metadata: authors: 0: author: Holt,Sharon L.
docna: 0: docna: The role of institutions in poverty
            reduction : a focus on the productive sectors
docty: Policy Research Working Paper
subtopic: Climate Change and Agriculture,Rural Settlements,Agricultural Extension,Crops and Crop Management Systems,Agricultural Research,Nutrition,Food Security,Agricultural Growth and Rural Development,Inequality
teratopic: Poverty Reduction
abstracts: cdata!: The author of this paper contends that
            institutional development (ID) is critical to growth and
            sustainable poverty reduction. Although there is no single
            model for poverty-oriented institutional development, and ID
            initiatives vary considerably across sectors and nations,
            important common lessons have been learned about successful
            institutional development initiatives. The author presents
            these in terms of six components: (a) forming and
            strengthening local organizations; (b) supporting
            institutional pluralism; (c) building links between
            poverty-oriented institutions; (d) adopting the appropriate
            organizational structure and encouraging strong leadership;
            (e) adopting the learning process approach; and (f)
            mobilizing local resources and the participation of poor
            people. Both successful and unsuccessful programs are used
            to illustrate the importance of these components.
            Institutional investments often require unconventional,
            potentially costly programs and projects. ID initiatives
            have been criticized in terms of the costs and benefits of
            different approaches, the scale on which they can operate,
            their compatibility with conventional project frameworks,
            the degree and types of decentralization they require, and
            their political feasibility. Using case studies from
            different productive sectors and subsectors, the author
            illustrates how these objections may be unwarranted and that
            investments in institutional development can be both
            economically and politically viable.
repnme: repnme: The role of institutions in poverty
            reduction : a focus on the productive sectors
display_title: The role of institutions in poverty
            reduction : a focus on the productive sectors
listing_relative_url: /research/1991/03/700028/role-institutions-poverty-reduction-focus-productive-sectors
topicv3: Agriculture Extension m1325967 1009,Agriculture and Food Security m1326205 435,Agricultural Research m1326207 197,Poverty m1326687 695,Rural Development m1504505 2667
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Poverty Reduction
origu: Policy, Research & Ect Affairs
no_of_pages: 77
author_keys: 0: author_key: 94682
model_extractions: **Policy, Research, and External Affairs**

:,,0 **_A_ a0Is,**

# **World Development Report**

WPS 627 1hIU r pa;Per was prepared as aI back:rounld paper fortlre 1990 _vcopFn_ p v\er1. _rorldIl)' Ct o'pr(on ( 'o picN_ azre availhibc 1'ree from tihe W'orld Bank, 1818 III Street NW, Washington D )(' 20433. I'lezase conlact lt1 \\old Development Report **o01icc,** room SI 3-060, cxtension .31393 (71 pages).

lolt **conlten(s** thai institutionall developmnclt (11)) is critical to gro,wtl and sustainazble poverty red(uctioni.

Allihoughi there is no single model .,ar poverty-oriented inistitutional developmncit, and ID initiatives vary considerably across sectors and naticns, impotIaln1t comIm111oni lessons have becn learned about successful institutional development initiatives. Ifolt presents tihese in teni1s olf six componients: Botlh successf'Ll iland UllSUCCCSlul plro ms arc used to illustrate the importance ol thesc componncits. Drawing on evidence from lihc Managing Agriculturazl Development in Al'iica (MADIA) study, Ilolt shows. for example, tlihat because of a lack of adequatc institutional links and informaztion nows between small farnmeC!s and researchers, less **than** 5 percent ofl anners in MalaAwi have adopted hybrid maize despite m11oreC **tlhiain** 30 years ol mali/ze-bree(Iiig work and 20 years ol' agriculturall development projccis.

F oEoriming and strengthening local organizations.

* Supportiing institutional pluralism,.

* Buildint links betvwccn povert -oriented institutiol1s.

* Adopting ille appropriate organi/.ational structure and encou raging stronig leadership.

* Adopting tlhc leaining process approach.

* Mobilizing locaIl resources and thc participaion of poor people.

But institutional investments **oltenI** require unconventional, potentially costly programs an(i projects. ID initiatives have been critici/ed in **terms** of **thc** costs **zaIId** benelits **ol diilcircnt** approaches, the scale on which they can operate, their compatibility with conventional prioject frameworks, thc degree and tyres of'decentralization the) require, alnd tlheir political feasi bil it.

Using case studies f'romii dififerent productive sectors and subsectors suchi as tlc National Irrigation Authority in thic Philippines and tlhe Granieccn Bank in BallgladleshL slhe illus!rales how tilese objectioIns **may** be unwl; arrantcd or ovcrskeptical - that investments in institutional development can bc botlh cconoinicall\ z and politicallyl viable.

> **tIlh** I RE Worikini2 P **,ijxi** S0 r;e9( issel **iTidics thC** filndilng- of %kork **under** \ **!a** in tl B.an **Pk 1 ' 11** . **R,** . **nd F\In(t t1t1.1. Aftz:l (** ('omple. An **oh jetis* ot** the riti es is to get tliese indlng\o it (luicekl\. e.en ifprsttion' are **less thin I oils** ll.th rh,' loidiic'. **!** -v:.,:,,,. .i conclumins in tlese p*mlerS (lo not **neces.-aii** repre';,r ofik i.d **B.i:ik 1..!;** 1

**Pl ::,-d l's o'!** PRL **t)Dis enl.,i:1.:** (en:er
Table of Contents

|I.<br>Why Institutionis<br>.......................................................... 1|
|---|
|II. Lessons for Institutional Development ..................................... 4|
|<br>-<br>Institutional Arrangements ............................................<br>5|
|-<br>Local Organizations .............................................<br>5|
|-<br>Institutional Pluralism .........................................<br>8|
|-<br>Characteristics of Poverty-Oriented Institutions .................... 10|
|-<br>InstitutionalLinkages .........................................<br>10|
|- Organizational Structure and Managerial Leadership ............. 13|
|-<br>The Learning Process Approach .................................. 18|
|-<br>Participation and Local Resource Mobilization .................. 20|
|III. Problems and Prospects ................................................. 25|
|-<br>Costs and Benefits ..................................................<br>25|
|- National Irrigation Administration ..............................<br>26|
|- Grameen Bank ....................................................<br>30|
|- Scale ..........................<br>I....................................<br>37|
|-<br>Compatibility with Traditional Project Frameworks ................... 38|
|* Decentralization.......................<br>......<br>41|
|Political Feasibility ......................<br>42|
|VI. Summary and Conclusions ..............................<br>45|
|Annexes|
|Annex I:<br>Evidence From Impact Evaluations ................................. 47|
|Annex II: Linkages Between Agricultural Research and Extension ............. 50|
|Annex III: Participation in Irrigation and Credit ........................... 54|
|Annex IV: Saving and Investment with NGO, private, and public|
|cooperation ......................................................<br>56|
|Bibliography|
|General .................................................................... 57|
|Credit ..........<br>64|
|Agriculture ..........<br>69|
|Tables|
|Table 1:<br>Farmer Equity Contribution to Construction Costs .16|
|Table 2:<br>Institutions, design and construction costs per|
|hectare of wet season irrigated land .27|
|Table 3:<br>Construction Loan Repayment .29|
|<br>Table 4:<br>Mean irrigated land before and after the NIA's|
|construction assistance .30|
|Table 5:<br>Administrative costs in relation to arrears rates, 1984 .32|
|Table 6:<br>Comparison of Internal Efficiency .32|
|Table 7:<br>Profit and loss accounts ....................... ..<br>,33|
|Table 8:<br>Unit cost of operation of bank branches by age of branch, 1984/5..35|

Prepared as background paper for World Development Report 1990 and CECPS.
# Acknowledgements

The paper was prepared as a background paper for the World Development Report 1990 on poverty and the Public Sector Management and Private Sector Development Division of the Country Economic Department. The author wishes to thank the many individuals who supported and made this paper possible. The greatest thanks goes to Helena Ribe of the WDR who provided invaluable guidance and made useful suggestions for the paper throughout its many drafts. Robert Ayres also from thie WDR made comments. Also Norman Uphoff of Cornell University provided extensive comments and made editorial suggestions. Lawrence Salmon and Samuel Paul of CECPS supported and made comments. Robert Holt of the University of Minnesota provided useful inputs particularly on the section on organization and management. Finally, Trinidad Angeles of the W-DR provided important production support.
# I. WL'Y INSTITUTIONS

Neoclassical growth theory holds that **LiLe** difference between developed and developing countries is that the latter have less human and nonhuman capital. The diagnosis prescribes the cure: increase the capital resources of developing countries and they will grow, indeed they will grow faster than developed countries per unit of capital input because the marginal return will be higher. Not only will there be growth, but the benefits of growth will be distributed widely if not equitably.

