99697 The Private Sector and Poverty Reduction L e ss o n s f r o m t h e F i e l d April 2012 ii T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n Lessons from the Field iii Contents Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Dimensions of Poverty: Responding to Diverse Concerns. . . . . . . . . . . . . . . . . . . . . . . . . . 2 Understanding the Perspective of the Poor: A Demand Assessment. . . . . . . . . . . . . . . . . . . 3 Telecom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Farm Forestry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Micro-Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Water and Sanitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Adjusting Supply to Meet Market Realities: How Companies Engage with Beneficiaries . . . . . 9 Micro-Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Telecom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Farm Forestry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Water and Sanitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Access to services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Micro-finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Water and Sanitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Farm Forestry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Affordability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Synthesis and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Acknowledgments and Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Photography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Abbreviations CSR Corporate Social Responsibility Policy GPOBA Global Partnership on Output-Based Aid IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation NGO nongovernmental organization PRSP Poverty Reduction Strategy Paper SME Small and medium enterprise iv T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n Foreword P rivate sector investments create jobs, improve productivity, and foster innovation and technol- ogy adoption—which can all lead to reductions in poverty. But it’s not just a numbers game. In order for the poor to benefit, the jobs created should be those that take advantage of the skills and talents they have to offer and innovation and technology should truly make life easier for those expected to use it. The International Finance Corporation’s (IFC) mission is to create opportunities for people to escape poverty and improve their lives. It pursues this mission by promoting growth through support for private sector development. The Independent Evaluation Group’s (IEG) evaluation, Assessing IFC’s Poverty Focus and Results, aimed to contribute to the enhancement of IFC’s poverty focus and its effectiveness for greater poverty impact. Behind all the numbers are the real affect such programs have on people’s lives. Understanding the human dimension of poverty is vitally important when determining whether a project really achieved the impact it was designed to. The findings from the field studies that are included in this report illustrate that success, or lack thereof, is a result of the manner in which each project addressed the fulfillment of a legitimate identified need. I hope the case studies and lessons presented here offer a deeper look into some of the issues that must be thought about when developing projects intended to improve the lives of the poor. Caroline Heider Director-General, Evaluation Lessons from the Field 1 Introduction P eople are the arbiters of their own devel- opment. The mission of the International Finance Corporation (IFC) is to create oppor- IEG evaluation, “Assessing IFC’s poverty Focus and Results.” The countries for these case studies were tunities for people to escape poverty and drawn from the two areas of the world with improve their lives. How people perceive the highest incidence of absolute and propor- their own capacity in relation to opportuni- tional poverty—Asia and Africa. The projects ties presented by a development initiative will represented four different sectors of economic profoundly affect their motivation and ultimate activity, each important to poverty reduction: effectiveness in escaping poverty and improv- ■■ A micro-credit and savings financial ing their living conditions. There is a subjective service in a large Central African country; dimension to poverty which relates to peoples’ perceptions and translates into such basic ■■ A telecom project in a small East African human concerns as self-confidence, motivation, country; and hope. Successful development projects tap ■■ A farm forestry project in a large South into this dimension and enhance the meaning Asian country; and people give to their endeavors so that people ■■ A water and sanitation project in a middle- become the architects of their own develop- sized East Asian country ment. Understanding this human dimension of poverty is best carried out by respectful Field work for these case studies was con- listening, amplifying the voice of the people. It ducted from June through September of 2010. was to gain this human understanding that the This report will discuss a number of issues Independent Evaluation Group (IEG) selected relating to the poverty reduction effectiveness four case studies in as many countries and, of these four projects: the rationale behind with the collaboration of local research teams, their support; understanding the perspective listened to randomly selected intended ben- of the poor (demand assessment); adjusting eficiaries of development assistance to under- supply to market realities (how companies stand what projects in diverse sectors meant engage with beneficiaries); access to services; to their own self-development process. These affordability; and effects (results), followed by case studies were done as part of the broader a summary and conclusion. 2 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n Dimensions of Poverty: Responding to Diverse Concerns E ach of the four case studies selected for this IEG evaluation addressed a set of needs particular to a local cultural and institutional poorest countries in the world), there was an understandable, if partial, rationale for the Village Phone Program supported by context: the IFC in 2008. ■■ Financial services in a large Central ■■ Farm forestry project in large South Asian African International Development country—here the project was to facilitate Association (IDA) country—the dearth of the provision of eucalyptus trees to small such services can be seen in the fact that farmers, with loans for the purchase of at the time of the field work for this study the trees where needed. Income obtained there were only 350,000 people holding from the sale of the pulpwood to local bank accounts in a population estimated at pulp mills was to augment the meager 70 million. Part of the reason for this low earnings of these farmers. number of users of the banking system was a lack of transparency in this system ■■ Water and sanitation project in medium- in the 1990s, which lead to widespread sized East Asian country—a clear-cut suspicion of banks, voiced by 80 percent rationale: the urban poor were paying of people sampled in this study. During significant amounts of money for low- the intervening years, between the time quality water. They wanted and needed of the high-cost banking system and the better water, at prices they could afford. launching of the project, banking became The IFC project, in collaboration with the a service confined to large enterprises and World Bank, addressed this need. the rich; ordinary folks kept much of their money at home. This project addressed All of these projects were meant to this financial void. respond to particular needs which, if well addressed, could help reduce poverty: micro- ■■ Telecom project in small East African finance, both credit and savings, in a country nation—a participatory poverty assessment lacking in a sound, credible financial system; done in the late 1990s found that the poor telephone communication in a land hampered of that country signaled isolation as a by the remoteness of its already isolated major factor contributing to their poverty; population; the provision of trees to enhance most of the population, living in small, the income of poor farmers in a land where remote villages were simply cut off from agriculture still employs the majority of the markets, sources of employment, and, population; and quality, potable water and broadly speaking, each other. Indicative sanitation for urban poor suffering from poor of the peoples’ isolation is the fact that hygiene and health, and low self-esteem, as a as late as 2006, two years prior to the result of high-cost, poor-quality water. Much of inception of the IFC telecom project, the the success of these endeavors, or lack thereof, telephone penetration rate was only 6.4 will be seen not primarily in the rationale percent; many villages had no telephone for their support but rather in the manner service at all. Given this situation and in which each addressed the fulfillment of a the dire poverty of much of the country’s legitimate identified need. population (it is considered one of the Lessons from the Field 3 Understanding the Perspective of the Poor: A Demand Assessment O ne would expect that development institu- tions are more comfortable and compe- tent in determining issues of supply than those individually-owned mobile cell phone. The two key advantages of the village phone were signal permanence and economy of scale. of demand. After all, these entities and their Given that the population of this country was grantees/borrowers manage and control what among the poorest in the world and its rural they offer. The demand for what they offer is, majority lived in remote, isolated villages, this however, beyond their control and hence poses combination of low cost usage with a perma- potential difficulties. Ascertaining the poten- nent telephonic signal probably seemed like tial and real demand for a good or service is a sound basis for estimating a large untapped a challenge which requires an understanding demand for village phones. In retrospect, it of the culture, the values, and the behavior of is difficult to severely fault this project for the persons for whom this good or service is failing to foresee a rise in the use of mobile intended. While there are shortcuts to gaining phones from close to six percent in 2006, two this understanding, the most effective man- years before the inception of the project, to 92 ner is simply structured listening to the points percent of those randomly sampled at the time of view of the people meant to benefit from of this case study in late 2010. Poor people a development project, using largely qualita- living in