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in Order to Reach the Millennium Development Goals
D I S C U S S I O N
P A P E R
Origins The agreement to establish IFAD in 1976 resulted from the 1974 World Food Conference organized by the international community in response to the persistence of widespread hunger and malnutrition in the world. The conference recognized that hunger and food insecurity should not be associated solely with shortfalls in food production and supply at national or international levels. Rather, they should be understood as products of deep-seated structural problems associated with underdevelopment and poverty, especially as these affect rural poor people. IFAD approved its first loan for a project in 1978. Mandate Thus the Fund’s mandate – to combat hunger and rural poverty in developing countries, especially low-income, food-deficit countries, and to improve the livelihoods of rural poor people on a sustainable basis – defines hunger not just as a food production and supply issue, but also as a livelihood issue. Emergence of a Specific Role In responding to this mandate, IFAD has realized that rural poor people can enhance their food security and increase their incomes only if project designs and activities are built upon their production systems and livelihood strategies, and resources allocated accordingly. To be effective, therefore, investments to reduce
poverty must be linked to a proper understanding of poverty processes and how they affect different groups of poor people, and women as compared with men. To this end, IFAD has increasingly collaborated with local stakeholders in developing its operations. It has designed and implemented projects and programmes in a wide range of natural, socio-economic and cultural environments, in remote regions and with the poorest and most marginalized sectors of rural populations. Through its experience, the Fund has acquired a wealth of knowledge of the processes that contribute to the generation and perpetuation of poverty. It has also gained valuable insights about what works or does not work to foster the conditions in which the rural poor can enhance their productivity, output and incomes. IFAD’s Contribution IFAD’s contribution to rural poverty reduction has long been based on its recognition that the economic empowerment of rural poor people will not happen simply as a result of the ‘trickle-down’ effect of macro or sectoral investments. Action must address the obstacles faced by rural poor men and women and facilitate their opportunities, in their different and specific circumstances and activities. In addition, since in many low-income countries the majority of the poor and extremely poor (those with incomes below one dollar a day) live in
HISTORICAL AREAS OF INTERVENTION ■ access to productive resources (especially land and water) ■ sustainable agricultural production, including fisheries and livestock ■ water management and irrigation (mainly small-scale) ■ rural financial services, including microfinance ■ rural microenterprises ■ storage/processing of agricultural produce ■ marketing and access to markets ■ research/extension/training ■ small-scale rural infrastructure (feeder roads, etc.) ■ capacity-building for small producer groups and organizations
VOLUME OF OPERATIONS ■ Number of projects: ■ Total IFAD investment: ■ Domestic resources mobilized: ■ Cofinancing mobilized: ■ Total value of projects: ■ Beneficiaries:
628 in 115 countries and territories USD 7.7 billion USD 7.9 billion USD 6.6 billion USD 22.2 billion an estimated 250 million
rural areas, helping poor producers to increase their output is often the most effective, and in some cases the only, way to bring about more rapid overall growth. IFAD has therefore advocated for broad-based economic growth, built upon an explicit focus on the initiative and capacity of poor rural producers. Such an approach acknowledges the consumption needs of the poor, but it also emphasizes to their social capital and their economic potential as producers and working people. This, in turn, has necessitated an in-depth understanding of the complexities of rural livelihoods and the different roles of women and men within these livelihoods. It has also required careful targeting of interventions at people and their activities – as farmers, agricultural labourers, fisherfolk, hunters and gatherers, pastoralists and small rural entrepreneurs. IFAD’s experience over the last 25 years unequivocally shows that rural poor people are fully capable both of integrating themselves into the mainstream of social and economic development, and of actively contributing to improved economic performance at the national level – provided that the causes of their poverty are understood and conditions are created that are conducive to their efforts. No amount of national or international assistance will radically improve the rural situation unless such transformation is based on the aspirations, assets and activities of rural people – and unless poor people own the change process. Major efforts need to be made to remove the critical material, institutional and policy obstacles that prevent the rural poor from seizing opportunities for improved livelihoods. Development cannot be done for them. What can be done is to create the conditions that empower the poor to become agents of change.
IFAD’s New Strategic Directions The Millennium Development Goals represent a commitment by the entire international community to take all necessary action, first and foremost, to reduce by half the proportion of people who live in extreme poverty by 2015. The Strategic Framework for IFAD 2002-2006 is the Fund’s response – a statement both of the crucial issues to be addressed and of the areas that IFAD will focus on as part of that broader international effort. The strategic framework draws on the Fund’s years of experience and reflection, and recasts IFAD’s mission in a very simple statement: enabling the rural poor to overcome their poverty. Concretely, this mission translates into three strategic objectives upon which IFAD is concentrating its investments, research and knowledge management efforts, policy dialogue and advocacy: • strengthening the capacity of the rural poor and their organizations; • improving equitable access to productive natural resources and technology; and • increasing access to financial assets and markets. The strategic framework also recognizes that IFAD must expand its engagement beyond the immediate impact of ‘its’ projects and programmes to influence the direction and content of national and international povertyreduction processes. Thus it emphasizes building complementary partnerships and broad alliances to maximize IFAD’s contribution to the international community’s larger povertyreduction effort.