But as development experience suggests, (supported by economic literature)i the outcomes anticipated by the neoclassical model have not been realizcd. While one cannot deny that increases in capital resources are necessary for development, they are not sufficient for sustainable growth and the relief of poverty in developing countries. In addition to capital resources, there must be appropriate institutional structures.

Experience with poverty reduction programs and sustainable projects suggests that "appropriate" institutions are important for development for two main reasons. First, in the absence of "appropriate" institutional arrangements the benefits from major inflows of physical capital tend to accrue to the elite and rarely reach the poor. Second, such institutions not only help to distribute benefits more equitably, but also will do something more important: they will contribute to the sustainability of projects and thus to sustainable growth. This critical link between "appropriate" institutions and sustainable growth is supported broadly by the World Bank's Annual Review of 2000 Evaluations (1988) which found investment 1 See Joseph Stiglitz, "Markets and Market Failures, and Development" in AEA paper and proceeding, May 1989 pp. 19/-203, other relevant writing by Stiglitz and others are cited in this paper.
in institutional development to be the single most important determinant of project sustainability.

Michael Cernea (1987) illustrates these general points by examining the impact of two Worlc' Bank-assisted projects, one a success and the other a failure (See Annex I for a more detailed review of Cernea's analysis). Seven years after the completion of the Hinvi Agricultural Development Project in Benin an evaluation showed a negative rate of return. There was little evidence of the investments in a significant agricultural technical package made less than a decade earlier. Seventy-four percent of the farmecs had dropped out of the inappropriate cooperatives imposed upon them from above and had returned to cultivating crops for subsistence. There was no sustainable growth and the poor remained poor.

The Muda Irrigation Project in Malaysia stands in sharp contrast. An evaluation conducted approximately five years after project completion showed that the income of the farmers was increasing and some of the increase was being invested back into the project to sustain it. In addition to the physical inputs of an irrigation system, this project had provided for local water user organizations that were carefully and patiently created following a thorough analysis of farmer needs, propensity to cooperate, and other factors. The evaluation attributed the success of the project primarily to the user organization and other grassroots institutions.

In each of the projects there was a significant input of physical resources and training. In one, the additional commitment to build appropriate institutions--that is, to invest in institutional development-led to a distribution of some benefit to the poor who, in turn, put resources into the continued maintenance and devrelopment of the project. This linkage
i3between poor people's investment in sustainable activities distinguishes these developmeLlt projects from simple welfare schemes that may reduce misery, at least in the short term, but do not equip the poor with the institutional mechanisms that allow them to magnify the resources that have been invested.

Once one recognizes the importance of institutions a difficult question then arises: what do appropriate institutions look like? Of most direct relevance to this discussion are institutions that have an organizational structure like farmer cooperatives or government ministries. The kinds and combinations of "appropriate" institutions that facilitate sustainable growth, however, may vary considerably from sector to sector and from place to place. For example, a financial institution that successfully provides credit to credit groups will bear little resemblance to a research station doing farming systems rpsearch on local smallholder agriculture. But development experience suggests that there are some general characteristics that many of these "appropriate" institutional structures share.

It is the objective of this paper to describe and evaluate these broad components. The paper is divided into two parts: first, it outlines characteristics of institutions that promote both economic growth and the reduction of poverty; second, it addresses the problems and prospects encountered in developing institutions which actively involve the poor. A wide variety of successful (and relatively less successful) case studies are used from different sectors and sub-sectors in both sections. Cases were chosen to provide insight into the lessons learned from institutional initiatives and to convey the geographical and sectoral variety of successful, poverty-orientad institutional activities.
- 4

# II. LESSONS FOR INSTITUTIONAL DEVELOPMENT

Drawing on experience, thiis section presents<sup>a more detailed</sup> picture of effecti-e, pov-r.-y-oriented<sup>institutional frameworks. This is niot.</sup> to suggest there is one model for successful<sup>inst.cutional development: the</sup> kinds and combinations of institutions<sup>to he supported may vary considerably</sup> from sector to sector and from place<sup>to place (Uphoff 1986:19).</sup> The aim, therefore, is to map out the general<sup>coinponents of institutional development</sup> efforts (iD) that reach the poor and<sup>work to reverse the causes of poverty.</sup> These components are of two varieties.<sup>Two are concerned with</sup> countries' broad institutional arrangements.<sup>These include:</sup> forming or strengthening local organizations;<sup>and</sup> allowing institutional pluralism.

The other components describe specific<sup>institutional characteristics:</sup>

* building institutional li,'kages; * adopting the appropriate organizational<sup>structure and</sup> encouraging strong managerial leadership; v adopting the learning process approach;<sup>and</sup>

* fostering poor people's participation<sup>and local resource</sup> mobilization.

Although presented separately for clarity,<sup>these cr --onents and themes are</sup> integrally linked, it would be difficult<sup>to introduce one without considering</sup> the others. For example, local organizations<sup>act as mech;nisms for poor</sup> people's participation.

Two major themes underlie all components.<sup>First, successful</sup> i.istitutional interventions are generally<sup>demand driven. This means the poor</sup> themselves shape initiatives and capacities<sup>to meet their needs. Second, the</sup> goal of development intervention should<sup>be to help the poor help themselves.</sup> This goal requires not only a resource<sup>commitment, but a willingness to build</sup> administrative and additional skills<sup>at the local levels.</sup>
# INSTITUTIONAL AJRRANGEMENTS

_Local organizations_ Local organizations commonly take the form of membership organizations (for example, user groups in irrigation or credit, or women's groups), local governments, service organizations (for example, nongovernmental organizations), private business or local administrations (Uphoff 1986b:4-6). Development experience suggests local organizations serve two main purposes: (a) they act as a vehicle for involvement, and (b) they enhance poor people's bargaining power and access to resources. Where these structures do not exist it may be necessary to employ special staff (catalyst/ community organizer) to help them form or be restructured, design incentives for participation and flexibility into the project, and train poor people in basic organizational skills such as bookkeeping and leadership.

First, local organizations give poor people, including those usually missed in traditional projects, a mechanism for participation. In Northern Pakistan, the successful Aga Khan Rural Support Project model of "organization and cooperative management" is based on the mass participation of villagers through village-level and separate women's organizations. The society's considerable gender stratification makes this division necessary (World Bank 1987, World Bank 1989a). The village organizations allow villagers with relatively homogeneous resources to group-manage irrigation and common grazing land, and cooperate for the purpose of commercial activities, including viiiage-level investment in management of capital works, group access to credit, and organized marketing (World Bank 1987:b).

Second, local organizations improve the poor's access to resources and bargaining power. For example, the National Farmers Association of
- 6 -

Zimbabwe (NFAZ), an institution comprised of local organizations with over 31,000 low-income member households, helps improve farmers' access to information and marketing arrangemelits. This association and other farmer organizations have helped sponsor an informal process of technology diffusion which by 1985 resulted in 95 percent OL peasant farmers using hybrid seed and 61 percent using chemical fertilizers on at least one of their fields (Brattoo 1988:9-10).

Further, they have assisted farmers in circumventing unreliable service delivery agencies by organizing their own transport for supply and marketing. As a result, group farmers are significantly more likely than individual farmers to use fertilizer, and to obtain this input directly from urban suppliers at cheaper prices. Farmer organization facilitates improved access to agricultural technologies and services, which leads ultimately to higher agricultural productivity and incomes. In 1982 in NFAZ's Heartlani of Gutu District, Masvingo, group households produced more than twice as much maize--and sold more than seven times as much--as individual households (Bratton 1988:10).