remote villages wanted and needed tive, yet quantifiable, research methods such as to communicate with persons outside of their those used in the four case studies discussed in this report. While these case studies focused primarily on gaining an appreciation of the perspectives of intended beneficiaries, not on the methods employed by the IFC-supported companies to understand their client populations, the lens of the people permits a sound assessment of the effectiveness of ways used to know them. This chapter will highlight the manner in which the perspective of the poor, the intended ben- eficiary, was or was not understood in each project that was studied. Reviewing the four case studies, two—telecom and farm forestry— clearly missed the mark and two—micro- finance and water—were far closer to the mark in the proper assessment of demand. Telecom The Village Phone Project in a small East African country may well have understood its intended beneficiaries at the time of launch- ing, or at least to a considerable degree, but it failed to properly gauge the imminent rise of the primary competing product, the 4 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n villages. The village phone could well have only five, less than one fifth (17 percent), had met this need. Low cost mobile phones were used the village phone. Only one entrepreneur simply more convenient and more appropri- used the village phone to conduct business. ate to the peoples’ needs and values than the She, like other sand collectors in her village, village phone. had no mobile phone and was thus obliged The telecom company supported by IFC to use the village phone to contact custom- did appear to misunderstand the perspective ers. Two other entrepreneurs used the village of the poor in one major way. This misunder- phone only for family reasons. The remaining standing can perhaps best be grasped in the two entrepreneurs used the village phone for story of the entrepreneurs, a group that was business in a limited way—to place orders or intended to particularly benefit from the vil- inform buyers, never to discuss money. This lage phone. The sample of 29 entrepreneurs need for confidentiality in discussing business interviewed in the four villages covered in affairs appears to have been seriously over- this case study is small but indicative. Over looked in the design of this project. People in two thirds (69 percent) of these small busi- this country—not unlike those in many other nesspersons possessed mobile phones, but countries—simply desire to keep information about business strategy and money matters between themselves and their interlocutors, outside the public domain. In the words of one businessman who lived in a village with a vil- lage phone: I have my secrets and the village phone limits privacy. This is the reason why I use my own cell phone, even if it is a little difficult to capture the signal. I have to go upstairs and stand at a precise place and at the lightest movement, the signal is gone. Even if the village phone were priced low enough to compete advantageously with mobile and taxi phones, this cultural value placed on confidentiality, particularly regard- ing financial matters, would likely do much to thwart the success of this communal phone endeavor. Farm Forestry The farm forestry project in South Asia seemed to misunderstand the value of its product (eucalyptus trees) to not-so-poor farmers who, enticed by what they were told and ignorant of realities, got into a situation which left most disaffected. First, as mentioned above, the project was simply not consistent with the immediate needs of poor farmers. Those farmers that appeared to have the means to Lessons from the Field 5 benefit—possessing from two to ten hectares participating farmers who stated that the proj- of land—comprised the middle—to upper- ect had fulfilled their expectations was low, at middle-income stratum of farmers in the 21.4, it was particularly telling that whereas project region. The small and marginal farmers, close to a third (30.9 percent) of the male who included the poor and made up over two farmers expressed this fulfillment of expecta- thirds (68.3 percent) of all farmers, were not tions by the project, only a small 6.7 percent of likely to benefit from growing this costly crop. the female farmers had this positive reaction to Eucalyptus cultivation has been shown to be it. The apparent neglect of engagement of the expensive: $638–$851 per hectare with a long female segment of the beneficiary population gestation period bringing returns in three to does not show a keen understanding of the five years. Marginal, poor farmers simply can- perspective of the poor. not afford to invest in a product which takes this amount of time to bring returns. As one put it: Micro-Finance We do not invest in farm forestry, because it The micro-finance institution in a large Central takes a lot of time to give results. We prefer African country tapped into a vast latent to do farming on a yearly basis, so that we demand for financial services in its client may get monthly or yearly income. population. This is a remarkable achievement given the dire situation in which the people The farm forestry project did tap into a of this country find themselves. The country desire on the part of farmers for increased has been placed at the very bottom of all the incomes. Fully 95 percent of the participants countries of the world in development, mean- said they got involved in the project to increase ing its health, education, nutrition, and life their incomes. What the project failed to do expectancy indices are the lowest on earth. was properly understand the livelihood reali- The Interim Poverty Reduction Strategy Paper ties of its intended beneficiaries to profit from (PRSP) of 2000 stated that “nearly 80 percent” their investment in eucalyptus trees. The reality of this country’s “52 million inhabitants survive that investing in the cultivation of this tree was on the edge of human dignity.” Compounding above the means of many farmer-participants the country’s poverty, and contributing to it, can be seen in the fact that over half (52 are the 30-year and continuing war and politi- percent) took out credit to meet the high costs cal instability. In such a desperate situation, of the initial investment required. Many of the one might expect people to lose hope and live farmers were unable to pay their debts on time only for the present, doubting whatever good and thus the project had the unintended result fortune might arrive tomorrow. What is so of increasing indebtedness. A further misread- commendable about the micro-finance project ing of the beneficiary farmer population was reviewed here is that it capitalized on the hope that farmers wanted and needed training and of the people of this tortured land for a better extension on a regular basis to help them get life, one more secure and less impoverished the yield they needed on their tree crop. Many than the one being suffered through at present. had no previous experience growing eucalyp- The country’s financial sector was in a tus trees. They were disappointed at the lack of state of profound disarray during the lifetime follow-up visits on the part of the company. of this project, 2005–2010. Less than one The farm forestry project bypassed two percent (.005 percent) of the country’s popu- important components of the beneficiary popu- lation had a bank account. Of the randomly- lation: women and youth. Effective outreach selected small and medium enterprise (SME) for understanding a poor population requires managers (108) interviewed for this case coming to terms with all major elements study 80 percent suspected the integrity of of this population. While the percentage of the financial system because of fraudulent 6 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n practices in this sector in the1990s. Informal these are building blocks in a foundation for a micro-financial institutions, while popular in better future. their particular localities, had little penetration One solid indicator of the pervasive and in the population as a whole. Street credit, at future-oriented nature of this micro-finance 50 to 70 percent monthly interest was under- project may be seen in its effective reach standably prohibitive for most. Into this bleak to all segments of the urban population. In financial picture stepped the IFC-supported stark contrast to the farm forestry project, bank, which, as seen, was the first financial which left women and youth disaffected, this entity to set up branches in the trading sector micro-finance project was seen as particularly and urban neighborhoods of the country’s useful by both women and youth. Women capital city. This bank grew to have 120,000 were shown to be especially prone to obtain- customers from the time of its inception to ing credit due to their perceived increased the time of this case study in 2010. credibility and reliability. A clear majority This IFC-supported micro-finance institu- (83 percent) of IFC-supported bank custom- tion seemed to understand that people living ers in areas of intense commercial activity in an impoverished land with poor public in one community where the bank had a services and an unstable political system branch, mentioned easy access to credit for would need to rely on themselves as much women as a major benefit provided by the as possible. They would need to believe in bank. The importance of financial services themselves and build on this belief for a to women is testament to the value of this hoped-for better future. One needed tool for project as a facilitator for opportunity for constructive self-reliance was clearly finan- future advancement. Women were most apt to cial. Access to credit and a secure savings use financial services, credit, and banking for account would help people gain the means the health and education of their children and and the security to help lift themselves out of for better nutrition for the household. Youth poverty and provide the confidence needed also expressed satisfaction with the finan- to weather the harsh economic and political cial services they received from this project. conditions in which they lived. Indeed, when For most (62 percent) of the youth, savings asked about the major changes customers of were an important way to discipline spend- the IFC-supported bank experienced after ing. Access to the bank also provided more roughly two years of service by the bank, the business-related benefits, such as increases in major change given was “social stability” (50 sales and revenues, expansion of commercial percent of those interviewed in one area with activities, addition of new products, and, more a bank branch and 32 