Devendra Pratap Shah

Development efforts in countries like Nepal become meaningful only when they benefit poor people. Nepal has been pursuing planned development for nearly five decades, but the country’s poverty ratio still remains one of the highest in the world. Nepal is characterised by great disparities in sex, caste, ethnic groups and regions. Nepal’s current Tenth Plan, declared as country’s poverty reduction strategy paper (PRSP), aims at reducing poverty ratio to 30 from 38 per cent in normal case scenario.

Donors led by the World Bank (WB) have commitments to support Nepal’s development efforts based on PRSP. At its 1999 annual meetings, WB revealed that “country-owned” poverty reduction (PR) strategies should form the basis for all WB concessional lending to developing countries. These strategies would take the form of papers called PRSP. In recently concluded Nepal Development Forum (NDF) meetings, this was made clear. Reducing poverty is not simply a matter of raising investment and growth rates. Over past few decades, Nepal achieved good rates of growth and investment, with macroeconomic stability. However, inequalities appear to have increased and most people living in rural areas have not seen improvements in their incomes or living standards. Women and those living in remote areas have fared particularly badly.

Inefficiencies in Nepal’s public institutions and financial markets have been hindering growth, but at the same time, structural problems are also significant. They include uneven development, failures of governance, discrimination and conflict, major obstacles for PR. In NDF meetings, donors expressed Nepal was at a critical juncture in its history and there was a risk that it could become a “failed state.” Their support to Nepal’s PRSP is to avoid this.

In order to address Nepal’s complex poverty problem, the Tenth Plan has indicated several targeted programmes. One of them is creation of Poverty Alleviation Fund (PAF) as an umbrella organisation in order to strengthen targeted programmes. Perhaps it would be relevant at this stage to remember that it was Agricultural Development Bank (ADBN) which started for the first time in Nepal a targeted PR programme called Small Farmers Development programme (SFDP) during mid 1970s. Many donors including Asian Development Bank (ADB) supported SFDP, considered as most successful programme for years. SFDP innovated that group savings, training, credit and later, poor people’s own institution are required for any targeted programme to succeed.

However, on the ground of viability and outreach, SFDP later in its original shape was to have failed to deliver. But ADBN continued and upgraded it to Small Farmers Cooperative Limited (SFCLs) and made further innovations to change life of rural poor, latest being establishment of Small Farmers Development Bank. The new bank is supposed to provide wholesale credit to SFCLs, VDC level financial institutions owned by poor. More than 150 SFCLs have been making tremendous impact in rural Nepal in terms of income level, empowerment, skill and even cost-effectiveness in running anti-poverty programmes. Most targeted programmes are centrally conceived, designed and implemented whereas SFCLs members themselves design, decide and implement programmes. But it is unfortunate that the country’s policymakers are little aware of it. SFCLs are involved in social and financial intermediary functions with the technical support of GTZ. Financial intermediary function is expensive in micro credit. That is why the lending rates of Grameen Banks and other microfinance institutions are high to cover their high operating costs ranging from 10 to 20 per cent of their portfolios. However, SFCLs at the same time are surprisingly running at 2 to 3 per cent.

Donors advocate cost covering lending rates, but give less emphasis to reduction of transaction costs. The Grameen model could not be successful in hills and mountains because it demands big clusters of inhabitants, and at least small trade centres where people buy and sell products for profit. But SFCLs have shown they are appropriate and can sustain even in the hills and mountains. So innovation of SFCLs is important and could be multiplied to all over the country provided that the government understands and supports it. Newly established PAF is expected to support SFCL type of organisations in terms of institutional strengthening and pushing micro social activities including education and health. It is being heard that it has already started to function and implement programmes in six districts by itself. By doing so, it would be hindering multiplication of on going effective programmes and thereby inhibiting outreach. As there is a lack of an apex organisation for monitoring and assessing the performances of targeted programmes, PAF can fill up the vacuum. It is expected to develop, encourage and support institutions dealing with PR activities effectively. It also should have its own training centres for producing skilled and committed manpower. Other functions may include regulation of micro finance institutions, study and research of effectiveness of PR programmes, on the basis of which PAF provides grants and other supports to implementing institutions. Shah is ex-chairman and general manager of ADBN