TRANSFORMING RURAL INSTITUTIONS
in Order to Reach the Millennium Development Goals
Roundtable Discussion Paper for the Twenty-Fifth Anniversary Session of IFAD’s Governing Council
TABLE OF CONTENTS
3 5 6
RURAL POVERTY AND INSTITUTIONS THE STRATEGIC FRAMEWORK FOR IFAD 2002-2006 STRENGTHENING THE CAPACITY OF THE RURAL POOR AND THEIR ORGANIZATIONS Organizations of the Poor Government IMPROVING EQUITABLE ACCESS TO PRODUCTIVE NATURAL RESOURCES AND TECHNOLOGY Access to Land Access to Water Access to Technology INCREASING ACCESS TO FINANCIAL SERVICES AND MARKETS Access to Financial Services CONCLUSION Endnotes References
20 23 25
RURAL POVERTY AND INSTITUTIONS
Poverty is a condition of hunger, low income and lack of services. It is also a condition of vulnerability, exclusion and powerlessness – the erosion of people’s capability to have their voices heard. Voicelessness is particularly acute for the rural poor, who account for a majority, some three quarters, of the 1.2 billion people living on less than one dollar per day. Among the poor, women are particularly disadvantaged, having significantly less access than men do to knowledge, assets and services. These inequalities affect the ability of women not only in their social role, but also in their economic role, which is crucial in the rural economy. More generally, the rural poor, and women in particular, rarely control the conditions that determine their livelihoods. For many rural people – smallholders, landless wage labourers and sharecroppers, small entrepreneurs, nomadic pastoralists, artisanal fishermen and women, indigenous peoples, ethnic minorities and members of scheduled castes – powerlessness is experienced as an inability to influence decisions affecting their lives, negotiate better terms of trade, and make governmental and non-governmental organizations (NGOs) accountable to them. It is intimately linked to weak local governance. Powerlessness is an effect of poverty. It is also one of its most important causes. Global interdependence, decentralization and the rapid development of civil-society organizations present opportunities, provided the rural poor can influence the institutions, policies and decisions that affect their lives and that determine the benefits they draw from economic activity. Modifying such unequal power relations would contribute significantly to reducing poverty. And by enabling poor producers, especially in rural areas, to develop their full potential, they could become the driving force of development. Poverty reduction is about enabling poor women and men to transform their lives and livelihoods, and supporting governments and civil society in creating and maintaining conditions that ensure that the rural poor are not left behind. The challenge is to enable the rural poor to overcome the material, institutional and policy obstacles that prevent them from seizing opportunities. Over the last two decades, many developing countries have introduced major changes in their economic policy frameworks. Central economic planning has been largely abandoned and commodity boards and other government price and production controls have been dismantled. Economic services previously provided by state agencies have been reduced or even halted. Increasingly production, services and investment are being driven by market forces. These changes have opened up enormous opportunities for enhancing efficiency and raising the level of productivity and incomes. At the same time, weak markets are not necessarily supportive of poverty reduction. Smallholder farmers and other poor producers are numerous and scattered, each with a low level of production. Moreover, rural roads and other infrastructure are usually inadequate, sharply increasing transaction costs for the rural poor. Poor rural producers often do not have up-to-date and reliable market
information. They are thus at serious disadvantage, both in selling their produce and purchasing the goods and services they need, when they deal with traders and other market intermediaries who are few in number and with far greater economic power. There is therefore a serious risk that unless market and other institutions are effectively developed, and made more responsive to the needs of poor rural producers and consumers, the poor will draw little benefit from the reforms and could even be further impoverished. Developing such responsive institutions, those located in rural areas and those that affect the rural poor, is a crucial question for economic policy-making as governments try to accelerate rural development and poverty reduction in economies that are increasingly market-based. Institutions in this context mean economic, social and political organizations, together with the rules that govern their interaction.1 The institutional framework mediates the access of the poor to assets, financial and other services, technologies and markets, and it determines the extent to which poor groups benefit from the production generated by these assets and services. Public institutions and their rules of the game also determine resource allocation and impose regulatory frameworks that have great impact on the lives of the poor. The development of organizations that empower the poor, and the rules and policies that secure sustainable access for the poor to assets such as land and water, to technology, finance and other services and to efficient markets, and allow the poor to participate in decision-making is central to more rapid rural development and poverty reduction. Subsequent sections of this paper discuss the major lessons that have been learned through IFAD’s own experience over the last quarter of century on institutional transformation in these areas.
THE STRATEGIC FRAMEWORK FOR IFAD 2002–20062
At the Millennium Summit (2000), governments committed themselves to reducing the proportion of people living in extreme poverty by half, the first of the Millennium Development Goals (MDGs). IFAD’s strategic framework defines how the Fund will contribute to achieving the MDGs by 2015, by reducing rural poverty, as defined above. In order to help reduce extreme poverty by half, IFAD works towards enabling the rural poor to overcome their poverty – as perceived by the poor themselves. It concentrates its country programmes, policy dialogue and advocacy on the attainment of three strategic objectives: strengthening the capacity of the rural poor and their organizations; improving equitable access to productive natural resources and technology; and increasing access to financial services and markets. Attention to the differing opportunities and constraints of women and men, and to sources of vulnerability and ways of increasing resilience are overarching concerns. Furthermore, from the perspective of poverty as powerlessness, IFAD’s corollary goal is to enable the rural poor and their organizations to influence policies of relevance to rural poverty reduction. As progress is made, IFAD’s advocacy work will become less a matter of direct dialogue between IFAD and governments than an outcome of its support to the capacity-building of poor people’s organizations. However, IFAD has a role to play in serving as an advocate for the rural poor in national policy forums until such time as their capacity is sufficiently increased to be able to promote their own interests.
STRENGTHENING THE CAPACITY OF THE RURAL POOR AND THEIR ORGANIZATIONS
Enabling the rural poor and their organizations to influence institutions (including rules, laws, regulations) and policies of relevance to rural poverty reduction requires strengthening the capacity of the rural poor and their organizations. Concretely this implies institutional transformation: developing and strengthening the organizations of the poor to confront the issues they define as critical; increasing access to knowledge so that poor people can grasp opportunities and overcome obstacles; expanding the influence that the poor exert over public policy and institutions, including local and national governments; and enhancing their bargaining power in the marketplace. ORGANIZATIONS OF THE POOR Organized groups and communities are more likely to have their voices heard and their demands met. When membership-based groups federate at higher levels, they can gain voice and representation in policy dialogue and decisions that affect their well-being. Therefore, the poor need, first and foremost, to be provided the chance to build individual and collective capabilities to gain access to economic opportunities and basic social services and infrastructure. Enhancing the human and social capital base of the rural poor will enable them to interact with those wielding power on a more equitable and informed basis, and thus negotiate more effectively on issues that affect their well-being. Types of organizations. IFAD works with many different types of poor people’s organizations (e.g. traditional village and sub-village work groups, small self-help groups, savings and credit associations, water users’ associations and farmer cooperatives). Organizations that influence policies, and that secure access to assets and services (land, water, technology, financial services) for the rural poor as producers/users, are discussed in more detail below. IFAD also supports organizations that give rural poor people a voice as citizens. It develops human and social capital at the local level to ensure active participation of the rural poor in local decision-making, the demand side of inclusive local governance. Organizational transformation challenges. IFAD’s experience shows that organizational capacity-building is time-consuming, but critical for effective poverty reduction. Also, as illustrated by IFAD’s experience in Viet Nam (box), because women are dynamic organizers and participants in grass-roots organizations and are effective at initiating and sustaining local self-help initiatives, they must be at the centre of the agenda transforming organizations, rules and policies. To this end, the participation of poor women, together with the other stakeholders, in organizations that aim at policy planning, implementation and monitoring of activities needs to be maximized. This will ensure that policy design and implementation decisions are based on the needs and perceptions of the poor themselves. It will also enable the poor to develop the tools they need to bring about change and to sustain that change.