percent in the other generally, enhanced self-confidence. This IFC- area). As one person with a savings account supported micro-finance project clearly under- put it, “Money is safe and we obtain more stood and responded to a real human need of social stability.” Money in a bank is more ordinary, largely poor persons in a distressed secure, protected from robbery/ confiscation society to gain a more solid footing to help and less apt to be spent. More basically, of themselves improve their own condition. course, financial services are a needed under- pinning of business and family transactions. The bank customers in the two urban areas Water and Sanitation where a bank branch was located who were interviewed for this case study mentioned a Of the four case studies reviewed here, the number of major benefits received by their water and sanitation project in East Asia was association with the bank: improved educa- the most holistic, responding to the multifac- tion for their children, purchase of a house, eted living conditions of the poor. As seen, expansion of commercial activities, access to the IFC-supported company in this case made credit, and good money management. All of a concerted effort to address the urban poor, Lessons from the Field 7 as part of its Sustainability and Corporate The Social Dimension Social Responsibility (CSR) policy. The project had clear economic benefits for the people it This water project transcended the inher- affected: it reduced water costs, freed up time ent value of what it provided by valuing the from waiting in line for water, and created humanity of the people for whom its goods water-related employment opportunities. The were intended. People here were seen as active project also brought improvements in health participants in development rather than passive and hygiene, concomitant with improvements beneficiaries. They were also seen as members in the quality of water. What made this project of a community, in relation to their neighbors unique and truly responsive to the wants and and as a function of their own self-worth, or needs of the poor were two primary fac- dignity, in the eyes of others. tors, its attention to basic needs and its social The community-involvement program of dimension. the water company has been seen to serve as an effective mobilizer of the people on their Attention to Basic needs own behalf. With this program, the community association, led by local officials, mobilized Providing improved, potable water at lower the savings of households and other resources cost to previously poorly-served communities of the community for the installation fees and is in itself a major, most appreciated achieve- monthly collection of user fees. The poor were ment. The intrinsic value of what a project not treated as objects of charity but as subjects delivers may seem overly self-evident to war- of their own betterment process, responsible rant mention. Nevertheless, it would be remiss for choosing the connection scheme and col- to neglect the importance of the link between lection arrangement of their own community. what a project provides and what a given The organization and mobilization of benefi- beneficiary population feels it truly needs. ciary groups in the improvement of the water The additional income made possible by the eucalyptus trees in South Asia was appreci- ated, but not basic. Telecom services were a clear benefit to the people of East Africa in the telecom project, but, again, these were hardly basic. Even the financial services reviewed in the Central African country, despite their real benefits, were more of a facilitator than a pre- condition for a good life. Water, on the other hand, was seen by the beneficiaries of this East Asian project, as it is all over the world, as one of the basic ingredients of life itself. The case study report quotes mothers among the urban poor population benefiting from this project as saying: “Water is central to our life! Without it, life is not possible.” They said they can afford to lose their access to electricity but not water. Much of the value of this project, then, was that it addressed a basic need, water, seen by its ben- eficiaries as essential to their lives. 8 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n system led to these groups being accessed by In general, having no access to potable local officials for other, non-project related, water in the home is a clear marker of community services. This collective develop- poverty in the city because walking to fetch ment effort had an additional advantage of water in plastic containers (or bamboo tube providing leadership training. Because they container) is highly associated with rural had to organize the beneficiaries in terms of poverty, backwardness, and ignorance. installation of the pipes and collection of the For the beneficiaries, then, having access to fees, this project trained community officials piped water in their homes became a clear in forging collaborative partnerships with local marker of social improvement in their lives. government and the water concessionaire, the They argued that now they feel equal with IFC-supported company. Thus, both communal the better-off residents of their community. self-help and local leadership were enhanced They also said that being able to pay for by this project. water makes them feel that they have better Certainly as significant as this communitar- economic capability and have improved ian aspect of the project was its response to a their social standing in the community; “we more psychological need of the poor, the need are not anymore viewed by the others here for dignity. Part of the perspective of the poor as very poor!” is that they do not want to be treated as poor, or lesser in worth. Having quality water and This water project recognized that man is sanitation is one indicator of a person’s status. a social animal. We do not ultimately live alone This has been one of the indirect, insufficiently but with each other. By building with and on heralded benefits of the urban upgrading communal association, the project strength- projects supported by the World Bank Group ened people’s trust in each other. By providing and other public and private entities all over important roles for local leadership, the project the world. Certainly this water project in a increased respect for local authority. By facili- medium-sized East Asian country touched a tating a benefit which increased self-esteem positive chord with its beneficiaries in making and one’s worth in the eyes of others, the them feel more integral to and respected by project responded not only to the basic mate- the larger society of which they were a part. As rial need of water, but the basic human need the field report put it: of dignity as well. Lessons from the Field 9 Adjusting Supply to Meet Market Realities: How Companies Engage with Beneficiaries P roviding access to affordable goods and ser- vices is clearly a key ingredient of successful development endeavors. Also important is the raised high expectations among farmers, pro- vided them insufficient training and extension, and poorly informed them about their credit manner in which a company, the IFC client, obligations thereby deepening their indebted- adjusts supply to market realities, or demand ness. By contrast, the water project met with or, alternatively, how the company engages its accolades from its beneficiaries as a successful intended beneficiaries. This engagement can activity which made partners out of low- take the form of providing information about income households to assure the provision of the product, training in the use of this product, quality water in an affordable and sustainable enlisting the collaboration of the community to manner. expedite project-related work and reduce costs and, underpinning all of this, consultation. The four case study projects reviewed here dis- Micro-Finance played a discernible diversity in their forms of interaction between company and beneficiary. Perhaps the most important reason for the Generally, the more engaged the company, the success of the micro-finance project in a large more successful the project. The micro-credit Central African country was simply that the institution responded effectively to a clear, product (finance) met the unrealized need of pent-up demand for financial services among a large beneficiary population. Less than one the population it served. The telecom company percent of the vast population of this country not only misread the advances in technology was served by any formal financial institution in its field but inadequately informed benefi- at the time of project inception, 2007. The ciaries of the advantages of the service it was distrust of the banking system was due to a providing. A more dire situation was seen in lack of transparency on the part of many finan- the farm forestry project, where the company cial institutions. For instance, among credit 10 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n cooperatives, two thirds (66 percent) of funds seen in the statistic that close to two thirds deposited in banks disappeared causing a loss (64 percent) of bank customers had balances of 80 percent of customers between 1991 and of less than $100 at the time of the case study. 