Although it is generally easier and better to use existing organizations than it is to establish new ones, there must be some caution in us4ng existing local institutions. Since communities are rarely harmonious, homogeneous entities, it is quite possible that traditional organizations reflect the interests of the elite. Community organizers may help mitigate these differences to some extent, but when conflicts are strong and entrenched it may be necessary to adopt more structural approaches (D. Korten 1983:193). For example, the Bangladesh Rural Advancement Committee tried for several years to develop broad-based community groups. They ultimately concluded that
7the interests of the landed and the landless or near-landless were sufficiently irreconcilable that the only solution was to develop separate groups (D. Korten 1980:480-511).

There can be serious disadvantages, however, to establishing separate institutions for the poor. These institutions may become marginalized and. receive few central funds because the I or wield little political clout. They can also contribute to further sociecal stratification. These experiences are clearly evident in the US where social welfare spending programs to the poor (increasirel1- nonwhite diser.franchised groups) have fallen at the same time social spending for senior citizens (increasingly the white, middle income majority) has risen substantially. This inequality results in large part from the fac- that senior citizens have a strong effective political lobby, the American Association for Retired Persons, while poor minorities do not.

It is also important to mentio-i that although the examples provided above involve grassroots programs, in some situations "top-down" or centrally-managed local institutions can be successful. Newly-industrializing country (NIC) experience in Korea and Singapore, for example, suggests that central-level decisionmaking and goal setting merged with mobilization at the local can lead to rapid growth. But there are many social and historical features unique to the NICs experience that would be difficult to replicate in, for example, Latin America or Africa. In contrast regimes such as China or Tanzania, that have built top-down local institutions (usually government cooperatives) focused on extracting resources for national consumption over local control. These top-down institutions have had greater success in social sectors than in productive sectors. In some cases, productivity has actually
-8-

declined when local comniunitie- have too little authority. Recognizing the limication of these centralized structures, many governments, such as China, the Soviet UnioLn, and many countries in Eastern Europe, have evolved<sup>towards</sup> more local ownershi.

# _Institutional p1uralism_

Building local organizations is an important part of a larger strategy that suggests the need for complementary and competitive organizations in the public, private and nongovernmental sectors2. In other words, the poor benefit from institutional pluralism. As "the poor" are a heterogeneous group, and some are harder to reach than<sup>others, organizations</sup> have varying capacities to work with people living in<sup>different conditions of</sup> poverty. In the area of microenterprise, Crinole, Mann, and Shipton (1987:3350) find that because of their relatively small size<sup>and focus, voluntary</sup> organizations and certain government agencies that<sup>have adopted a multi-</sup> service approa.h<sup>3</sup> (for example, the Ministry of Social Services and Development in India) may be the most appropriete institutions for reaching the poorest entrepreneurs.

These authors argue that cooperatives and certain types of government agencies may be best at reaching poor<sup>people at slightly higher</sup> income levels. They suggest that the need to maintain<sup>cooperative forms of</sup> organization and the existence of considerable government regulation and 2 See Uphoff and Esman (1974) and (1984).

3 In microenterprise, agencies seeking to reach the poorest microentreprenuers directly and effectively, may have to provide a number of services including, for example, credit, technical<sup>assistance, training, and</sup> social promotion interventions since the poorest tend to possess extremely limited access to information and human and financial capital.
-9-

oversight of cooperatives tend to limit the adaptability and creativity of these institutions. This limited flexibility, in turn, may restrict their ability to reach , e very poorest who demand the most specialized input.

Cooperatives that have managed to be more responsive to their local membership because of strong equity-minded leadership (for example, the National Dairy Development Board in India) and/or participatory components (for example, the National Farmers Association and the Saving Development Foundation in Z-mbabwe), are exceptions to this general tendency.

Grindle et al. argue that banks and business associations may be most appropriate for reaching the most well-off low-income small and microentrepreneurs. Because bank procedures and regulations must be uniform and must be applied to broad categories of clients if their activities are to be efficient, they may be ill-suited to deal with the poorest, most difficult to reach groups. Banks that are committed to community development and social welfare goals are inportant exceptions to this general tendency. Examples include Multi-service centers of the Bank of Baroda; the Banco Del Pacifico in Ecuador; the Grameen Bank in Bangladesh; the Badan Kredit Kecamatan (BKK) banks in Indonesia; and the South Shore Bank in the United States.

Comparative advantage among organizations requires that agencies with different skills and resources cooperate in order to reach all lowincome groups. This has led to incr'_asing incidence of NGO-government cooperation as governments take advantage of NGO flexibility and grassroots orientation while NGOs benefit from central resources (Paul 1988:65). For example, in the Alwar district of Rajasthan, PRADAN, an Indian NGO has been working with the government Integrated Rural Development Project (IRDP) officials to improve effectiveness of Poverty Alleviation Programs at the
- 10 -

Block level with considerable success in Improved targeting and loan repayment. Similarly, the Bangladesh Rural Advancement Committee (BRAC) has also demonstrated that it can provide effective, low-cost services (efforts so far have emphasized immunization) for the Government in rural areas.

# CHARACTERISTICS OF POVERTY-ORIENTED INSTITUTIONS

# _Inistitutional linkages_

Linkages have considerable implications for implementation (Leonard 1982:37). Institutional linkages in an institutional **development** (ID) strategy should be structured so that communications can flow back and forth between central, intermediate and local levels, and development officials are accountable both to the clients at the bottom and **central** leaders at the top. This will require emphasizing linkages that encourage representation of interests.

In their book, Institutions of Rural Development **for** the **Poor,** which reviews developed and developing country experiences with poverty programs editors, David Leonard and Dale Marshall (1982) identify **five types** of center-local liinkages. These include:

- a) representation (for example, various forms **of formal and** informal participation in planning and implementing programs or political parties);

- b) technical and personnel assistance (for example, **in-service** training, management and program advice);

- c) regulations and monitoring (for example, audits, administered market prices, registration of local organizations);

- d) services (for example, provision of inputs); and

- e) finance (for example, credit, grants, savings) (Leonard 1982:35).
I 11 These mechanisms involve various mixes<sup>of control and assistance. Control</sup> linkages enable one organization to<sup>determine some aspect of another's</sup> performance, while assistance linkages<sup>facilitate program implementation by</sup> compensating for gaps in the performance<sup>of implementing organizations. The</sup> ID strategy should stress assistance<sup>linkages (that is, representation and</sup> technical assistance) over control linkages<sup>(that is, regulation or input</sup> delivery) as the former create incentives<sup>for increased local commitment and</sup> capacity to implement development programs<sup>(Marshall 1982:59-66).</sup> The value of institutional linkages and<sup>central-local</sup> communications flow is exemplified in<sup>the area of agricultural research and</sup> extension. In their in-depth study of<sup>small farmer agriculture in Africa,</sup> MADIA<sup>4</sup> researchers found that in some countries,<sup>despite massive investments</sup> in extension and research, relatively<sup>little of this knowledge was adopted by</sup> small farmers. The technologies that<sup>were developed (for example, high-</sup> yielding varieties, HIYVs, that require<sup>significant inputs of fertilizer and</sup> water) did not reflect the realities of<sup>small farmer resources. For example,</sup> less than five percent of farmers in Malawi<sup>have adopted hybrid maize despite</sup> thirty plus years of maize-breeding<sup>work and twenty years of agricultural</sup> development projects (Lele, Kinsey,<sup>and Obeya 1989:26). This results</sup> partially from the fact that information<sup>has flowed only one way: from the</sup> researcher to the farmer (Lele, Kinsey,<sup>and Obeya 1989:27). The important</sup> 4 The Managing Agricultural Development<sup>in Africa (MADIA) study involved</sup> a detailed analysis of six African countries'<sup>policies and performance over</sup> the last 20-25 years. The countries<sup>included: Kenya, Malawi, Tanzania,</sup> Cameroon, Nigeria, and Senegal.
- 12 -

link that would allow researchers to do more location-specific research-farmer-to-researcher communication--was not developed.

Agricultural research and extension have emphasized control linkages such as input delivery, and put relatively less effort into developing assistance linkages that focus on trying to heighten the poor's representation in agricultural research. Whereas control linkages are sufficient for delivering technologies that are robust and usable in a wide range of conditions (for example, some handpumps), they are inappropriate for technologies that require two-way information flow between researchers and farmers (for example, farming system research requiring location-specific knowledge about farmers' access to inputs, cropping patterns, and the heterogeneity of the resources employed).