I Lessons Learned from IFAD’s Country Programme with Viet Nam
Poor people in rural areas cannot express their views or get involved in decision-making processes. Real decentralization cannot be achieved without participation from the bottom up. Self-management boards, set up in communes to promote sustainable conservation of forests, are ways to institutionalize bottom-up participation. Women’s representation ranges from a mere 18% in Ha Giang to 26% in Quang Binh. Women must be represented at all levels in decision-making positions in rural development public institutions. Giving women a voice at village level, for example in participatory rural appraisals, savings and credit groups, and village development boards, has proved to be an important first step. Further strategies to encourage women to be more vocal might include positive discrimination in community-based organizations and women-only self-help groups. Source: IFAD 2002b
GOVERNMENT 3 To match the emergence of effective demand for inclusive rural governance, the government also requires transformation for rural inclusiveness. The goal should be to strengthen the capacity of governments (national and local) to be more effective in responding to the needs of the rural poor, as represented by their organizations. This involves democratization, institutionalization of participation, the development of processes that increase the accountability and transparency of rural service delivery within a decentralized decision-making framework. Well-designed and -managed decentralized systems enhance responsiveness and accountability, and contribute to poverty reduction. Investing in the transformation of government systems. Since its creation, IFAD, working with national partners, has tried to enhance the quality and rural focus of government, and especially of the organizations involved in development activities, helping them to enhance structural abilities and skills to support the poor and their organizations combating rural poverty. Important in this regard is supporting decentralization processes of central bodies involved in rural development processes to a local level. Decentralization is a ‘process’ of transferring central powers, functions and fiscal authority4 to public institutions working at the local level. It encompasses: upgrading administrative capacity; transferring responsibility and power; enhancing accountability; and retaining economies of scale in certain government functions. As illustrated by the country programme in Uruguay (box), such IFAD support takes four mutually reinforcing forms: (i) strengthening the organizations of the poor and helping them exercise influence over public organizations, investments and services – both formally (under the right to consultation/participation) and informally (through increasing significance in the general political constituency); (ii) supporting the central bodies in decentralizing structures, personnel and budgets. Decentralized institutions should have appropriate decision-making power with respect to rural development policies, investment in services and implementation of rural development programmes and projects; (iii) supporting local-level public planning and the development of implementation capacity; and (iv) allocating programme resources for creating or strengthening local (usually district and sub-district) public budgeting and auditing systems for rural development activities, with an emphasis on transparency.
I Decentralization in Uruguay
In the IFAD-supported National Smallholder Support Project – Phase II, the Ministry of Agriculture has created an office for rural development at the central level and secretariats for rural development in those municipal departments where rural poverty is concentrated. At the secretariats, round tables for rural development are held, and the participation of the organizations of the rural poor is mandatory. The Ministry retains its role as policy formulator and provider of general guidance for development processes. However, these policies, as well as actions for combating poverty, are being transferred to the local level without abolishing the responsibilities of the ministries. Municipalities have an important role in matters of social and rural infrastructure. They are only one of the actors in the development process because smallholder organizations will be the main actors. They ‘control’ or demand services. The private sector also participates in the round tables for rural development, where the demand for and supply of services meet. The central government (i.e. the borrower of IFAD funds) and local governmental institutions partially control the supply of services provided to the private sector.
From its wide range of programmes, IFAD has learned a number of generic institutional transformation lessons. Revisiting the role of central government. Experience highlights the importance of revisiting the role of central institutions in relation to rural development policies, investment and interventions. Central government institutions play a critical role in the development and implementation of effective poverty-reduction policies and investments – not least because so many of the factors that shape the opportunities of the poor are not determined at the local level. Central bodies are often too far away from the rural poor and are committed to a variety of sectors of the population – and have neither a specific mandate for combating rural poverty nor the appropriate technical level or expertise for delivering corresponding interventions. But experience suggests that given the political will, central institutions can deal directly with rural development issues and become closer to the rural poor and more open to their influence. Context specificity of transformation. Transferring decision-making powers from the central to the local authorities can imply a real transformation of the institutional arrangements that deal with rural development and agriculture. There is no one-fitsall model for such transformation. The nature of the change depends on the type of political structure and administrative constitution of the country, and the degree of political importance that the government attaches to both decentralization and rural development. The development model also depends on the degree of organization of the rural poor population and the presence and strength of NGOs and communitybased organizations that work with them. Consequently, change processes should be flexible, based on client demand and tailor-made to adapt to the context. Clarifying the role of local government. The role of local governments should be clarified. They provide a wealth of essential services, including health and education programmes and infrastructure, and participate in several countries in shaping national budgets and investment plans. However, local governments have the vocation to represent all citizens and thus cannot single out one population group – e.g. the rural poor – and develop exclusive programmes and activities for that group alone, even if it constitutes the majority of the population. As indicated by IFAD’s experience in Ghana and Guinea, local governments also find it difficult to create income-generating opportunities. In short, it would be very difficult for local
governments to be the main agent of rural development policies and to combat poverty. Local governments can also be ‘captured’ by local elites, and it is important to seek appropriate safeguards against this. The importance of investment in citizens’ capacities. Improved local governance is critical for better service delivery and greater responsiveness to poor people’s priority problems. Decentralization and local government reform have so far focused primarily on the supply side of formal systems and not on strengthening the demand side through actions that enable citizens to effectively utilize the space created by new rules and regulations. Empowered local governments (with authority and resources) need to empower local communities through mechanisms that increase citizens’ access to information, enable inclusion and participation, augment accountability of governments to citizens, and invest in local organizational capacity. In general, there has been insufficient attention to the relationship between citizens and local governments, and very few cases of investment in strengthening poor people’s organizations or other local civil-society intermediaries to enable them to play new roles effectively. Project interventions are useful processes for improving local governance, because they can be effective for eliciting local participation, not least because they tend to bring resources.