1993. There were a number of other kinds of The importance of having a branch in one’s informal financial institutions operating at this neighborhood is seen in the phenomenon of a time, nongovernmental organizations (NGOs), clear majority (75 percent) of the residents of tontines, and other mutual aid groups. But the communities with a bank branch had opened rate of penetration of these private financial a savings account, whereas this proportion entities was extremely low and, concomitantly, dwindles to less than a fifth for people living the demand for the kind of services they in neighborhoods without bank branches. provided very strong. One NGO which began Much of the success of this IFC-supported operations in early 2003 was offering these financial institution may well be due to having financial services to over 7,000 clients after the right product in the right place at the right only eight months of existence in the capital time: credit and savings in a war-torn country city of this country. The IFC-supported bank with a troubled past including a discredited acquired more than 120,000 customers from financial system. Place branches close to where 2005, its time of inception, to 2010, represent- people live and work and facilitate savings and ing a penetration rate of 24,000 customers per the people will come. People interviewed for year. this case study mentioned a number of areas Part of the wonder of this micro-finance where this bank could have been even more project is that, despite the dire poverty of proactive and responsive than it already was: much of the country’s population, it served such an unfulfilled demand. The poverty ■■ Much as with savings accounts, the bank condition can be seen in the food budget of could reduce the conditions for opening $94/month of the average family of seven accounts and granting of credit to persons which works out to $0.45 per person customers; a day, less than half the low internationally- ■■ Allow flexibility for repayment by granting recognized rate of poverty of $1.00 per person a grace period. In the words of one group per day. One developmental truth is that of women in one of the communities money takes on particular significance for the where the bank had a branch: “Grant poor. Money meets major needs. Money also the amount actually requested and allow provides security against unpredictable acts of borrowers enough time to make profits man and nature. The former of these, in the before requiring repayment;” form of war, corruption, and unstable politics, ■■ Educate the people (in this financially characterized this country and heightened the underserved population) regarding what value of credit and savings in this impover- banking is all about. As one SME owner ished nation. in a community with a bank branch put The IFC-supported micro-finance entity it, “The bank should teach us how the featured in this case study not only offered a services to clients work, how and why to product in high demand; it did so in a proac- save;” tive, responsive manner. This bank was the first to open branches in the urban neighbor- ■■ Related to the previous point, place more hoods where ordinary people lived, seven over emphasis on training, as follow-up and the first five years of existence. Furthermore, for supervision. Training, provided with this bank reduced the conditions for opening support from the IFC, has been seen to be a savings account to the presentation of an ID most effective for bank borrowers; card and an initial deposit. No fee is required ■■ Improve bank physical facilities: reception for opening a savings account. The gearing area and waiting room conditions; and of these financial services to the poor may be increase the number of counters. Lessons from the Field 11 Telecom and agricultural production. Given that this information service was meant to supplant the While there was more than ample demand for mere use of the village phone over time, it is financial services in the large Central African remarkable that there was close to no knowl- country, there was insufficient demand for the edge of this service in the sample villages village phone in the small country to the east. containing a village phone. Three of the four This low demand made publicity and consulta- village phone operators had never heard of the tion with users, village phone operators, and service; the fourth remembered a written mes- potential consumers, all the more important. sage she had seen months before the interview. Yet, despite this need, there was minimal She did not know important details about the engagement on the part of the company with program, such as her ability to sell information its clients. Given the effective and pervasive via the village phone. Not only village phone competition from individually-owned cell operators, but none of those interviewed either phones, it is likely that this project would have individually or in focus groups had heard had difficulty meeting its objectives regardless. about this information service provided by the Nevertheless, the low level of engagement with IFC client. Indeed, it appears that the telecom beneficiaries exacerbated an already difficult company took a decidedly passive stance vis-à- project development process. vis its intended beneficiaries. Approximately 80 The premise of the village phone program percent of villagers interviewed had never used was sound: providing affordable phone service the village phone operator services provided to a sparsely settled population living in one by the project. of the poorest countries on earth. The village Personal interaction between company phone program was designed as a cost-effi- staff and the village population it served was cient addition to existing network infrastruc- ture, effectively extending coverage beyond the point at which a conventional network rollout would be too expensive. The village phone program provided a village phone operator with a mobile phone to be used as a public phone. The problem was that the public didn’t use this village phone. One clear reason for this low buy-in of the village phone was the competition from increasingly available and inexpensive cell phones. Another obstructive factor, as noted above, was that people were averse to using the village phone because they did not want their private conversations to be overheard. One wonders whether there was sufficient consultation between the company and potential users of the phone program to adequately understand this popular aversion to conversing in public. This kind of prior consultation, during project identification and design, is of paramount importance in assuring a sound development project. A positive feature of the village phone program noted by company officials dur- ing field visits was its facility as a provider of information, particularly on public health 12 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n infrequent and sporadic, at best. The only Farm Forestry training provided by the company for the vil- lage phone operators was at the time of village Similar to the telecom project in East Africa, phone launching. The ignorance about and low the farm forestry project in a large South Asian usage of the village phone was seen by one country suffered from inadequate engagement village phone operator as evidence of a need by the IFC client and the beneficiary popula- for support from the company to advertise the tion. The farmers who were intended to benefit nature of its business. The problem wasn’t only from this project often did not do so because a lack of consultation by the company, but a they had been led to believe, in discussions lack of clarity in consultation. Two of the 29 with the company’s representatives, that they entrepreneurs interviewed for this case study would receive higher returns on their invest- said they had expressed interest in managing ment than they in fact received. Rather than village phones but had not been selected by recapitulating information already provided, the company. The reasons for their not having this issue of finding a proper fit between been selected were never made clear. One supply and market realities, or engaging the of the village phone operators complained beneficiaries, regarding this farm forestry about a lack of transparency on the part of the project, may be best addressed by looking at phone company; she was not selected by the four issues: training, gender, livelihood needs, company for a certain installation. Again, no and age. explanation was given. Eucalyptus trees are a difficult crop to Effective engagement with intended bene- grow. Aside from the long gestation period, ficiaries touches all levels of a community. Key this crop has special requirements concerning informant interviews with community leaders fertilizer, insecticides, weeding, and irrigation, done for this case study revealed that there all of which require good training. Indeed, had been little to no consultation between the field report on this project signaled four company officials and village mayors. These characteristics of successful project beneficia- mayors felt that communication with them ries: those who planted on wasteland, those could have been relevant inasmuch as they with access to irrigation, those aware of the knew conditions in their localities. One advan- technical aspects of farm forestry and those tage of the village phone was that it offered who took proper care of tree plantations. The the cheapest price of electronic voucher last two of these depend directly on training. distribution and airtime with a strong, perma- While the great majority (91 percent) of the nent signal. One mayor explained “this village project participants received training from the phone could be very interesting for us because company, the average time of the last training only five of the 15 villages in the Commune received was 3.5 years. Generally, training was can capture a good signal (one of the two provided at the time of the farmers’ inception competing companies).” This same advantage and in the early phases of the program. There of the village phone was mentioned by other were no follow-up visits, a cause for disap- mayors whose constituent populations also pointment on the part of many farmers. As one suffered from weak signals. Despite the strong, put it, apparently unforeseen competition from mobile phones, with their low prices, conve- They [company officials] came and clarified nience and privacy, the village phone may well what steps we must undertake to grow these have been a viable service in remote villages crops, what precautions should be taken, and still lacking good, permanent signals for phone many other important points. Two or three communication and with a well-publicized, people used to come. Earlier, they came useful information facility particularly oriented frequently, but these days they do not come. to agricultural production, the major source of livelihood for the country’s rural population. Lessons from the Field 13 The full participation of women in a devel- In the country where this project was opment activity is a prerequisite to its success. located, as in many others, the sale of agricul- This gender issue is particularly important tural produce is made by men. Men receive the in agriculture, an area in which women in income from the sales and often spend much most developing counties participate as much of it to fulfill their own wants. In the case or more than men. Yet in this farm forestry of this project, added income often went to project, the company engaged primarily, if improved tobacco and alcohol and other “con- not exclusively, with men. It is noteworthy spicuous consumption…confined to the male that a mere 6.7 percent of the women farm- personal economy.” If there had been fuller ers stated that their expectations had been engagement with the female farmers, proceeds fulfilled by this farm forestry program com- of the project might have been more devoted pared to close to a third (30.9 percent) of the to the betterment of nutrition and education men. It appears that the company had simply for children than was the case. failed to inform