One agricultural project that has put greater effort into trying to incorporate farmers input into research is the Rural Women's Agricultural Development Project in Bihar, India. In this farming system research experiment, strong linkages between poor tribal women, the Bisra University agricultural researchers, and female extension workers have led to increased yields and incomes. Women extension agents have fed information from poor tribal women in the drought-prone Chotanagpur plateau to scientists at the University, who, in turn, have developed a simple dug well system to provide irrigation for vegetable gardening during the dry season. This lucrative undertaking led to five-fold increases in annual household incomes (Singh and Baha, 1988, cited in Women and Development Division 1989a:64). (See Annex 2 for more detai'l on FSR, and agricultural research and extension in India.)
13 _Orgeanization strtuctulre anid managerial leadership_ Both organizational structure and managerial<sup>leadership have</sup> proven to be important components of effective<sup>poverty-oriented institutions.</sup> The aspects of these two issues that are relevant<sup>for institutions working in</sup> poverty reduction are highlighted below.

There is no single ideal form of organization<sup>that is most</sup> effective and efficient in all situations and<sup>circumstances. The best</sup> organizational structure is contingent on the<sup>decision environment in which</sup> the organization is operating. There is a large<sup>body of literature that</sup> supports these propositions. The research that is<sup>most relevant to</sup> institutions concerned with poverty reduction has<sup>been done by Lawrence and</sup> Lorsch. They clearly demonstrated that when<sup>the decision environment is</sup> marked by great uncertainty, the most effective<sup>organizations depart markedly</sup> from the Weberian ideal of a rational bureaucracy--clear<sup>lines of command,</sup> explicit non-overlapping role assignments, etc.<sup>Instead, chains cf command</sup> are somewhat ambiguous as are role assignments.

One of the specific findings is that within an organization<sup>where</sup> different operating units have different time<sup>horizons, it is necessary to</sup> have individuals assigned as coordinators between<sup>these units. For example,</sup> production divisions have time horizons of<sup>hours or days, marketing divisions,</sup> of weeks or a few months, applied research, a year<sup>or two, basic research a</sup> number of years. People in these different units<sup>have difficulty</sup> communicating with one another without going through<sup>an intermediary. By</sup> contrast, organizations whose environment is relatively<sup>certain do best if</sup> they are organized along classic Weberian lines.
_- l -_ The Lawrence and Lorsch ifindings are re levanit to institut ionls designed to reduce poverty. In some situations, there is a great deal of uncertainty in this decision environment. Little may be known about the micro social structure in which agencies<sup>are operating, and people's response to</sup> opportunities may be relatively<sup>unknown. There are clearly different time</sup> horizons **in** different parts of the<sup>organizations. Those who work directly</sup> with the poor in activities such<sup>as group organizing and training will be on a</sup> completely different schedule from<sup>those who are building the irrigation</sup> channel, or those who are researching<sup>new irrigation designs. Many</sup> institutions designed to reduce<sup>poverty, however, are organized along fairly</sup> classic Weberian lines. Consequently,<sup>it may be necessary to introduce</sup> considerable bureaucratic reorientation<sup>5</sup> to make them effective in the decision making environment in<sup>which they operate.</sup> The National Irrigation Administration<sup>(NIA) in the Philippines is</sup> an example of a public bureaucracy<sup>that has restructured its mode and culture</sup> away from the classic bureaucratic<sup>model to reflect a more flexible</sup> organizational structure (D. Korten<sup>1988:117-142). For example, it has</sup> employed interdisciplinary problem-solving<sup>teams to work as intermediaries</sup> with the various NIA staff workers<sup>who do different tasks which require</sup> different time horizons. Further,<sup>some of these officials, especially those</sup> working at the grassroots level,<sup>operate in uncertain environments which means</sup> that a considerable amount of social<sup>learning must take place before programs</sup>

**5** An extensive literature exists<sup>on bureaucratic reorientation. See</sup> Cernea (1983), "A Social Methodology<sup>for Community Participation in Local</sup> Investments: the experience of<sup>Mexico's PIDER program", World Bank Staff</sup> Working Paper No. 598, Washington<sup>D.C.: Bryant and White (1984); Ickis et al.,</sup> (1986); Uphoff (1986b); and Korten and Uphoff<sup>(1981).</sup>
- 15 -

can be appropriately implemented. The problem-solving teams work with farmers, community organizers, the design and construction and post construction engineers, and the provincial engineer responsible for the overall coordination of entire provinces' communal irrigation programs. Moreover, these teams have the authority to make dccisions and are also held responsible to their client groups. The use of community organizers (mostly coliege educated females), participatory farmer user organizations, and problem solving teams that are accountable both to farmers and engineers, marks a clear departure from the classic bureaucratic model.

The impact of this new bureaucratic system on farmer satisfaction and commitment, is remarkable. Farmers' resource contribution to the irrigation schemes, a barometer of farmer satisfaction exemplifies this success. The National Irrigation Administration in the Philippines introduced the new system, in part, because of chronic budget problems. For example, in 1964-65, irrigation fee collections totalled only 1.27 million pesos while operation and maintenance expenses were 3.42 million pesos (Bagadion 1988:5). In 1967 the NIA attempted to solve its chronic budget deficit for operation and maintenance by increasing water fees. But farmers were reluctant to pay the higher fee and operation and maintenance costs for NIA rose simultaneously so that the percentage of collectible fees actually paid decreased from 59 percent to 27 percent (Bagadion 1988:7). In contrast, in areas where the new more participatory system has been introduced farmers have been more willing to at least approach, if not meet, the governments financial requirements--10 percent of the system's cost and all of operations and maintenance costs. For example, farmer mean equity contribution for construction per hectare of irrigated land in the 1985 wet season was 357 pesos in the participatory
- 16 -

system verses 54 pesos in the non-participatory system (Reyes and Jopillo 1988:109) (see Table 1).

Table 1 Farmers' equity contribution to construction costs (in pesos) Participatory Non-participatory Basis for measuring systems systems contribution (n=21) a/ (n-22) Farmers' mean equity contribution per hectare 357 b/ 54 of land irrigated in the (t=5.31;p<0.01) 1984-85 wet season Farmers mean equity contribution per 1984-85 wet season system user 348 44 a. Data on the farmers' contribution to system construction costs were not available for three systems in which construction had not been completed. b. Contributions are standardized in terms of 1984 pesos: P20-US$1.00.

Source: de los Reyes and Jopillo in Korten and Siy, Jr. (1988:109).

At the same time, however, there are institutions concerned with poverty reduction, particularly those doing major infrastructure projectsbuilding roads that improve access to markets or central station electric power, that are working in a different environment. These kinds of institutions will not have to undertake the types of social learning activities that are required by community level workers. Their environment is more certain, which suggests that a more classic bureaucratic form may be the most effective and the most efficient for these institutions.

In the area of managerial leadership a number of different factors have proven central. Specifically, leadership, leadership's link to powerful
17 political figures and insti Lutions, and leadership continuity have proven to be import atit factors in successful institutional managemrit. Judith Teridler, in an assessmnernt of five successful NCOs involved in the Ford Foundation's Livelihood, Employment, and Income Generation program, finds that all five NGOs<sup>6</sup> are led by strong and driveni individuals who, through class or previous work experience, have links to important institutions and political figures. For example, though the Grameen Bank is now an independent financial institution, it found its first institutional home in the Central Bank as an experimental project. When Grameen became its own bank, the link to the Central Bank continued informally, partly through the three Central Bank professionals who went on extended leave to take managerial positions with Grameen (Tendler 1987:26).

In addition, in his study of six7 successful public sector development programs, Paul (1982) argues for the importance of leadership continuity. Paul illustrates that in all of the cases studied, the person who initiated the project as an experiment was the same to carry out the transition to a nation-wide program: In other words, it was the energy of the single leader that drove the successful expansion of the program, not just the force of a particular organizational model.

6 She reviews the Grameen Bank of Bangladesh, the Self-Employed Women's Association of Ahmadebad, the Working Women's Forum of Madras (WWF), the Annapurna Caterers of Bombay, and Environmental quality International (EQI) working in conjunction with the association of Zabaleen garbage collectors in Cairo.