IMPROVING EQUITABLE ACCESS TO PRODUCTIVE NATURAL RESOURCES AND TECHNOLOGY
ACCESS TO LAND5 One of the most important factors leading to entrenched poverty is lack of secure access to natural resources such as land, forests, other common property resources and water. Land plays an indispensable role in agricultural production directly and by providing collateral for credit markets, accumulating wealth and transferring it across generations. Land also confers social status and identity. Some countries have a highly unequal pattern of land ownership. A notable feature of hard-core rural poverty is landlessness, and according to recent United Nations estimates, women own barely 1% of the world’s land property today. Moreover, the rural poor lack decision-making power over land use. Farmers lack the incentive to invest in land management without secure property rights. Uncertain land tenure and land rights are serious obstacles to adoption of better technologies, rational land use and land-improving investments. Increasingly, land rights and tenure systems, water rights and access by rural communities to forests and other common property resources can generate social tensions and even conflict. Reducing such tensions and improving planning for sustainable and equitable resource use are key challenges throughout the developing world. A more equal distribution of (access to) land can enhance social harmony, productivity and poverty reduction. Ownership of land, access to it, its transfer and its use are governed by the institutional framework, including customary and codified land-use rights, and the power of vested elites. Inequitable distribution is largely derived from long-standing historical and cultural practices. Recently land reform has re-emerged as an important issue in many countries where governments are looking for cost-effective models for dealing with it in ways that do not undermine the security of property rights. Investing in access to land. IFAD has supported a wide range of land tenure/userelated programmes, enhancing tenure security, regularizing land ownership, facilitating land titling linked to land improvement, and improving access to common property resources (see box for examples in Bangladesh and Mauritania). IFAD also sponsored, with the Belgian Survival Fund, the 1995 Conference on Hunger and Poverty, which resulted in the formation of the Popular Coalition to Eradicate Hunger and Poverty – the global consortium of governmental, intergovernmental, civil-society and bilateral organizations that works towards increasing the access of the rural poor to productive assets, especially land and water and common property resources, through a wide range of measures complementary to IFAD’s programme support and that of the Global Mechanism of the United Nations Convention to Combat Desertification. These IFAD-supported activities have highlighted a number of institutional transformation challenges.
I Examples from IFAD Programmes
Enhancing Access to Common Property Resources in Bangladesh In the Oxbow Lakes Small-Scale Fishermen Project in Bangladesh, lakes were leased to the poorest people in surrounding villages. The project demonstrated that ‘social fencing’ is effective in safeguarding the benefits of investments and that the sharing of income on the basis of labour contributions can preserve the principle of equity. Investment support from IFAD allowed formerly landless labourers and poor fishermen to raise their incomes to the level of small farmers in the community. Smaller fish ponds leased to groups of women increased their income and enhanced their overall status within the family and society. Securing Land Titles in Mauritania Under the Maghama Improved Flood Recession Farming Project, the possibility of increasing flood recession farmland in an area dominated by traditional land-use arrangements presented an opportunity for a change of policy, involving devolution of local land tenure arrangements to the village populations concerned. A decree promulgated beneficiary involvement in resolving land tenure issues. An overall framework agreement and individual arrangements guarantee secure access for at least 15 years to land upon which improvements are made. Community organizations play a central role in establishing and enforcing land tenure arrangements. A cooperative grouping of all village organizations has been created to manage the flood recession scheme.
Context specificity of land reform. The record of classic land reforms has been poor. It is important to understand the systems of land rights and to identify where and how these systems have been changing in recent years. Factors such as population pressure (Burundi, Rwanda), history (Lesotho, Malawi, South Africa, Zimbabwe) or topography need to be considered when designing interventions to improve access to land. Organizations. Social and economic returns to investment in building the institutional capacities of organizations that manage land under customary tenure are high. Transforming the rules of access to land resources. Other than politically complex land redistribution, in the form of negotiated or compulsory land reform, successful transformation of rules of access to natural resources for the rural poor include: • providing access of the poor to common-property resources; • establishing poor families on newly developed and/or government-owned land; • enhancing tenure security; regularizing land ownership and facilitating land titling, combined with (various forms of ) land improvement interventions; development of computerized land-title records readily accessible to poor farmers; • promoting active and diverse land markets with measures such as the enforcement of landholding ceilings; promotion of land reform initiatives whereby large landowners sell small parcels to qualified beneficiaries;6 introduction of a land tax to induce land owners to sell or rent out areas of land; measures to ensure the existence of a diverse set of land rental markets to accommodate a variety of different contracts and to improve access to land by the poor; introduction of a landtitling programme to stimulate the rental market indirectly; lifting of prohibitions on the subdivision of land; and introduction of measures to reduce the transactions costs of renting and buying land.