many women of a number Another significant group of the local of aspects of the program, including, notably, population that was dissatisfied with this the financial aspects. Over a third (35 percent) farm forestry project was the youth. Given the of the women said they were unaware of the importance of youth to the future develop- economic aspects of this project. Women were ment of a country, it is obviously important often simply not informed as one woman to take its interests into account in the design farmer expressed it: and preparation of a development endeavor. Yet, youth were not favorably disposed to this See, we worked on the farm; then they came, project, not because of its being farm forestry, brought their people, and planted trees. At but simply because of their antagonism to the same time they gave only $32 once and agriculture. Youth preferred “stable, permanent later paid us $43. That is all that I know… monthly incomes,” a security not offered by They did not tell us anything, so how will agriculture. One young farmer expressed these we know. sentiments as follows: 14 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n They [the participant farmers] wanted to earn Finally, the company seemed to neglect the income and they were made to believe that proper engagement of women farmers and they will benefit from farm forestry. But, the failed to orient its activities to the interests reality was very different. They had to spend of youth. This mismatch of supply to market out of their own pocket. This is just plain realities and inadequate or faulty engagement cheating. Some officials from the company with beneficiaries helps explain the conclu- came initially, but nowadays no one comes sion of the field report that this farm forestry to ask or check about the condition of the program “did not have any significant impact trees. People do not have the knowledge of on the overall economy of the village” where it how to plant. operated. This farm forestry project has been seen to be targeted at farmers who are above the Water and Sanitation median income (possessing two to ten hect- ares of land). When the company initiated There is a social dimension to the sustainability contact with farmers, it raised expectations of development activity which is often over- unduly regarding returns from investment and looked: the finding of consonance between a provided poor information regarding credit good or service offered by a project and what requirements. Furthermore, the company did an intended beneficiary values, what provided not provide ongoing training or extension meaning in his or her life. Often, aside from service needed by the farmers, most of whom the intrinsic worth of a development input, had no prior experience with cultivation of the what one values is determined, at least in part, eucalyptus crop, which, with its long gesta- by the degree to which one has invested of tion period, took years returning investment. oneself. The water and sanitation project in Lessons from the Field 15 East Asia managed to provide a service for provided which was the key to its success. The which people felt a real need, potable water, company approached the communities where in such a way that it was both affordable and it worked very much as partners, coordinat- involved the labor and money of the benefi- ing project activities with them, implement- ciary such that he or she gained ownership ing schemes chosen by them, and relying on for the endeavor and saw it as effectively a community-based organizations for planning part of their own development. The IFC client and implementation. In this way, the “benefi- in this case even had a “sustainability report,” ciary” became an active decision maker with in which it laid out its CSR policy. One of the participation and ownership in a development primary initiatives of this policy was the Water initiative which, like the water it provided, for Low-Income Communities program, “the became an important part of the person’s life. Company’s main vehicle to reach out to the In the case of this water project, the most urban poor to address their basic need for successful demonstration of positive engage- clean water.” Unlike the farm forestry proj- ment between company and beneficiary of ect, which was affordable by not poor, but any of the four projects reviewed here, the middle-income farmers, the water and sanita- company served the people in such a way that tion project had a “bias towards serving the they served themselves. The utility tapped the urban poor” as part of its CSR. One way this cooperation of the community officials and the program reached the urban poor was to affili- leading community associations to facilitate the ate with the World Bank’s Global Partnership organization and mobilization of the residents on Output-Based Aid (GBOPA), a grant facility for the improvement of the water system. The which subsidizes connection charges for water community association disseminated informa- and thus increases accessibility of this basic tion (including their rights and obligations) need. about the improvement. More importantly, A key factor explaining the strength and they mobilized the savings of the households sustainability of this water project, aside from and other resources of the community for the the obvious value of the basic need it provides, installation fees and the monthly collection of was the process of development encompassed user fees. Thus, the company was able to enlist by its mode of operations. Thanks to the the community’s human and material resources GBOPA and communal cost sharing, the cost for the organization and administration of the of water, of improved quality, was reduced water improvement program in their respec- by about 300 percent. This allowed a major tive communities. It also made possible the buy-in on the part of the poor. But it was the socialized arrangements of the installation and manner in which water and sanitation were use fees. 16 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n Access to services A ccess to services is clearly instrumental to the success of a development project. Two of the four projects reviewed here facilitated mortality, education, life expectancy, etc. are the lowest, or among the lowest, of any of the world’s nations. The dire state of peoples’ lives access effectively, the micro-finance and water can be seen in the nutrition status: per capita projects, while a third, farm forestry, was more consumption is 1,500 calories a day, a deficit a case of increasing access to a good than of 40 percent of the 2,500 calories deemed a service. The fourth project, village phone, necessary for living a healthy and active life. provided access but ran into a problem of The country is last on the 2011 Global Hunger dearth of demand, so it is not discussed in this Index, a measure of malnutrition and child section. Lessons may be learned from examin- nutrition compiled by the International Food ing how and to what effect each of the three Policy Research Institute. Underlying and exac- projects discussed dealt with access. erbating this dismal development picture is an ongoing war which, over the last 30 years, has caused over five million deaths. The banking Micro-finance sector suffered from mismanagement and cor- ruption in the 1990s; even at the time of this The Central African country where IFC sup- study, in late 2010, over half (60 percent) of ported the micro-finance project selected for the SME managers stated that access to finan- this case study has been rated by the United cial services was restricted to only the rich and Nations as the least developed country in big businesses. Much of the positive impact the world. All development indicators, infant of this project can be seen from the fact that 90 percent of the customers of the IFC client bank, SMEs and individuals, said that tradi- tional banks are accessible to everyone. The case study bank which received sup- port from the IFC made an explicit attempt at reaching out to potential customers by locating branches in seven of the capital city’s neigh- borhoods. Conditions for receiving loans from this bank (similar to those for other financial entities in the country) were onerous: ■■ Presentation of an ID card; ■■ Assessment of the loan applicant’s assets; ■■ Verification of payment of water and bills; ■■ Having a running SME; ■■ Evaluation of reported SME activity; ■■ Presentation/reference of a witness, necessarily a business operator; ■■ Statement of intended use of credit. While the short period of time most of the respondents had been clients of the bank, an average of two years, did not allow for much significant measurable change, it did seem that Lessons from the Field 17 access to credit had a favorable impact on the Indeed, a 2009 evaluation of this project stated lives of most borrowers. One key area where that “savings is as important as credit for low- improvement was registered was income. In income groups;” while average loan amounts the two sample communities where a bank of the bank increased five times from 2005 to branch was located over one third (37 percent) 2010, customer deposits increased 38 times in of the borrowers stated that their income had the same period. In the field study done for increased since taking out a loan compared to this case study, the preponderance of savings less than one quarter (23 percent) among non- was evident: among customers interviewed borrowers. Other indicators are more sporadic in the two sample communities where bank but could be harbingers of change over time: branches were located, 91 percent had opened improvements among borrowers (over non- savings accounts compared to 42 percent with borrowers) in sales, profits, and nutrition in current accounts. In areas of intense commer- one of these communities and in new products cial activity, 79 percent had opened savings in the other. accounts, while about half (46 percent) had The community where the bank had a received credit. As evidence of the low income branch for the longest time, roughly four years, of these savers, roughly two-thirds (64 per- at the time of this study, registered significant cent) had balances of less than $100. Access changes. In this site, before access to credit, to savings was facilitated by minimal entry 64 percent of contacted entrepreneurs had a requirements, ID documents and a deposit current account against 36 percent who had for opening an account, for which no fee was a savings account. The use of the current charged. account is justified by the fact that money is Revisiting the community where the IFC kept safe, in the form of cash, and available client bank had been located for the longest at any time that the