7 Paul's high performers include the National Dairy Development Program of India, the Indonesian Population Program, the Philippine Rice Development Program (Masagzna 99), the Public Health Program of China, the Smallholder Tea Development Program of Kenya, and the Mexican Rural Education Program (CONAFE).
- 18 -

Given this finding, it is not surprising that a common critique of successful management in poverty-oriented projects is that organizational effectiveness results from charismatic leadership which cannot be replicated or maintained, But there are many important examples of strong leadership that has been institutionalized--for example, with laws and regularized procedures, and where the government has chosen the correct "charismatic" person for the leadership position. This experience is illustrated by the Indian National Dairy Development Board which has been built up to a national program from the model of the Anand Milk Producer's Union of Gujurat State under the direction of one of its original leaders, Verghese Kurien.

Strong leadership, however, is a necessary but not sufficient condition for effective ID. As the NIA study suggests, management and organizational linkages are also necessary components of effective institutional structures. These factors should be incorporated into project design, although in this context design should not be equated with "blueprint" planning. As C scussed below, the most successful poverty programs are often "designed" to ai-ow for flexibility and adaptation.

# _The learning process avproach_

The 1980s have witnessed an evolution of thinking about planning and implementing development projects, away from the blueprint to the more open-ended "learning process" approach. This approach rejects fixed planning and calls for more experimental and adaptive forms of design and implementation.8 This type of incremental decisionimaking is decentralized

> 8 This approach is continually evolving. A professional group known as this Development Management Network meets at least once a year to discuss cases and develop the approach as a concept.
- 19

and based on information flow and<sup>feedback mechaniisms that allow projects to</sup> evolve to fit local conditions<sup>best. Further, it suggests the need to start</sup> small and experiment with different<sup>pilot projects before trying to Pxpand</sup> programs across countries or regions.

Local institutional development<sup>requires a learning-by-doing</sup> approach for the following reasons:

- a) localities' heterogeneity demands<sup>that different approaches</sup> be developed for disparate areas;

- b) little is known about the obstacles<sup>poor people confront or</sup> the best means to overcome them;<sup>and</sup>

- c) institutional development takes time<sup>and outcomes may be</sup> different from initial appearances:<sup>Successes can sometimes</sup> collapse and failures may turn out<sup>to be successful (Smith</sup> et al, 1982).

The Self Employed Women's Association<sup>(SEWA) in Ahmadebad, India,</sup> r. large grassroots NGO, demonstrates<sup>the need for an adaptive approach.</sup> Incremental decision-making based<sup>on information from the project activities</sup> has allowed the local institution<sup>to alter its credit program substantially to</sup> better reflect the needs of its<sup>clientele. Initially SEWA worked through</sup> nationalized Indian banks to get<sup>credit to its members. This arrangement ran</sup> into difficulties as the banks<sup>were ill-prepared to deal with illiteracy among</sup> their clientele, to provide small<sup>enough loans to meet the women's needs, or</sup> to act as a saving depository<sup>for poor women who had only small deposits to</sup> make and did not live near any<sup>bank branches. SEWA responded in 1974 by</sup> starting its own "mobile" saving<sup>unit that went directly to the women's homes</sup> and places of employment to collect<sup>savings. By 1981 the Bank had 13,639</sup> savings accounts with over Rs.<sup>3,000,000. These savings are now reinvested in</sup> the community through loans to<sup>SEWA members.</sup>
- _2()_

ll.is process wa!; iiOt crited overlni,"ht SE.WA start ed sn 11 ..s **an** intermediary between nationalize(d bankls _and_ poor women in _19i2._ **hltn** t he organizacion's feedback mechanisms indicated that this arrangement was proving unsatisfactory, SEWA evolved into a saving mobilizing<sup>unit and then eventually</sup> into a lending institution. **In** her review of SEWA<sup>Bank, Jennifer Sebstad</sup> attributes the Bank's success, in part, to its ability<sup>to respond to and</sup> understand its members' needs and its willingness to learn<sup>from the</sup> established bankiitg community and to experiment with new<sup>ideas--the learning</sup> process approach (Sebstad, 1982:118).

Larger development institutions concerned with poverty<sup>reduction</sup> have also adopted this approach. For example, the International<sup>Fund for</sup> Agricultural Development began with a few basic concepts<sup>and a specific target</sup> group--smallholder farms, rural women, landless and other<sup>marginalized rura'</sup> populations. It did not begin with a set of tenets in place.<sup>Its priorities</sup> and modalities evolved out of actual operations as lessons<sup>were absorbed, and</sup> led to changes and refinements in project design (IFAD<sup>1989:1).</sup> _Participation and local resource mobilization_ In this context, participation is used to mean the poor's influence in decisionmaking in poverty reduction programs.<sup>9</sup> Local resource 9 This narrow definition is used because it is appropriate for<sup>the</sup> context--institutions in poverty reduction schemes in<sup>the productive sectors.</sup> Nevertheless, some argue that a primary goal of poverty<sup>reduction should be to</sup> enable the poor to demand and control more of the benefits<sup>of development</sup> (Chambers, 1983:140). The implication of this type of argument is that<sup>the</sup> poor must be able to influence national allocational decisions<sup>if they are to</sup> get appropriate access to resource. Although not necessarily<sup>inconsistent</sup> with the narrower definition used here, this argument is concerned<sup>with the</sup> powerlessness of the poor, and therefore lies outside the<sup>scope of this paper.</sup>
- 21

mobil I zationl is incIuded wit **Ii** part i ipat i on berause **_a_** coimnitinentt of 1 ocal resources - -tilne, labor, or1 _c-api_ t al - - increases poor .1oplI(' inlvohvement / participat ioni in design, operationi, and maintenance of an endeavor arnd thereby provides a mechanism for influencing decisions.

Although the 1980s have witnessed a trenid toward participatory approaches among a number of national governments<sup>anddevelopmerit</sup> organizations, poor people's participation remains a controversial<sup>issue for</sup> two reasons. First, it has political consequences when it leads<sup>to pressure-</sup> group formation that chajlenges existing power structures.<sup>Second, public,</sup> private, and non-governmental agencies are reluctant<sup>to foster participation</sup> when they feel the costs involved (political, financial, and<sup>administrative)</sup> are not worth the benefits. Further, poor people may also demonstrate reservations concerning participation. It is unlikely that<sup>they will</sup> participate for the sake of participating. Participation is<sup>an investment,</sup> and poor people will consider making this investment in light<sup>of the returns</sup> they anticipate rectiving. The implication here is that if<sup>participation is</sup> to occur, there must be incentives to participate (Bryant and<sup>White 1984:9).</sup> Given these potentially constraining factors, some may<sup>question</sup> the need for participation. But experience suggests that participation<sup>will</sup> be a necessary component of effective and sustainable poverty<sup>reduction</sup> programs under the following conditions:

- a) when the poor possess information not known to outsiders that is necessary for program success;

- b) when collective action is required for effective management; and
- ?2 -

- c) whten goverunents must relv on poor people to expand the public resources that are put into projects.10

Participation has proven to be critical to the following productive sectors and sub-sectors:

- a) agriculture, which includes the sub-sectors of forestry, livestock, irrigation, and agricultural extension;

- b) rural water supply;

- c) urban development and in some instances, urban water supply;

- d) environment and resettlement (World Bank 1989); and

- e) credit, particularly group lending schemes, and microenterprise (Grindle et al., 1987).

It may also be important for road maintenance, (Cook cited in World Bank 1989) and labor union activity. In contrast, participation is not essential in sectors that require large and lumpy capital investment such as electrical power or transportation.