Market-assisted access. At the national level,7 the extent of reform varies from country to country. There is a shift from redistribution of private lands to settlement schemes, market-assisted reforms and in several transitional economies conversion of state farms/lands into smallholder farms. The importance of supportive rural services. Effective agrarian reform includes improvements in both land tenure and other rural development measures. Experience shows that access to land must be accompanied by more effective access to training, finance, technology and markets. Otherwise land reforms are likely to fail since beneficiaries will not realize productivity gains and either sell the land to meet household food needs or become indebted for the same reason and eventually lose their land. It is important to improve farm credit, input supply and marketing, and to extend services to facilitate the productive use of (re)allocated land. Where governments are pursuing market-assisted land reform and there are difficulties in defining and enforcing property rights on land, credit to poor farmers with group guarantee and without collateral has become a regular feature of agrarian reform programmes. Credit and savings facilities for the landless and tenants are especially important. ACCESS TO WATER8 Water is often a serious constraint on agricultural productivity, and access to water determines the value of the land; they are complementary assets. Also, if property rights in land are well defined and difficult to change for political reasons, but subsurface water rights are less clearly specified, then initiatives in the water market may be a partial substitute for land reform. Therefore, institutions that increase poor people’s control over water-yielding assets9 contribute to sustainable poverty reduction. Investing in access to water. IFAD has supported a wide range of irrigation and water development programmes in all the regions where it operates. IFAD has invested in (public) programmes designed after consultation with, and implemented by local communities to establish and maintain surface and sub-surface irrigation systems, and to supply safe drinking water. In many countries, large-scale irrigation investments have generally underperformed10 and have represented a drain on government capital and recurrent budgets. As donors have progressively withdrawn funding, many irrigation schemes have been abandoned or radically downsized.11 An IFAD-sponsored evaluation of experience with small-scale irrigation in sub-Saharan Africa12 identified a number of lessons related to institutional transformation. Importance of organizations and participation. A serious shortcoming is the neartotal lack of meaningful farmer participation in perimeter planning, crop and technology choice, organization of water and pump use, and settling of land tenure disputes. Participation in irrigation projects has often been little more than rhetoric. Agreement on the concept, meaning and content of a participatory process has generally been lacking, as have been ways to introduce such a process. Where technology choice has been successful, effective technologies proved to be those that improve existing methods and that remain under the control of the communities or individuals such as flood recession improvement, use and diversion of water from rivers, and individual low-lift pumping systems. In such cases, innovative technologies were designed on the basis of in-depth analysis of local practices and an assessment of farmers’ knowledge and skills. To improve upon these, planners and engineers
matched this information with other technical analysis (soil, water, topography, agronomy) to propose modifications. Institutional mechanisms for mediating conflicts among water users are also essential. The need for organizational capacity-building. The need for long lead times and the generally slow rates of implementation for irrigation projects should be anticipated and recognized in the light of the time required to implement demand-driven approaches. This allows for training and establishment of viable water users’ groups and more fully ensures their participation in all implementation activities, while taking into account the capacity constraints of implementing agencies. Flexibility, in terms of implementation scope, sequence and arrangements, should be the norm. In addition, the careful definition of site selection criteria and targeting procedures are the most suitable defence against discretionary and external political interference in project interventions. Socio-economic criteria are especially important, and must be defined in the light of the political context and the existing legal framework (including the capacity to enforce it). Transforming the rules of operation and maintenance. Building infrastructure is not enough. For effects to be lasting and sustainable, community and group organization around the water point is critical. This ‘software’ side of infrastructure provision has too often been ignored, leading to a great waste of resources and a lack of results. Sustainability of water infrastructure depends largely on people’s motivation and organizational capacity to provide the necessary operation and maintenance. In some contexts, appropriate cost-recovery mechanisms can be useful and should be designed on the basis of the technologies to be adopted (with or without pumps and equipment), the cropping system (high-value crops or staple crops) to be introduced and the organizational features of farmers (individual or collective). For instance, in Ghana under IFAD’s Smallholder Rehabilitation and Development Programme, maintenance of wells is the responsibility of the water and sanitation committees created by the programme in the beneficiary villages. Residents willingly pay user fees to assure proper maintenance. Participation and self-management, in the context of water users’ organizations, tend to ensure effective services and efficient operation and maintenance, and enhance the acceptability of cost-recovery mechanisms, such as user fees. ACCESS TO TECHNOLOGY13 Where pressure on land and water is great, natural resource degradation has reached alarming levels. This is a major problem for the rural poor, who often live in environmentally fragile zones. Many poor farmers face a choice between restoring the fertility of their small family plots and common property resources or migrating to the cities. Appropriate technologies and research to improve farm productivity by boosting returns to land and labour are essential if the former choice is to be a viable option. As solutions are often context-specific, technologies need to be developed through appropriate research and validated working together with the rural poor – something that is still quite rare. Full appreciation needs to be given to the existing risk-management strategies of small farmers. These often differ for men and women farmers, requiring gender-differentiated approaches.
Investing in access to technology. To promote access to technology, IFAD supports technology development and dissemination to smallholder farmers, especially women farmers, through investment programmes that are increasingly located in marginal, resource-poor agro-ecologies, in environments for which sustainable agricultural technologies are not easily available. The approach followed is pluralistic, with different models adjusted to the local institutional framework. IFAD also provided leadership in establishing the Global Forum on Agricultural Research, which constitutes a strategic alliance of key stakeholders in global agricultural research: developing-country national agricultural research systems; universities; NGOs and farmers’ organizations, bringing in their indigenous knowledge systems; the private sector; international agricultural research centres; and the donor community. Fundsupported programmes aim at addressing the technology access problems of poor disadvantaged farming communities, in order to reduce poverty, achieve food security, and conserve and manage biodiversity and natural resources. Moreover, IFAD participates in the Consultative Group on International Agricultural Research (CGIAR) (with the World Bank, the United Nations Development Programme, and the Food and Agriculture Organization of the United Nations), and provides resources for research by CGIAR organizations in technologies relevant to smallholder farmers. In supporting these technology development and dissemination programmes, IFAD has learned a number of lessons regarding pro-poor organizational and policy transformation. Organizational development. Access to technology for the wide diversity of rural producers is enhanced by the adoption of pluralistic approaches (diversity and choice of organizations and rules of access). In some cases, publicly sponsored research and extension (R&E) approaches are being pursued. In other cases, IFAD pursues a market approach, promoting the growth of private suppliers of technology services, or combinations of the two approaches. It is correspondingly useful to explore appropriate mixes of public- and private-sector funding of R&E. Organizing local extension systems for effectiveness in delivering new technologies to poor farmers and in conveying feedback from farmers on the profitability and environmental sustainability of new technologies is suitably complemented by identifying new ways of delivering extension services, such as farmer field schools and vouchers. Efforts in strengthening the organizational capacities of the national agricultural research systems/centres (NARS/Cs) themselves14 and the linkages between CGIAR and NARS/Cs have high benefits. Transforming access rules. Successful development and dissemination of technology requires the involvement of key stakeholders in developing R&E systems; the empowerment of rural civil-society entities, farmer associations and related social organizational structures, and their inclusion in the technology-generation process. It is also crucial to allocate adequate public investments for agricultural R&E related to crops and livestock produced or consumed by the poor. Further, it is a challenge to identify new ways of financing agricultural R&E, including the establishment of internal markets for R&E, based on customer/contractor relationships, fostering strategic partnerships with national and international private firms to access modern technologies. This needs to take into account the fact that the supply response is inhibited due to the limited purchasing power of poor rural producers (see box, for Honduras example).