entrepreneur needs it. period of time, a number of improvements Moreover, it is through the use of the financial could be attributed to access to savings: services of banks—the savings and current ■■ Increased investment in children’s accounts—that people gain access to credit. education (28 percent); The behavior of entrepreneurs towards the financial services of banks completely changed ■■ Improvements in health (34 percent); after obtaining access to credit. At the time ■■ Better housing accommodation of the study, 48 percent of the entrepreneurs (19 percent); and had a savings account, 20 percent had access ■■ Increased demand for and diversification to a credit account, and only one third (33 of products (44 percent). percent), roughly half the percentage as before gaining access to credit, continued to use While there were other advantages voiced current accounts. More useful and specialized by the people regarding savings, such as financial services replaced more general ones reducing the temptation to spend and serving after the bank branch opened in the neigh- as collateral for loans, perhaps the most signifi- borhood. The indirect benefits accruing to cant, given the insecurity of the country, was the enterprises after gaining access to credit voiced by one bank client who had opened a included increases in sales (27 percent) and savings account: “Money is safe and we obtain profits (22 percent); at the level of the house- more social stability.” Bank deposits become a hold increases were registered in nutrition (21 fortress for people buffeted by uncertain winds percent), parental investment in schooling (24 in a conflict-ridden country of economic depri- percent) and better management of household vation and political instability. expenses (16 percent). One social objective met by this micro- The popularity of savings accounts was an finance project was in the important area of unexpected and important positive feature of gender. An unusual unanimity of interviewees this IFC-supported micro-finance institution. in one area where a bank branch was located 18 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n maintained that women have more advantages improved sales (29 percent), income (50 getting credit than men because “they are percent), profits (18 percent), better nutrition more credible and comply with the repayment (20 percent), increased motivation (60 per- deadlines better than men.” The common belief cent) and self-confidence (30 percent), and was that “women are more serious in business growth and expansion of business activities than men.” Women’s ready access to credit led (35 percent). Young people are the only ones to improved education and better health care mentioning the possibility of travel as a result for children as well as a more balanced diet for of increased savings; yet, most of the youth the family. With training in credit management, interviewed said they saved to control their advantages to women were more pronounced: spending (compared to 25 percent of women). the percentage of women experiencing Generally, access to financial services was seen increased revenue doubled (from 25 percent by the young as a door-opener, increasing to 50 percent), while that of men increased opportunities for advancement and, impor- only marginally (30.7 percent to 30.8 per- tantly, increasing hope. cent). There were also significant increases Access to training in capacity building for for women, after training, in health care for financial management, along with access to children, self confidence, and motivation. credit, appeared to be a clear benefit which Access to credit for youth (under 30 years transcended gender. For this part of the case of age) had a number of positive effects: study collaboration was made with a local IFC staff member who was engaged in training the managers of SMEs. In-depth interviews were conducted with 32 entrepreneurs with or without training and/or credit. Those business- persons who registered the most change were those who received both training and credit. Before obtaining access to these services, these persons kept their money at home (78 percent), with savings cards (56 percent), and in cooperatives (89 percent). After receiving credit and training, the same entrepreneurs no longer kept their money at home but, instead, bought goods (56 percent) or, as cash, depos- ited in cooperatives (56 percent) and the bank (78 percent). Now their money was safe and secure in a clearly unstable and hazardous environment. Despite the smallness of the sample, the findings recorded for entrepreneurs receiving credit and training are considered significant and indicative: ■■ Employment increased threefold; ■■ Income doubled; ■■ Investment capacity quadrupled; ■■ Diversification of activities increased on average from one to five; ■■ Training of existing employees increased from 0 to 5 (on average). Lessons from the Field 19 The families of these entrepreneurs were The CSR program mobilized the commu- also favorably impacted: nities of urban poor such that they become ■■ Improvement of children’s education not passive recipients of water and sanitation through the regular payment of school services but active decision makers respon- fees (double increase); sible for choosing the connection scheme and collection arrangements for their own commu- ■■ Improvement of nutrition (25 percent) nity. With the combination of flexible pricing ■■ Increased self-confidence; and policies adapted to beneficiary capabilities and ■■ Improved motivation. community involvement the company with its CSR program has provided a 24-hour supply of safe-to-drink and affordable water to over Water and Sanitation 1.6 million people all over the eastern portion of the metropolitan area where it has opera- Access to quality water and sanitation is one of tions. The effects of this water and sanitation the prerequisites to a decent and respectable project on the urban poor were immediate and livelihood in an urban area. Unfortunately, far-reaching: this access is still not common among the ■■ Improved access to safe/potable and better poor of most cities in the developing world. quality water In the East Asian country, a client of the IFC displayed a remarkable combination of social ■■ Regular supply (around the clock) and and economic acumen by managing to provide increased consumption of quality water access to large numbers of the urban poor in ■■ Increased number of water-based income- such a way that the poor themselves became generating activities partners in the endeavor, with a pride of own- ■■ Reduction in water—and hygiene-related ership that helped them generate their own diseases development. ■■ Reduction in water expenditures per An appropriate place to start this success household (from $17 per month before the story is recognizing a cornerstone of the cli- project to $4 per month after) ent’s business policy, the CSR. In the compa- ny’s own words this utility stated that: ■■ Gained free time from previous queuing/ fetching water for leisure, economic, and Instead of casting off low-income communities community activities, and and informal settlers as a non-priority market ■■ Improved environmental sanitation. with low profitability” the client “showed bias towards serving the urban poor as part Beyond these direct benefits brought of its CSR. In 1998, the Company started about by this water project were “multiplier implementing a Water for Low-Income effects” which were at least equally important. Communities Program to tackle the most basic People receiving the new, improved water water problems of the urban poor. asserted that the water program improved their personal and collective social confidence The company worked in tandem with and led to the overall improvement of their the World Bank’s GPOBA, which provided a social status before the larger community and grant to subsidize connection charges. The society. Community-based organizations and company demonstrated its flexibility in adapt- water and sanitation committees, tapped by the ing to the low-income population’s financial utility increased their leadership and mobiliza- constraints by paying two thirds of the con- tion capacities and served as models for other nection cost while charging the customers community-based activities. one-third of the cost payable over a period of According to the beneficiaries, the qual- up to 24 months. ity of water greatly improved under the new 20 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n system. They complained that, previously, the As important as all of these tangible ben- water they obtained from public wells (dug or efits provided by the greater access to water motor-powered) or artesian pumps was murky, and sanitation made possible by this IFC client, had an unpleasant smell and was sometimes an overriding and perhaps even more signifi- muddy with sand, “hard,” and unsuitable for cant result was a sense of dignity and empow- drinking. They bought water for drinking and erment. In the words of one community leader used this poor quality water for bathing, wash- who had benefited from this program: ing, and cleaning. Because of its poor quality, this water made their clothes yellowish and We used to fetch water in water cans…We subject to quick deterioration; laundry wash- were really poor like those in the province! ing was difficult because the “hard” water did Now, that we have a faucet inside our house, not make their detergent/soap sudsy. When we feel we are equal to those better-off in taking a bath, their hair was stiff, their skin our community. We are just like other citizens rough. The housewives also commented that in this city. previously their household appliances would become quite rusty because of the corrosive elements of their water. As one of the women Farm Forestry beneficiaries observed: The farm forestry project in a large South Now, my things do not get rusty anymore Asian country is a conundrum: while it tar- and the uniforms of my children appear geted low-income farmers, for whom it offered cleaner and brighter. You can understand and financed eucalyptus trees, its major objec- why it was hard for our children to bathe tive appeared to be to augment the supply of everyday or do their regular ablutions; their raw material (pulpwood, or eucalyptus) for hygiene was not good. the IFC-supported company. The farmers who participated in this program were not the poor- Of particular relevance to the poverty- est, but rather middle-income farmers (hold- reduction orientation of the IEG evaluation ing 2–10 hectares of land) Almost all (over 95 were the effects of this water and sanitation percent) of the participants interviewed said project on creating new income and employ- they