Examples from a few of the more participatory sectors demonstrate the impact representation can have on projects. First, in the area of livestock development, about 50 percent of World Bank first generation projects undertaken in the 1970s, failed primarily because they ignored local social and ecological conditions (World Bank's review of African Livestock 10 Community resources can expand programs considerably when they use traditional methods of resource mobilization (commitment of labor and funds), and train locals as paraprofessionals whenever possible to carry out the tasks of outsiders. See Milton Esman, Paraprofessionals in Rural Development: Issues in field-level staffing for agricultural projects, (Washington D.C: World Bank Staff Working Paper #573,cl983).
- 23 -

projects cited in W.orld Bank 1989). In chese cases,<sup>the poor possessed</sup> information about their micro social structure not known<sup>to outsiders that</sup> proved essential to effective implementation and sustainability.<sup>In contrast,</sup> second generation World Bank projects that have given<sup>a prominent role to</sup> pastoral or herder associations have met with much greater<sup>success. For</sup> example, the pastoral associations introduced in Zaire<sup>have improved</sup> pastoralist' access to veterinary drugs and services<sup>and have led to the</sup> establishme-t of a federation of associations called<sup>the Association des</sup> Cooperatives d'Eleveurs de l'Ituri (ACOOPELI). Acoopeli<sup>has come to play an</sup> integral part in implementation: it has taken over<sup>activities, including the</sup> management of the abattoir, originally entrus ed<sup>to the Government's</sup> comparatively ineffective livestock parastatal, ONDE.

In rural water supply, development agencies have become<sup>convinced</sup> of the need for popular participation. In the 1970s, development<sup>agencies'</sup> main emphasis was the development and installation of durable, easy-to-fix hand pumps. But a high proportion of the systems installed<sup>have fallen into</sup> disrepair and become useless. In Tanzania, for<sup>example, water schemes with a</sup> capacity to serve more than 40 percent of the rural<sup>population have been</sup> constructed, but only ten to fifteen percent actually<sup>benefit from these</sup> sche..ies because most schemes ceased to function or are not<sup>utilized properly</sup> (Therkildsen 1989:1). The successful exceptions<sup>have been distinguished by</sup> strong community participation. In Kenya's Kwale<sup>project, for example, social</sup> extension agents work with local women's groups.<sup>Pumps are installed only</sup> after local groups have decided that they really<sup>want a pump and have</sup> demonstrated their capacity to operate and maintain<sup>it (including the levying</sup> fees). In Malawi's Rural Piped Water Supply Program,<sup>community participation</sup>
**_24_ -**

in water supply has helped the Government to provide one million people with reliable and accessible water. Communities managinig the water facilities are responsible for identifying sites, electing watt r committees, organizing distribution, electing repair teams, raising funds for replacement parts and enforcinig water use rules, (For examples of participation in irrigation and credit see Annex 3).

As illustrated above, participation can have the following benefits. First, increased participation can enhance project effectiveness because poor people's input helps to identify needs and local constraints. Second, participation can increase project targeting by reducing leakages to elites. Third, local resource mobilization can play a very important role in generating local commitment to program goals. Fourth, peoples' involvement can reduce the financial and administrative pressures on overextended governments when it includes local resources mobilization and human resources development (for example, training local communities to operate and maintain rural water supplies) components. Fifth, these factors contribute substantially to program financial and institutional sustainability.

Participation of the poor, however, can be difficult to accomplish because the hurdles confronted can be formidable. Obstacles come from within the community (for example, poor communication facilities, local factionalism and corruption), development agencies (for example, centralized decision-making and bureaucratic orientation), and the policy environment (for - example, laws that discourage participation) (F. Korten 1983:181 200).
- _25_ -

# III. PROBLEMS AND PROSPECTS

Investing irn poverty-oriented institutional<sup>development may</sup> require alternative methods of planning,<sup>evaluating, funding, and implementing</sup> poverty reduction programs. Moreover,<sup>the approach does not necessarily</sup> produce quick, easy or cheap results.<sup>Consequently, many governments and</sup> development agerncies are skeptical<sup>about the feasibility of ID approaches as</sup> part of their proiects and programs.<sup>More specifically, objections to</sup> poverty-oriented institutional<sup>development efforts emphasize:</sup>

* the costs versus the benefits<sup>of such approaches;</sup> * the scale on which they can operate; i their compatibility with conventional<sup>project frameworks,</sup> * the degree and types of decentralization<sup>they require, and</sup> * their political feasibility.

This section of the paper will address<sup>these issues, and with the use of</sup><sup>**case**</sup> studies, it will illustrate that these<sup>criticisms may be misleading.</sup>

# COSTS AND BENEFITS

Investing in institutional interventions<sup>that seek to organize the</sup> poor and develop indigenous management<sup>capacity may entail both increased</sup> administrative costs and higher up<sup>front costs for activities such as</sup> community organizing and management<sup>training. But increased administration</sup> costs may be justified when they lead<sup>to returns on investment which are</sup> sustainable over a longer period,<sup>more equitable distribution of benefits, and</sup> improvements in non-pecuniary indicators<sup>of poor peoples living standards (for</sup> example, reductions in the incidence<sup>of dowry). Moreover, there is strong</sup> evidence to suggest that the need for<sup>financial assistance will fall overtime</sup> as a result of declining cost structures,<sup>and when early efforts are made to</sup>
- 26 -

create capacity for local resource<sup>mobilization (USAID 1989). A brief</sup> analysis of two successful<sup>pro-poor institutions demonstrates ID's potential.</sup>

# _The National Irrigation Administration_

In their chapter "The Impact<sup>of Participation," Romana de los</sup> Reyes and Sylvia Jopillo (1988:90-116)<sup>assess the impact of non-participatory</sup> versus participatory irrigation<sup>systems. They illustrate many of the benefits</sup> that have resulted from adopting<sup>a more participatory institutional approach,</sup> such as relatively higher rice<sup>yields and hectares irrigated, and the greater</sup> representation of landless and<sup>small farmers in water user association</sup> leadership positions. This essay,<sup>however, will focus only on their findings</sup> that pertain to costs and area<sup>irrigated.</sup> First, the researchers show<sup>that although the cost of the</sup> participatory system exceeds that<sup>of the non-participatory system, it only</sup> does so by a very small amount<sup>(merely $2 more per hectare). This results</sup> from the fact that the non-participatory<sup>system costs more per hectare for the</sup> design and construction (see<sup>Table 2 for cost break down of the two systems).</sup> Second, they demonstrate that despite<sup>the higher costs, the benefits</sup> associated with the institutional<sup>activities made them well worth the</sup> investment for three main reasons:

- a) the participatory system mobilized<sup>local resources far</sup> surpassing those of the non-participatory<sup>system;</sup>

- b) loan repayments have been significantly<sup>higher under the</sup> participatory system; and

- c) the area of land irrigated has<sup>expanded more under the</sup> participatory system than<sup>the non-participatory system</sup> especially during the dry season.

These factors also contribute to<sup>sustainability.</sup>
- 27 -

Table 2 Institutions, design and construction<sup>costs per hectare of wet season</sup> irrigated land (in pesos)

||Parti|cipatory|Non-participatory|
|---|---|---|---|
||sy|stems|systems|
|Type of cost|(n|<br>24)|(n<br>22)|
|Institutional costs||||
|Profile preparations|36|($ 1.80)|-|
|Community organizer||||
|salaries and field||||
|supplies|293|($14.65)|<br>-|
|Community organizer||||
|training and supervision|<br>82|($ 4.10)|-|
|Financial and system||||
|management training for||||
|irrigation associations|87|($ 4.35)|-|
|Total institutional costs|498|($24.90)|<br>-|
|Design&construction costsb||||
|Chargeable to farmers|12,666|($633.30)|12,000 ($600.00)|
|Not chargeable to farmers|2,484|($124.20)|<br>3,599 ($179.95)|
|Total design and<br>construction costs|15,150|($757.50)|15,599 ($780.00)|
|Total development costs|15,648|($782.40)|15,599 ($780.00)|

a. Costs have been standardized in terms<sup>of 1984 pesos: P20-US$1.00.</sup> b. Includes costs of materials, labor,<sup>equipment rental and technical</sup> supervision.

Source: de los Reyes and<sup>.)pillo</sup> in Korten and Siy, Jr (1988:113).

The difference between the resources mobilized<sup>under the</sup> participatory system versus the non-participatory<sup>are startling. Farmers'</sup> mean equity contribution to construction<sup>costs under the participatory schemes</sup> has been 357 pesos compared with only<sup>54 pesos under the non-participatory</sup> (see Table 1). Similarly, comparing<sup>loan repayment rates, we find that the</sup> mean percentage of amortization due<sup>that has been paid equals 87 percent for</sup>
- _28_ -

participatory schemes versus **oiily** 50 percerLt for non-participatory schemes (see Table 3).