I Honduras: Agricultural Development Programme for the Western Region
The western region of Honduras is a depressed area. The rural population is diverse, ranging from very poor farmers with very little land and no tenure, to those with larger holdings and possessing title deeds. Such diverse situations require differentiated solutions in relation to technical assistance and the type of production and technology to be promoted. IFAD set out to foster a market for technical assistance services. The Agricultural Development Programme for the Western Region (PLANDERO) contributed to increasing the supply of technical assistance services, promoting the formation of 15 private suppliers. The programme has fostered the development of a market for technical assistance services. However, it is not easy for producers who work poor land to develop the capacity to pay for such services: they cannot gain access to them through market mechanisms. Producer cooperatives offering multiple services to their members can, however, facilitate access to technical assistance for the poorest producers. PLANDERO has shown that these cooperatives can generate earnings by managing credit and marketing inputs and products; the cooperatives can then use these resources to finance technical assistance for their members. In this way, technical assistance can be provided at little or no cost to producers. Source: IFAD 2002b
Complementary rural services. It is crucial to support improved technology with adequate and sustainable seed distribution channels, rural finance services, marketing channels and output marketing channels, in an enabling policy environment.
INCREASING ACCESS TO FINANCIAL SERVICES AND MARKETS
In their efforts to raise agricultural productivity or to diversify incomes, the poor often need investment and working capital. Yet rural financial markets remain underdeveloped. Because the amounts involved are small and the poor lack collateral, banks are usually not interested in dealing with them. Assistance needs to focus on developing professional and responsive rural finance organizations, with a strong emphasis not just on providing credit but also on encouraging savings. Efforts to increase agricultural productivity can only be effective if they are linked to an appreciation of market potential. Too many agricultural investments have failed because they only concentrated on increasing production while neglecting development of market links. Integrated approaches along the full continuum of production, processing and marketing are needed to raise rural incomes and significantly contribute to economic growth and poverty reduction. Transport infrastructure is also critical for developing links to the outside world. Diversifying income sources, either by producing and marketing non-traditional crops or by exploiting off-farm opportunities more fully, is also necessary. Income diversification reduces the risks posed by rapidly changing market conditions and can help even out seasonal fluctuations in income and consumption. The issue of access to markets is addressed in the specific roundtable paper Promoting Market Access for the Rural Poor in Order to Achieve the Millennium Development Goals. ACCESS TO FINANCIAL SERVICES15 Rural finance should not be seen as a panacea for poverty reduction. But effective access to financial services, together with technology and other services, can have a major impact on expanding poor people’s choices and opportunities, help them increase their asset base, and diminish their vulnerability to external shocks and crisis. Moreover, most microfinance clients are women, more likely to invest the additional income generated from using financial services for the education, health and nutrition of their children and of the whole household. In that respect, the socio-economic impact of rural finance goes much beyond an increase in revenues, and translates into a transformation of living standards at the household level. Finally, successful innovations have helped move rural finance closer to the very poor, providing services and outreach mechanisms adapted to their specific constraints and needs.16 Investing in rural financial services. IFAD has supported a vast programme of rural financial service development. The approaches and institutional frameworks that IFAD has encouraged in pursuit of this goal have considerably varied across regions, due to widely different contexts, environments and opportunities. IFAD has thus supported a great range of rural finance institutions across regions and even within countries (e.g. Ghana, see box). In Asia, IFAD has worked with very large and well-established rural finance networks, such as that of the rural credit cooperatives
in China; it has promoted the self-help group/bank linkage model in India and Nepal, and funded the emergence of Grameen Bank replications in The Philippines. In Eastern and Western Africa, IFAD has worked with large savings and credit cooperatives (Benin, Kenya and the United Republic of Tanzania), large-scale financial NGOs (Ethiopia), and decentralized financial services associations (Benin, Guinea, Mauritania). A similar diversity of institutional models and approaches can be found with IFAD’s programmes in the Commonwealth of Independent States, Eastern Europe, Latin America and North Africa. Such diversity is not surprising: it reflects each region’s own culture, environment, constraints and historical experience with rural finance. This creates a formidable challenge and opportunity. The challenge is to pursue the goals of institutional viability, deep outreach and financial sustainability through all those models. This will require flexibility and pragmatism, but also a clear abiding to the core objective of building sustainable financial institutions. It also offers the unique opportunity to make so many different approaches and institutional models work for the rural poor. Here, IFAD has a strong comparative advantage to promote exchanges and cross-fertilization among those different models and experiences, and actively contribute to the ongoing debate among donors on how to build strong and pro-poor rural finance institutions. From this wide-ranging programme, the institutional transformation lessons below have been learned. Rural finance paradigm shift. The ‘old’ rural finance paradigm put emphasis on the provision of subsidized and targeted credit to farmers, usually by state-owned agriculture development banks. IFAD’s assessment of this approach highlighted its limits and shortcomings: subsidized credit usually went to the better-off farmers; borrowing conditions and collateral requirements excluded the poor; and the types of services offered were frequently inappropriate to their needs. IFAD, over the past ten years, has focussed on building viable rural finance institutions that meet the twofold objectives of (i) providing services that are appropriate to the needs of the
I A Holistic Approach to Rural Finance in Ghana
In Ghana, commercial banks were unable until recently to serve rural areas and the rural poor. Transaction costs associated with banking were high, and the rural banks often unable to offer services adapted to the needs of the poor. Many development initiatives reached only a minority of the rural population and often favoured larger borrowers. Many rural banks were weak, constrained by poor operational procedures and insufficient internal controls, compounded by policies impeding efficiency. These constraints kept the rural poor from participating in new opportunities for income and employment generation. The holistic approach to strengthening rural and microfinance institutions includes targeting different tiers of the rural finance system. The Rural Financial Services Project supports the Government’s efforts to deepen and broaden rural financial services. IFAD is leading the effort in close collaboration with a number of international development organizations. The project focuses on the continuum of rural finance institutions to maximize synergy and complements ongoing activities. It includes measures targeted at the poorest segments of the rural population and providing group training; testing of pilot initiatives leading to the development of new and innovative instruments, and dissemination of best practices. The project also addresses policy issues, including: rationalizing agency banking within a regulatory framework that links rural bank agencies to performance indicators; removing geographical restrictions limiting competition and stifling growth of more innovative rural banks; and modifying the 55% secondary reserve requirement, which ties up a substantial portion of loanable funds.
