

After working at eBay, Amy Klement worked closely with the Omidyars to set up the property-rights program which informs their overseas philanthropy. She notes several continuities in the two kinds of work. “One of the things we saw from eBay was the importance of rules, of governance, of the rule of law,” says Klement. “When we made changes to the rules of the marketplace, it would dramatically affect the behavior of buyers and sellers, positively and negatively.”

This created an awareness within Omidyar philanthropic ventures of the importance of property rights (which for many poor people in the developing world means secure land tenure) as a precondition for economic development. Pam Omidyar brought an additional insight. “Pam was struck by the importance of land rights in war-torn environments, in conflict zones,” Klement says. “This is not to say she is not conscious of the economic-development perspective, but she connected more with the human-rights perspective.” When Pam read about how de Soto’s land reforms helped resolve a 20-year civil war in Peru, she recognized that property rights would not only promote good outcomes like increased schooling and higher agricultural output, but also help establish and protect peace.

Three paths to land rights

The United Nations estimates that more than 70 percent of the world’s population lives without any formal acknowledgement of ownership of their land. That is both a human and an economic problem. It is “very difficult [to get a free society] without a property rights framework,” says Karol Boudreaux, director of investments for property rights at the Omidyar Network.

ON thus believes everyone needs a little bit of land to call “home.”  When people have secure land, they invest in improvement projects, work more hours without fear of land theft, and are more likely to take out loans using their new property as collateral. Scholars have even found increases in school attendance after a family gains land security. Public recognition of ownership “allows people to come out of the shadows for the first time and to come forward to claim more of their rights,” said Peter Rabley, investment lead for property rights at Omidyar Network. Klement characterizes property rights as the gateway to other social improvements. “Whether it is gender equality, food security, environmental issues, conflict, economic development, or education—investing in land rights is foundational.”

"Whether it is gender equality, food, security, environmental issues, conflict, economic development, or education—investing in land rights is foundational."
The Omidyar Network and its partners strive in three ways to make land tenure more secure. For one, they conduct research on land tenure’s effects. Maitri Morarji, who oversees property-rights investments at the philanthropic consulting firm Wellspring Advisors, notes that more data and information make it easier to justify and plan transitions to secure property rights. “We need to concentrate resources focusing on what works and what doesn’t.” Second, the Omidyar Network and its partners provide legal consultation and support for government officials willing to make improvements in legally vulnerable communities. They often do this indirectly through organizations like Landesa, a Seattle-based non-profit that has established relationships with local policymakers in many states across India. Thus far, more than 900,000 Indian families have benefitted from Landesa’s legal work.

Finally, the Omidyar Network and its partners educate communities on the possibilities of land rights. Legal systems often seem inaccessibleto people who cannot read or cannot read well. Non-profits like Red Tierras collect property information on computers and wield the collated results to establish land rights. OpenTitle, a software product of Thomson Reuters that organizes facts about land usage and produces documents useable in establishing claims, has been used by Red Tierras in Bolivia.

Once basic documentation is in place, rural landholders can use their cell phones (which are widely used in Bolivia and many other developing countries that skipped the stage of erecting land-line phone systems) to identify the coordinates of their property, monitor the progress of their land claim through the titling process, communicate with authorities, and receive information via simple text messages. “It is designed to be a low-cost but commercially sustainable product,” said the Omidyar Network’s Rabley, who previously worked for Thomson Reuters and was the architect behind OpenTitle. In the Bolivian pilot project, “it took 306 days to do what would normally require 550 days,” says Red Tierras director, Matthew Alexander. “That’s a major step towards a more inclusive property rights system, but there’s still a lot of room for improvement.”

Not taking property rights for granted

It is easy to understand why someone would want his own piece of property to cultivate, to use, and to own. So what is keeping land-tenure initiatives from garnering the interest of philanthropists, banks, and rural households to the same degree that microfinance has?

“Perhaps Americans forget how efficient and convenient our property market actually is,” suggests the Omidyar Network’s Boudreaux. “Americans take secure property rights for granted. We have had them for a while. We are like fish swimming in an ocean. But people around the world do not have the same opportunity to swim. Investments in this space really allow people to swim with us.”

Klement thinks that effective storytelling may be part of the reason for microfinance’s celebrity-like status. “Everybody knows about the woman who has the cow and needs the money to buy food for the cow to produce milk for a profit.” Meanwhile, despite the work of many scholars who have followed up on de Soto’s discoveries, land tenure is still finding an audience for its story.

Instead of praising land-tenure programs as a cure-all for poverty—as some praised microfinance—property-rights advocates and their funders try to promote secure land rights for poor communities as an essential step, but one that must fit in with other intelligent reforms. Gregory Myers, land-tenure director at the U.S. Agency for International Development, thinks that microfinance and land rights are compatible. “I think it’s a matter of sequencing,” he explains. “In theory, gaining security for one’s land precedes the access of people to the market. But sometimes, microlending can pull people into an economy where they can later demand their land rights.”

The Omidyar Network is comfortable combining microfinance and land-rights advocacy in the very same program. Their MicroBuild Fund supplies capital for distribution to the poor in the developing world in the form of housing loans, with a percentage of the loan going toward securing their property rights and the rest being used to build on the site. Organizations like Habitat for Humanity International are partners in the effort. Since its inception in September 2012, the fund has already distributed more than $20 million for lending.

Boudreaux is excited about the possibilities going forward. “Sometimes people get discouraged, saying, ‘It’s too complicated. How can we ever make a difference in this area?’” The view within the Omidyar Network is different. “If we could funnel our attention, we could do tremendous things.”  

Adam Sawyer, formerly an intern at Philanthropy, is a 2013 corps member of Teach for America working in Dallas, Texas.