Given these statistics, de los Reyes and Jopillo (1988:112) demonstrate that from NIA's perspective, the financial benefits associated with the institutional activities have been substantial. The higher farmer equity contribution to construction--303 pesos (US$15) per hectare greater for the participatory system--has led to an immediate recovery of 61 percent of the cost of the institutional development activities. Moveover, loan repayment rates have averaged 87 pesos per hectare per year more for participatory than for non-participatory schemes. If that differential rate of repayment is main-jined for a total of five years, the remaining 39 percent of the cost of the participatory method would be recovered, and any further differential payments would provide a direct positive financial benefit to the NIA. In financial investment terms, if the differential repayment remains constant over ten years, the annual financial rate of return on the investment of using the participatory methods would be 25 percent. Similar results have been found in the Sri Lankan Gal Oya irrigation system that is based on the Philippines model. The measurable benefit/cost ratio for the first two years alone was 1.5 to one (Uphoff 1987:211). In both irrigation schemes, the more participatory approach has contributed substantially to financial sustainability.

The Philippine participatory system also led to relatively higher benefits in terms of the expansion of the area irrigated. An analysis of the mean areas irrigated before and after the NIA's construction assistance under the two schemes shows that on average the NIA assistance produced a positive effect for both the participatory and the non-participatory systems. In the
- ?9

Tab 1 e 3 (Con t rue t ion **and I oan** rtepayinint

|Part<br>icipatory<br>systemlls|Nonparticipatory<br>svst ellsl|
|---|---|
|Payment<br>(n<br>11)<br>a/|(n<br>19)<br>b/|
|Mean amortization||
|payment due a/<br>15,088|41,667|
|Mean amortization payment<br>remitted to the NIA<br>12,429|21,065|
|Mean % of amortization||
|due actually paid<br>82%|50%|
|(z<br>2.17;|p<0.05)|

a. Of the twenty-four sample participatory systems, four were still under construction during the research fieldwork, one had no loan because the association raised a 30 percent equity, and two were not yet due to begin paying their amortization.

b. Of the twenty-two sample nonparticipatory systems, two associations had not accepted the final turnover of the system, while one association had no loan because it raised a 30 percent equity.

c. Nonparticipatory systems had larger amortization payments due because most had been completed in 1981. A larger proportion of participatory systems were completed in 1982 and 1983.

Source: de los Reyes and Jopillo, 1988:111 in Korten and Siy, Jr.

wet season, expansion has been similar ,or the two types of systems--18 percent for participatory and 17 percent for nonparticipatory. In the dry season, however, there has been a substantial difference between the two systems: under the participatory systems the area irrigated expanded by 35 percent in contrast to only 18 percent under the nonparticipatory schemes (see Table 4). Jopillo and de los Reyes (1988:98) speculate that the difference in dry season expansion may reflect better water management practices (for example, more efficient water rotations) in the participatory systems as
- 30 -

indicated by their greater use of water rotation and of specially designated water management personnel.

Table 4 Mean areas irrigated before and after the NIA's construction assistance (in hectares)

|Time period|Participatory<br>systems<br>(n=24)|Non-participatory<br>systems<br>(n=22)|
|---|---|---|
|Wet season|||
|Before the project|88 ha|127 ha|
|Crop year 1984-85|104 ha|149 ha|
|Expansion|16 ha|22 ha|
|Expansion as a percent of|18%|17%|
|area irrigated before the|||
|project|(z=0.|08;p<0.21)|
|Dry season|||
|Before the project|56 ha|105 ha|
|Crop year 1984-85|76 ha|123 ha|
|Expansion|20 ha|19 ha|
|Expansion as a percent of|35%|18%|
|area irrigated before the|||
|project|(z-1|.38;p<0.08)|

Source: de los Reyes and Jopillo in Korten and Siy, Jr (1988:97)

# _The Grameen Bank_

The second case used to illustrate ID potential, the Grameen Bank, demonstrates both the financial and the social benefits that can accompany institutional development investment. Investing in institutional arrangements in credit can produce dramatic financial results when they lead to reductions in arrears. In their article, "Credit for the Rural Poor: A Comparison of the Policy Experiments in Nepal and Bangladesh," Mosley and Dahal (1987) analyze
- 31

the impact of ilnvesting in certain institutional design features on the effectiveness of credit for the poor programs, the Grameen Bank (GB), the Small Farmers Development Program in Nepal (SFDP), and the average of 38 Small Farmer Credit Institutions (SFCI). They have defined effectiveness by repayment rates and the credit institution's ability to reach its target group.

The authors show that GB investment in organizing groups, resource mobilization (for example, compulsory contribution to an Emergency Fund) and intensive supervision of loan repayment (for example, weekly collection of repayment on borrowers premises) raises its administrative cost. Grameen's administrative costs as a percentage of total lent out in 1984 were 12.3 (GB) vs. 7.6 percent (SFDP) and 4.68 percent (SFCIs) (see Table 5). This investment has had two major benefits. First, from a financial perspective, it has led to considerable increases in repayment rates which translates into major reductions in arrears rates (see Table 6 for statistics and definition of arrears rate). In 1983/84 Grameen Bank's arrears rate was 1.6 compared to 11.7(SFDP) and 39 (SFCIs). These high repayment rates have contributed to Grameen Bank's ability to cover costs and sometimes even make a profit (given its access to low cost credit--see Table 7)11. SFCIs, in contrast, have made few investments in ID. Their average overdue rate of 39 percent--which results from political pressures for loan distribution and lack of specialized 11 This profit figure is complicated by the fact that GB has access to low-cost credit (2.0-3.0 percent a year), but, a. discussed above, it is currently going through a period of substantial expansion which may justify the subsidy on infant industry if not equity grounds.
IaIble ) Adillinistirative costs ill relittion to arrears rates, 1984

||(Grameenbank|Smnall<br>farmers'<br>development<br>programnme<br>Nepal|Average of 38<br>third world<br>sclhemes|
|---|---|---|---|
|Admini stn at ive||||
|costs as a % of||||
|total lent out|12.3|7.6|4.68|
|Arreairs rate|1.6|11.7|39.00|

Sources: Arrears rates. Table 3a abo"s and World Bank<sup>[1984], Annex 12;</sup> administrative costs from World Bank [1094], Annex 13. Hossain<sup>[1985] page</sup> 72, and Agricultural Development Bank of Nopal [1986b). Cited in Mosley<sup>and</sup> Dahal (1987:53).

Table Comparison of indicators of internal efficiency

||1977/78|1978/79|1979/80|1980/81|1981/82|<sup>1982/83</sup>|<sup>1983/84</sup>|<sup>1984/85</sup>|
|---|---|---|---|---|---|---|---|---|
|(1) Arrears rate (%)|||||||||
|SFDP, NepaL|4.5|16.2|25.1|26.6|io.8|13.0|13.6|17.8|
|Grameen Bank<br>(a)<br>Bangladesh<br>(b)|..<br>..|.<br>..|..<br>..|..<br>16.9|..<br>13.5|4.2<br>11.9|1.6<br>11.7|1.4|
|(ii)<br>Profitability<br>(%)|||||||||
|SFDP, Nepal|..|..|..|..|..|..|||
|Grameen<br>Bank<br>Bangladesh|..<br>..|..<br>..|..<br>..|..<br>-6.4|-9.5|-3.1|-10.2|17.6|

Notes: Arrears rate for a give period is Amount overdue (total amount due) x 100 for repayment The arrears rate is equat to 100% minus the repayment rate.<sup>For the Grarmeen</sup> Bank arrears statistics are pubtished in two forms: (a) the proportion of loan recipients who had not paid back their entire loan after one year (the standard term of a Grameen Bank toan); (b) the standard<sup>arrears rate which is described as a</sup> "regularity of repayment index.