rural poor (outreach challenge) and (ii) moving towards self-sufficiency (sustainability challenge). Rural finance institutions now offer loans that can be used for purposes deemed the most beneficial by the borrower. Lending is based on the assessment of the household’s repayment capacity, and not on the commitment to invest in a specific activity or technology. Financial services have thus been used by the rural poor for a variety or purposes: for income-generating activities, but also for consumption smoothing and to face shocks or crises. Conducive policy environment. Beyond institution-building support to the rural finance organizations themselves, attention needs to be paid to the environment in which these institutions operate. The broader prerequisites for rural finance are similar to the conditions for any financial system to work. There should not be high or hyperinflation, there should be a minimum level of security for people and property, and opportunities for economic activity and trade, including the monetization of economic exchanges. Beyond those prerequisites, experience has shown that very dynamic micro/rural finance institutions have emerged in countries with no or limited legislative and regulatory frameworks to structure their activities. However, regulation by the central bank becomes a necessity when a critical mass of institutions has reached a scale where they are ready to develop voluntary savings mobilization. Moreover, in contexts where very active micro/rural finance institutions have emerged, a national policy framework can become very useful for providing some coherence and direction to their development (for example, to avoid dumping practices, to set up a risk assessment bureau that will help identify multiple lending practices, etc.). In several countries, IFAD is working in coordination with national and other stakeholders to help foster the right enabling environment in which rural finance institutions can develop and be viable. Stakes of institutional transformation. Institutional transformation lies at the heart of IFAD’s rural finance strategy. IFAD’s rural finance policy paper17 underlines the importance of building sustainable rural finance institutions that provide appropriate financial services to the rural poor. Institutional transformation in rural finance is crucial for the rural poor for two reasons: (i) Anchoring the provision of financial services in strong and stable institutions is the only way to ensure permanent access to those services. Surveys have shown that access is a key priority for the rural poor. Their only other alternative is resorting to money lenders and the like, who are usually far more costly and may lead them into chronic debt traps, and even bonded labour. (ii) The rural poor value access to safe and flexible savings facilities as much as they value credit facilities. Mobilizing and keeping deposits securely and having funds available when necessary require a certain level of institutional capacity. This usually implies an appropriate regulatory framework under the supervision of the central bank. To respond to these requirements, viable, well-structured and -managed institutions are necessary. Transforming governance. A key concept in rural finance, governance has been receiving more and more attention. It has in the past often been limited to the analysis of the relation between a board (or other type of supervisory body) and the organization’s management. Recent studies have, however, expanded the concept of governance to include a broader set of issues. Under this approach, the framework for
governance analysis considers who has the decision-making power within an organization and how this power is exercised. The first question differentiates between legal and actual ownership, whereas the second brings up the larger issues of strategic planning, information flows, decision-making and control (internal and external). Common prerequisites include: shared vision and strategic plan; clear internal organization and related responsibilities; a reliable management information system; effective internal and external control; and adaptation to local environment. Empowerment. The impact of rural finance goes beyond the economic benefits derived from the financial services themselves. Rural finance interventions in many cases have led to the empowerment of the rural poor. This empowerment is first reflected in the voice that the rural poor are given vis-à-vis the management of their rural finance institutions. Here many options exist, ranging from their active participation in management of decentralized systems (such as the credit and savings village associations in Mali), to their representation in the board of the institution (for example, the Center for Agriculture and Rural Development in The Philippines). The key factor for successful participation of the poor in the management of a rural finance institution is not to apply uniform recipes, but rather to help set up management and governance structures that are suited to the local culture, needs, preferences and capacity of the rural poor. Whatever the management and governance structures, the needs and constraints of the rural poor should always be reflected in the design of the financial services offered to them: this should be done through carefully designed market surveys, pilot-testing of new services, and innovative outreach mechanisms. Finally, empowerment through rural finance occurs when local communities that have organized around the objective of accessing financial services start to focus on social and economic issues as well. This has happened in a wide variety of contexts, and highlights how rural finance can be an effective springboard for empowering the rural poor.
Reducing poverty by half by 2015 requires the poor to gain access to assets, services and markets and be able to make productive and profitable use of such access. This is greatly influenced by the institutional framework – the social, economic and political organizations and the rules that govern their functioning. Such organizations are often biased against the poor, especially the rural poor and women. The rural poor lack the voice or the power to influence adequately these institutions or to ensure that their interests are taken into account. Empowering the poor means changing this. The development of institutions responsive to the needs of the poor must be a major priority in poverty-reduction strategies, and indeed in overall strategies to promote more rapid, broadbased and sustainable growth. To this end, the strategy should aim at: (i) investing in capacity-building for a diverse range of organizations of the poor to ensure choice, especially organizations at the grass-roots and local levels. It encompasses organizations that empower people to fulfil their citizens’ roles and that enable the rural poor to gain access to assets and services. Organizational development is context-specific, matching individual rural poverty challenges with appropriate organizational designs; (ii) supporting the development of rules, norms and policies that empower the poor, especially women, and their organizations, and that provide the rural poor with secure access to productive resources, markets, technology, financial and other services. While at a later stage the organizations of the poor themselves will address this need, there is a transition period during which advocacy rests with governments, civil-society organizations and the donor community; (iii) creating forums for dialogue among people, with their organizations, governments, other service providers (NGOs, private sector, etc.) and donors. Participation of the rural poor is the only guarantee for relevance and effectiveness of the transformation of organizations and policies; such participation is likely to be stronger and more effective where underpinned by a democratic process; and (iv) coordinate donor support in the context of participatory country-owned povertyreduction strategies to ensure comprehensiveness and full complementarity in the coverage of pro-poor institutional transformation needs. Developing countries over the last decade have adopted far-reaching and courageous reforms. Their ultimate impact on development and poverty reduction, however, will depend on whether the institutional framework can be made more favourable for the economic activities and social needs of the poor. In this context, it is not enough to establish organizations that are supposed to be supportive of the