participated in order to increase their ment for the beneficiaries. Much of the time income. A similarly large majority stated that that used to be spent waiting in line for public they participated in the program due to visits water faucets could now be spent on income- of company officials who enticed them with generating activities. Roughly 20 percent of promises of very large returns on investment those interviewed for the study said that after in eucalyptus plantation, $2,127 per hectare, the new water connections, they were able considerably more than the average actual to generate new income from water/based/ return of $1,276. While relatively poor (despite related economic activities, such as selling ice their small land holdings), farmer participants water, having a water station, producing iced were often unable to meet the high costs candy, and preparing food. Some got engaged of planting this tree crop and incurred debt in water-based services such as car wash, which, largely due to the long gestation period laundry, and beauty parlors (shampoo, facials, of the eucalyptus tree (3–5 years), they had hair coloring, etc.). Improved water supply also difficulty paying. Furthermore, many farmers attracted lodgers and renters to the commu- lacked the training and technical knowhow to nity and, more generally, increased the value grow this tree. Faced with these difficulties it of land in the neighborhood for new business is not surprising to learn that while roughly investment and appreciation of real estate three quarters (76 percent) of the farmers assets. in control villages reported an increase in Lessons from the Field 21 household income over the five years preced- ■■ The contactors paid more (125 percent) ing the survey conducted for this case study, a for the produce than the company; lower proportion of two thirds (67 percent) of ■■ The contractors covered the costs of the participant farmers reported an increase in transportation and wood cutting while the income. More revealing, only roughly one fifth company did not; (21.4 percent) of the farmers stated that the ■■ The contactor paid in cash, with no delay, farm forestry project had fulfilled their expec- while the company paid by check with tations. The farmers had simply not received some delay. the returns on investment that they had been promised. One participating woman farmer Access to financial services and water expressed her discontent as follows: was successfully provided in two countries, while access to a forestry product met the Our five years of labor in farm forestry has requirements of neither farmers nor the cli- gone to waste. They [the company] took ent company in a third country. We now our land certificate and now we have loan turn to another condition for project success, on our heads. We worked so hard, but affordability. did not get single penny. …Initially, when they came, they took signatures from each person who cultivated eucalyptus trees and they said you will get lot of money. But we did not get anything. We did the weeding, gave fertilizer, added insecticides, employed additional labor and spent extra money, but all in vain. Now, where will people like us go? We don’t even know in which bank we will have to go. Clearly, the creation of access to euca- lyptus trees was problematic for the farmers who were supposed to benefit from this farm forestry program. It was the mismatch between the provision of eucalyptus and the financial wherewithal of the farmers intended to benefit from this product that led to the belief that perhaps the major intended beneficiary of this program was indeed the IFC client, a pulpwood buying company. If this was the true objective, ironi- cally it also failed. This case study revealed that only one third of the farmers, who had harvested their produce, sold this produce to the company; the two thirds majority sold their produce to contractors who, in turn, sold it in the pole market. The reasons for the farmers’ preference for contractors over the company were clear: 22 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n Affordability A ccess and affordability are related, even As broached in the previous section, it was overlapping issues; the more afford- the fourth case study project, the farm forestry able a good or service, the more accessible project in a large South Asian country that to intended beneficiaries. As has been seen, suffered from a clear lack of understanding of three of the four case study projects provided the issue of affordability. Generally, the costs services at affordable rates. In the micro- to the farmers participating in this activity finance project, compared to the street credit outweighed the benefits, or returns. A project rate of 100 to 200 percent offered in the city, evaluation states that “the expansion of the the 6 to 8 percent borrowing fee offered by the farm forestry initiatives of the company was financial institution was attractive indeed. This severely constrained by the resource availabil- project eliminated the requirement for mini- ity to farmers.” The planting and cultivation of mum deposits when opening an account; sav- the eucalyptus trees provided by this project ings accounts were completely free. Testimony cost from $640 to $850 per hectare over the to the attractiveness of the low cost of financial roughly five-year period of gestation of this services offered by the IFC-supported bank is tree. Given the family income of beneficiary seen in the fact that in the two areas of the city farmers of roughly $130 to $160 per year, this where the bank had opened branches, 75 per- outlay for tree rearing is clearly high. Indeed, cent of the respondents had opened a savings the nature and costs of the program made account, whereas in the two that did not have it prohibitive for the poor and unappealing bank branches, less than 20 percent reported for the large farmers. Landless agricultural having opened a savings account. As confir- workers, who constitute about one fourth of mation of the value people ascribed to these the total rural households in the region of financial services, close to three quarters (73 the project, are by definition excluded from a percent) of the people in these two underser- farm forestry program. Most of the “marginal viced urban areas said they would like to have farmers” (who have less than one hectare of a branch of the micro-finance entity open in land) found the costs of the program excessive, their communities. largely due to the long gestation period of the The urban water project in East Asia, with eucalyptus tree. The marginal farmers’ priority the help of generous subsidies and community is to meet their basic needs. Given their limited participation, lowered the price of water, while resources and small land size, their natural increasing the quality, by at least two thirds. tendency is to undertake cultivation of crops Reducing the costs of accessing potable water for self consumption. Two marginal farmers for drinking, washing, cooking, and laundry explained why they did not participate in this was found to have high multiplier effects such farm forestry program: as better hygiene and health and increased social confidence in the community. We do not invest in farm forestry because it As for the telecom project, while afford- takes a lot of time to give results. We prefer ability was a positive feature (its use cost to do farming on a yearly basis, so that we roughly 30 percent of the cost of airtime for may get monthly, or yearly income. cellular phones) and was mentioned as such by 78 percent of the village phone users, this We cannot purely survive on this farm for- was not a decisive factor. The vast majority of estry because money is required throughout the population far preferred using their inex- the year. pensive cell phones to using the village phones provided by the project. Their own cell phones The large farmers (owning over 10 hect- were more convenient and allowed private ares) do not choose to plant eucalyptus conversations. because they can make more money growing Lessons from the Field 23 other crops. Thus, the majority of farmers whether they had taken out a loan or not. Of participating in this farm forestry program all the participant farmers interviewed, not are considered small and semi-medium farm- one had a copy or any documentary evidence ers (who, together, form nearly 70 percent of of the bank loans. Reflecting the confusion the total participants). These farmers have a and misunderstanding surrounding the credit certain amount of vacant land which they can- component of this project are three comments not afford to cultivate but which can be used of participating farmers: potentially profitably for eucalyptus growing. Thus, the participant farmers in this program I don’t know where these people came from. are not the very poor but rather those in the They did not tell us the loan amount or which mid-range of farmers in the area of study. bank and what is the loan amount. To defray the costs associated with the cultivation of eucalyptus the project provided We don’t have any calculation [about the loans, yet these loans were also heavy and loan amount] because it was not told to us. placed many farmers in considerable debt. We do not know anything about the loan While close to half of the participating farm- amount; we only know that in 2005 they ers used their own money, from savings or the had planted 1,992 trees but they recorded sale of assets, to defray the costs of the project, 2,500 trees have been planted. slightly more than half (52 percent) took out loans due to the high costs of the initial invest- Yes, we signed on papers that were given ment required. Many farmers had difficulty by the officer. It did not have anything writ- repaying their loans; at the time of the case ten on it. study 15 percent of all farmers interviewed were defaulting on their loan. The problem The farmers’ lack of knowledge regard- was not only the size of the loans but miscom- ing their debt situation may be inferred to munication about them on the part of the com- have led to another major conclusion of this pany administering the program. Half of those case study: “indebtedness appears to be one of farmers that had taken out loans (50 percent the unintended outcomes of the farm forestry of all participating farmers) did not know the program. Contributing to this indebtedness was interest rate due on the loan; the remaining confusion regarding training and the provision half incorrectly reported the interest rate. In of farm inputs, all of which combined to cause the words of one farmer: “they did not tell us significant dissatisfaction with this program how much the loan is for…or the interest rate among farmers intended to benefit from it. that is due.” This discontent, and the confusion surrounding After interviewing 313 farmers, key it, is graphically expressed by one farmer: informants and randomly selected individuals, one-by-one and in focus groups, the local team Like when we planted saplings, these officials doing this case study concluded that most of from the company came and took the land the farmers participating in this project simply certificate from us, but they didn’t inform what “did not know of their debt condition.” Access the purpose for taking the land certificate to credit was facilitated by the IFC-supported was. Now, my trees have grown fully and company. In collaboration with the bank, credit are ready for cutting. However, I won’t sell was provided to the farmer in the form of tan- to the company because, this is my land and gible inputs. While in a very few cases money I feel that every farmer who has participated was directly disbursed to the farmer, in most in eucalyptus farming [farm forestry] was cases farmers were provided with farm inputs cheated. I did not know that I had taken and the cost was charged to the loan. Given loan for this purpose. When I said, first let the precarious nature of the process followed me know what is the loan amount taken in in loan disbursement, it was unclear to farmers my name, they didn’t give any information. 