The donors that have long dictated Nepal’s development agenda have been doing so mainly due to the failure of Nepali officialdom to clearly define and articulate our national agenda and priorities, and thereby influence donor agenda. While our periodic plans have been too general in their prescription, enabling the donors to use it to support their own freewheeling ideas, our foreign aid managers too have been unquestioningly indulging the donor community. Briefly put, the donors propose and our officials approve, no questions asked. Such an approach to foreign aid is partly inspired by our acute need for foreign capital transfer to keep our balance of payment in the black. But the fact that the problem persists even as remittances have been pouring in from the Gulf countries points to a deeper malaise. Seen in this light, our foreign aid apparatus lacks both the institutional mechanism and the capacity to subject donor proposals to professional scrutiny to bring them in line with our national priorities and local conditions. We do not seem to have learned much from our bitter past experience of being dictated by the donors.

Another episode of the acquiescence to foreign donors is in the offing. Poverty in Nepal is mainly rural in character. One promising initiative for its alleviation has been the Small Farmer Cooperatives (SFCL), innovated and assisted by the GTZ, a German INGO, since late 1980s. The SF co-ops are distinctive in that they are self-managed by the farmers, are self-sufficient in management costs, and cater to a large proportion of small farmers in village development committees. The credit is tied to income generating activities, thus making significant contribution to their household economy.

Among other outstanding features of SF co-ops is that they also enjoy access to bulk lending by the Agriculture Development Bank (ADBL), now channeled through the Sana Kisan Bikas Bank. These bulk loans are retailed to the members (at a slightly higher rate of interest to recover the transaction cost), enabling them to make relatively large investment in income generating activities, thus helping small farmers rise above the line of poverty. This innovative facility also points to the possibility of mobilising the vast liquidity in our banking sector to accelerate rural poverty alleviation without having to rely on foreign loans and grants, the latter having only encouraged delinquencies in the past.

Most SF co-ops have a recovery rate of 100 per cent on loans from own sources, but delinquencies on ADBL loans are higher. However, this should be attributed to the unpredictability of ADBL policies because it regularly offers rebates on delinquent loans to salvage them which has, however, only encouraged more delinquencies. The SFCL programme has been on retreat historically due mainly to the Maoist insurgency. Compared to 622 VDCs covered by the Small Farmer Development Project, the precursor of the SFCL, at present it is limited to only 228 VDCs. However, the External Project Progress Review of 2003 conducted by German and Nepali experts hailed the programme as being “probably one of the most successful” — if not the most successful - poverty alleviation programme in Nepal that had “dramatically changed the fortunes of many small farmer members for the better”.

The co-ops were “sustainable, cost-efficient and owned” by the target people themselves, and functioned as “important and effective forums for social and economic development in the communities”. The review had recommended for its accelerated replication leading to “400 SFCLs with 400,000 households in four years” in the country. The latest inter-governmental consultations on Nepal German co-operation too had re-affirmed German support for the programme.

However, the new German head of the programme in the GTZ who took over soon after the external review had a different idea. He has lately submitted to the Finance Ministry a new proposal committing GTZ resources for urban employment instead, to be spent through the Chambers of Commerce and Industries, sending shock waves through the organisations working for SF development.

This raises many uncomfortable questions about the role of donor officials in the management of foreign aid in Nepal. First, how could an individual donor official moot a proposal that flies in the face of all previous recommendations and commitments? Secondly, on what grounds did the donor organisation, the GTZ, endorse such a departure that blatantly seeks to undermine its own commitments and findings of the study it had funded?

Thirdly, while donors are to work with their government counterparts within the latter’s priorities, how could one donor official take the license to bring it to the Finance Ministry directly? And finally, where does the so-called National Planning Commission stand in this respect?

Shrestha is a development anthropologist