poor. It is equally important to change the rules, norms and even the mind-set in which such organizations function in order for them to have the intended impact. Many countries, for example, established agricultural development banks with the hope of stimulating rural development and accelerating poverty reduction. Often these had disappointing results since the agricultural banks worked with a mind-set and norms that ignored the potential of the large number of smallholder farmers and concentrated mainly on better-off farmers. Moreover, the institutions, due to the prevailing ‘norms’, frequently suffered from low repayment rates from their non-poor borrowers and in consequence saw their capital base being sharply eroded. Or take the case of land reforms/resettlement. Unless the rules of the game are changed to give poor farmers access to financial, technical and other services, these rural poor people will not be able to make productive use of their newly acquired landholdings. In some such cases, they have even had to sell or abandon their new farms. In institutional transformation, the organizations and the rules have to be addressed together or the results will be disappointing. In this paper it has been argued that strong and widely accepted institutions – organizations and rules – that respond to the needs and priorities of poor groups, especially the rural poor and women, are essential for rapid poverty reduction. But the reverse is perhaps even truer. Weak, ineffective, corrupt or narrowly based institutions create uncertainty and unfairness, discourage saving and investment, and lower growth rates. If the rules of law and judicial institutions are seen as ineffective or biased and property rights are insecure, they discourage investment for land improvements. Where markets and systems of exchange and finance are inefficient and unreliable or captured by narrow groups, they engender distrust and raise the transaction costs of economic activities, which naturally affects poor producers particularly harshly. Not only does this entrench poverty, but it also reduces economic opportunities for all, the better-off as much as the poor. In many low-income countries, the poor account for a majority of the population or at least a large minority. They suffer from low productivity and poverty, not because they are without skills but because they do not have available opportunities to raise their productivity and incomes. In such countries, the best, and perhaps the only, way to accelerate the overall pace of growth and development is to harness their underutilized capacity by creating an institutional framework that offers them a greater voice in decision-making, and improved access to assets and to the services that can raise the productivity of these assets. Institutions that are inclusive and responsive to the needs of the poor will encourage them to save and invest their savings to increase productivity and incomes. The greater output and buying power this generates will further stimulate output, growth and savings in a positive interaction – a virtuous circle – among strong institutions, good policies and rapid growth and development. Institutional transformation that opens up institutions to the influence and priorities of poor groups is sometimes seen as threatening by other groups. In fact, it offers the best hopes for raising the growth path of the economy for realizing the aspirations of all groups – for society as a whole.
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This definition conforms to widely accepted usage. For example, in the World Bank’s World Development Report 2003, "Institutions are the rules, organizations and social norms that facilitate the coordination of human action" (page 38). Professor Douglass North (1993) and other academics are using an alternative definition: institutions are the rules of the game, organizations are the players. IFAD, 2002a. Glikman, 2002. Balanced with retention of redistributional authority at the central level. Thapa, 2002. Several countries have been experimenting with community-managed agrarian reform programmes that are often referred to as ‘market-assisted’. Under such programmes, groups of landless people negotiate directly with willing would-be sellers of land, and then, with credit support and follow-up infrastructure investment by the state, proceed to establish a smallholder farming structure backed by strong community organizations. Land reform also constitutes a priority in international policy agendas. At the international level, land reform is a central pillar of the United Nations Commission on Sustainable Development, the World Food Summit, the Convention to Combat Desertification and the Convention on Biological Diversity, all of which have identified the major challenges and difficulties experienced in the past. IFAD, 1999. Increasing returns from land, through, for example, treadle pumps, or creating water-selling microenterprises such as the water companies of the Grameen Bank in Bangladesh. The overwhelming emphasis placed by governments on large and expensive schemes to produce a lowvalue and often uncompetitive crop such as rice to substitute for imports is one explanatory factor of programme underperformance. For example, in Côte d’Ivoire, it is estimated that the 120 small dams existing in the country are only being used at 10% of their capacity, and at least 5 000 hectares of valley bottoms previously developed have been abandoned. As part of the comprehensive evaluation of IFAD’s Special Programme for Sub-Saharan African Countries Affected by Drought and Desertification, a thematic study was carried out in 1998 on small irrigation and water control activities. A particularly rich source of knowledge, this study provides recommendations related to farmer participation in the design and use of irrigation infrastructure, organizational and institutional issues, flexible project design, targeting and site selection, and technology choice. Mathur, 2002. This consists in calibrated research and extension priorities from the viewpoint of rural poverty reduction; responsive to feedback from local extension systems about the needs and priorities of poor farmers and women; equipped to address the ‘biotechnology revolution’; staffed by local scientists with the skills required for biotechnology research and for participatory research; having financial resources to conduct local biotechnology research; with stronger scientific and managerial capacity to transfer technology efficiently from other countries and the global research system; able to address difficulties in partnerships between international biotechnology firms and local public/private actors owing to the absence of assigned intellectual property rights, or to weak enforcement of such rights; with improved organizational and governance structures of local NARS/Cs, e.g. by introducing more transparent decision-making processes; and with institutional linkages with the private sector. IFAD, 2003. Dommel, 2002 and Hopkins, 2002. IFAD, 2000.
Dommel, H. (2002). "Reaching the MDGs through Financial Services". Unpublished background paper. Rome: IFAD. Glickman, P. (2002). "IFAD’s Role in Supporting Decentralization". Unpublished background paper. Rome: IFAD. Hopkins, R. (2002). "Rural Financial Services: Why Institutional Analysis and Policy Dialogue Are Essential". Unpublished background paper. Rome: IFAD. International Fund for Agricultural Development (IFAD) (1999). "Evaluation of the IFAD Special Programme for Sub-Saharan African Countries Affected by Drought and Desertification". Rome: IFAD. ––– (2000). "IFAD Policy on Rural Finance". Rome: IFAD. ––– (2002a). Strategic Framework for IFAD 2002-2006: Enabling the Rural Poor to Overcome Their Poverty. Rome: IFAD. ––– (2002b). Evaluation Profiles. Rome: IFAD. ––– (2003). Promoting Market Access for the Rural Poor in Order to Achieve the Millennium Development Goals. Rome: IFAD. Mathur, S. (2002). "Promoting Development and Diffusion of Pro-Poor Technologies". Unpublished background paper. Rome: IFAD. North, D. (1993). "Institutions and Credible Commitment". In Journal of Institutional and Theoretical Economics. Vol. 149, No. 1. Thapa, G. (2002). "Agrarian Reform: Institutional Analysis and Policy Dialogue". Unpublished background paper. Rome: IFAD.
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