24 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n I feel that they do not have any record of my over too long a period of time to be considered plantation and the fertilizers and insecticides advantageous by the farmers who participated provided. I don’t know why you are doing in it. Most crops grown in the area, black gram, all this, but this [agriculture] is my bread and paddy, soybeans, and cotton, had a gestation butter and I just want to know how much period of four months and were on average money I have in the bank in my own name. one third cheaper than eucalyptus, which required from three to five years. The combina- The long gestation period for the eucalyp- tion of delayed return on investment, necessity tus trees provided by the project, from three to of taking out a loan and low income of the five years, served as an obstacle to the partici- farmer population made for a project found pation of poorer farmers; in addition, it exac- wanting by the farmers who were supposed erbated the project’s contribution to farmer to benefit from it. Less than one quarter (21.4 indebtedness. If, and when, farmers do not percent) of the participant farmers interviewed receive remunerative prices for their produce, stated that the project fulfilled their expecta- the breakeven point for the investment shifts to tions, while close to two thirds (63.6 per- the next harvesting cycle. The gestation period cent) said their expectations were unfulfilled. for farm forestry has meant that farmers have Indeed, household income rose more in the to wait a long time to completely pay back five years preceding the study in control than the entire loan. A young farmer expressed his in intervention villages (76 percent vs. 67 per- frustration as follows: cent). As summed up by one woman farmer: We earned little profits only from our first No, no there is no advantage in eucalyptus produce. But, still we could not repay the plantation. We have to wait 3 to 4 years loan completely. It is very important to repay for wood cutting. We waited for five years the loan first. What will we do if we are not and after we cut it, we got only $149. And able to get any profits out of this current we had taken a loan of $170. This means farm cycle? Then, we will suffer loss finally we were in loss. and will not be able to repay this loan. This may happen with anyone. I am under a lot Women and youth were particularly dis- of pressure to repay this loan. satisfied with this farm forestry project, but this was more a result of a poor fit between supply The farm forestry project in South Asia and market realities and a misreading of cul- simply provided too few returns on investment ture than affordability. Lessons from the Field 25 Synthesis and Conclusion T he fundamental lesson emerging from these four case studies is that development projects work better when they are based fourth project, in a medium-sized East Asian country, addresses one of man’s most basic needs by supporting a company that provides on a sound and thorough understanding of water and sanitation for the urban poor at the micro-economic and cultural conditions affordable rates. prevailing among the people for whom the All four of these projects had, in addi- projects are intended. A corollary, more practi- tion to profitability, objectives of reducing cal lesson is that this kind of grounded under- poverty, three by increasing access to services standing is best gained by systematic inquiry (credit, communications, and water connec- based largely on listening to intended benefi- tions) and the fourth by forging a stronger ciaries in the communities where they work linkage between farmers and the private sector and live. Each of the four country case studies, whereby the former could benefit from the sale or field studies, represented a different sec- of pulpwood to the latter. The effectiveness of tor of developmental activity. One, in a large the poverty reduction strategy of each of these Central African IDA country, is financial, sup- IFC-supported endeavors may be seen to vary porting a local bank to provide micro-financial in direct proportion to the degree to which services to people lacking them. A second, in the project product was adapted to the par- a small East African country, is in the informa- ticular needs and conditions of the intended tion and communication sector, supporting a beneficiaries. local phone operator to provide village phone The field studies component of the IEG’s services to persons lacking access to telephony. IFC poverty focus had a dual purpose. First, it A third project, in agriculture, supports a com- was to verify the consistency of project objec- pany in a large South Asian IDA blend country tives with project implementation and design, as it seeks to expand farm forestry and thereby that is, assess the consonance between project generate income for low-income farmers. The means and ends. Second, and more directly, 26 T h e P r i vat e S e c t o r a n d P o v e r t y R e d u c t i o n the field studies were meant to validate the ■■ The affordability of what a project offers projects from the perspective of the intended is a precondition of high performance in a beneficiaries. In each of the four countries cho- development project. sen for the case studies, local social scientists ■■ A final lesson which may be drawn from and trained interviewers carried out the field these four projects is the need for ongoing work under the guidance and orientation of training to assist the beneficiaries to make IEG staff and consultants. full and proper use of the development There are a number of lessons which opportunities provided by the project. follow from the discussion of these four case studies. While most of these may appear com- monsensical, the fact that they are not followed Good development projects resonate with in at least one of these four projects attests to the people for whom they are intended. The the fact that they may well be honored more in people’s behavior and values should never be the breach than in the observance. assumed, or taken for granted. Prior to and during project implementation, a project’s ■■ Understanding the poor through some intended beneficiaries should be consulted kind of demand assessment is clearly as partners in an endeavor which will ulti- essential to project success. mately become their own. This review of four ■■ Supply needs to be adjusted to market IFC-supported development projects shows realities, and companies need to engage the importance of integrating people with with beneficiaries in a positive manner. activities carried out in their name such that ■■ Facilitating access to a good or service they are enabled and empowered to become provided by a project is a key element of the determining instruments of their own project success. self-realization. Lessons from the Field 27 Acknowledgments and Credits T his report presents findings from field studies conducted for an evaluation of the relevance and effectiveness of the International Finance Corporation’s (IFC) poverty focus and results. The evaluation on which it is based was conducted by a team led by Ade Freeman, drawing on contributions from (in alphabetical order) Unurjargal Demberel, Hiroyuki Hatashima, Naoko Koyama, Maction Komwa, Andres Liebenthal, Erkin Yalcin, and Izlem Yenice. Lawrence Salmen coordinated the field studies and drafted the synthesis report. In addition, the evaluation ben- efited from research under the leadership of Emma Porio, Charles Kinkela, Holy Raharinjanchary, and Av Surya. Richard Kraus and Rose Pena were responsible for administrative and production aspects. Cheryl Toksoz edited this report and it was designed by Will Kemp. The evaluation was conducted under the guidance of Marvin Taylor-Dormond, Stoyan Tenev, and Amitava Banerjee. Photography All photographs courtesy of the World Bank Group. Cover Page 9 Bangladesh/Shehzad Noorani Mozambique/Eric Miller Indonesia/Ray Witlin Page 11 South Africa/Trevor Samson Kenya/Curt Carnemark Page ii Page 13 Philippines/Edwin Huffman India/Curt Carnemark Page iv Page 14 South Africa/Trevor Samson Vietnam/Curt Carnemark Page 1 Page 16 India/Ray Witlin Mozambique/Eric Miller Page 3 Page 18 Madagascar/Yosef Hadar Indonesia/Curt Carnemark Page 4 Page 21 Bhutan/Curt Carnemark Sri Lanka/Dominic Sansoni Page 7 Page 25 Bhutan/Curt Carnemark Bangladesh/Thomas Sennett The Independent Evaluation Group IMPROVING THE WORLD BANK GROUP’S DEVELOPMENT RESULTS THROUGH EXCELLENCE IN EVALUATION The Independent Evaluation Group (IEG) is an independent unit within the World Bank Group. It reports directly to the Board of Executive Directors, which oversees IEG’s work through its Committee on Development Effectiveness. IEG is charged with evaluating the activities of the World Bank (the International Bank for Reconstruction and Development and the International Development Association), the work of the International Finance Corporation in private sector development, and the guarantee projects and services of the Multilateral Investment Guarantee Agency. The goals of evaluation are to learn from experience, to provide an objective basis for assess- ing the results of the Bank Group’s work, and to provide accountability in the achievement of its objectives. It also improves Bank Group work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. 1215068