Sources: For SFDP: Agricultural Development Bank of Nepal (1986b), TabLe IV. For Grameen Bank: Hussain 1984, Table 111 .14 and 111.15. Supplemented by Grameen Bank. Annual Report 1985. Dhaka 1986 cited in Mosley and Dahal (1987:51).
- 33 -

# Table / Profit and loss accounts. 1984-86

|||Amount||As sh|are of loans<br>advances|and|
|---|---|---|---|---|---|---|
|I tem|1984<br>(|1985<br>TK million|1986<br>)|1984|1985<br>(percent)|1986|
|Income|35.38|65.69|89.90|19.9|26.7|27.1|
|Loan operationi|23.39|35.56|43.91|13.2|14.5|13.2|
|Other operations|||||||
|(investments in|||||||
|fixed- and Fhort-<br>term deposits)|11.99|30.13|45.99|6.8|12.2|13.9|
|Expenditures|31.13|65.27|90.99|17.5|26.5|27.4|
|Cost of funds for|||||||
|loan operation|8.10|14.19|11.94|4.6|5.7|3.6|
|Cost of funds for<br>other operations|7.86|15.43|19.09|4.4|6.3|5.8|
|Cost of administra-|||||||
|tion of loan<br>operation|15.17|35.65|59.96|8.6|14.5|18.1|
|Profits|4.90|0.46|-0.75|2.8|0.2|-0.2|
|Loan operations|0.12|-14.28|-27.99|0.1|-5.8|-8.4|
|Other operations|4.13|14.70|26.90|2.3|6.0|8.1|
|Sundry income|0.65|0.05|0.34|0.4|..|0.1|

Sources: Grameen Bank, Annual Report, 1984-86;<sup>Mahabub Hossain (February 1988).</sup>
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knowledge about borrowers' working environment--fcrces them to put heavy financial demands or goverrnent to compensate for the bad debt.<sup>1 2</sup> Second, investment in institutional development activities has allowed Grameen to be highly successful in targeting low income, disadvantaged groups--particularly women, who are usually missed by traditional credit schemes. For Grameen, this group is defined as persons belonging to households that own less than 0.5 acre of cultivable land. A 1985 field survey of 975 randomly selected borrowers showed that only 4.2 percent of the borrowers belonged to nontargetgroup households (Hossain 1988:44).

It is also important to point up that institutional investments can have declining cost structures which may justify Grameen's access to subsidized credit. Start up costs have accounted for over half of Grameen's administrative costs. Banks that have been in operation from six months to a year have had expenses that account for 16.2 percent ot outstanding loans. After banks have been in operation for more than three years, this figure drops to 5.7 percent (see Table 8).

There are an additional set of non-financial benefits, or **positive** externalities, that are associated with institutional intervent!ons that are difficult to quantify. For Grameen, credit has served as a catalyst for 12 Mosley and Dahal argue that if ti e credit institutions he analyses were to charge an interest rate to borrowers that covered the cost of their bad debt: Grameen would have to charge 19% as opposed to the 16% it currently charges, SFDP would have to charge 28%, and farm credit institutions would have to charge 88%. These figures are based on the following formula: (i+a+R) - interest rate that will cover costs 1-p p the probability of financial loss a - administrative costs i - the interest rate charged to banks which is estimated to be 10%
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Table 8 Unit costs<sup>of operation of bank branches, by age of branch, 1984/5</sup>

|Age of branch|Salary and<br>Allowances|Other<br>expenses|Total<br>expenses|Amount of<br>loans out-<br>standing w/<br>borrowers|Expenses as<br>share of<br>outstanding<br>loans|
|---|---|---|---|---|---|
|||(Tk thousand)||||
|Up to 6 months|30.8|9.6<br>|40.4<br>|165<br>|24.5<br>|
|6 months to 1.0 year|46.0|13.0<br>|59.0<br>|365<br>|16.2<br>|
|1.0-1.5 years|72.8<br>|15.8<br>|88.6<br>|1,041<br>|8.5<br>67|
|1.5-2.0 years|87.8|17.8<br>|105.6<br>|1,576<br>|.<br>|
|2.0-2.5 years|94.0|19.6<br>|113.6<br>|2,015<br>|5.6<br>4|
|2.5-3.0 years|100.8|18.8<br>|119.6<br>|2,198<br>|5.<br>57|
|More than 3.0 years|107.6|20.8|128.4|2,259|.|

Source: M. Hossain (1988)
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broader interventions (llossain 1988:27). It has introduced<sup>"Sixteen</sup> Decisions" which are aimed at trying improve poor people's quality<sup>of life</sup> through such things as investment in the improvement for housing<sup>and education</sup> of children, use of latrires and safe drinking water for<sup>better health, and</sup> rejection of dowry in marriages. Many of these interventions<sup>are also aimed</sup> at trying to improve poor people's perception of themselves in<sup>society by, for</sup> example, eliminating dowry and increasing their access to<sup>information and</sup> income generating potential. These considerable social and psychological benefits accompany programs that emphasize socially oriented activities<sup>such</sup> as participation, groups organizing, and local resource<sup>mobilization. Yet</sup> these are usually left out of cost benefit analyses since<sup>it is difficult to</sup> quantify the benefits of, for example, reductions in the incidence<sup>of dowry.</sup> These cases should not suggest that investing in ID will always produce higher private rates of return. Indeed, the credit<sup>and irrigation</sup> sub-sectors may be especially well-suited for ID investment.<sup>They have</sup> clearly identifiable users and benefits, and therefore, are less prone<sup>to</sup> problems of collective action (for example, free ridership)<sup>(Uphoff 1986b:26).</sup> This probably reduces administration costs. In sub-sectors such<sup>as forestry</sup> or rangeland management, however, where beneficiaries and resources<sup>are more</sup> difficult to identify and distribute (Uphoff 1986b:23-29), the<sup>returns to ID</sup> investment may decrease as group organizing and management costs increase. Whether these financial and administrative costs outweigh the<sup>benefits will</sup> vary sectorally and regionally.
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# **SCALE**

One of the main arguments against institutional development strategies is that they cannot be scaled **uip** to reach large numbers of poor people without sacrificing their effectiveness and participatery elements. There is growing experience, however, that this tradeoff may be more relevant among certain types of organizations than it is in others. Moreover, many of the private, nongovernmental, and public institutional examples cited in this essay are not particularly small and have expanded into nationwide, or regionwide programs.

In her review of Livelihood, Employment, and Income Generation .longovernmental Organizations (NGOs), Judith Tendler (1987:38) describes how the low impact and lack of replication of some NGO programs has to do with certain "diseconomies of scale" affecting their expansion. These diseconomies take the following form: a) NGOs that rely on local ethnic, religious, or other social homogeneity for success cannot be expanded easily; b) since NGOs compete for funding they seek to "differentiate their product" from "competitors", which acts as a strong disircentive for exchanging ideas; c) because of conflicting objectives--real or perceived, the potential for government/NGO cooperation and interaction may be limited; and d) NGOs do not face pressures to reach large numbers of persons, in contrast to the public sector that must respond to public opinion.

As a result of these diseconc.ies, Tendler concludes that the path to replication of successful NGO experiments to nationwide pilblems of poverty and unemployment can be quite limited. This does not mean, however, that a large number of small and medium scale NGOs could not have a large **impact** in the aggregate. For example, 44 percent of farmers in Zimbabwe belong to some
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kind of voluntarv organization<sup>(Bratton 1986:122). .Moreover, there is growing</sup> iricidence of government, private<sup>sector, and NGO coordination arid cooperation</sup> which has allowed NGOs to have<sup>a more significant impact. For example, the</sup> Zimbabwean Savings and Development<sup>Foundation (SDF) works with ministries and</sup> private firms to support increased<sup>agricultural production to reach an</sup> estimated 250,000 small-holders,<sup>most of whom are women (Brown and Korten</sup> 1989:21). (For a more detailed<sup>discussion of SDF see Annex 4)</sup> Other kinds of pro-poor institutions<sup>have also achieved</sup> significant scales. Large institutions<sup>that are effective at reaching the</sup> poor are frequently decentralized,<sup>however, particularly when they are doing</sup> more than service delivery activities.<sup>This decentralization can be a</sup> critical part of their success.<sup>In the public sector Badan Kredit Kecamata</sup> (BKK) credit program in Indonesia,<sup>for example, each local BKK bank is an</sup> independent unit, not a bank branch.<sup>Regional development banks supervise,</sup> but do not run, the local units.<sup>Through this arrangement, the BKK has</sup> succeeded in servicing 35 percent<sup>of central Java's 8,500 villages with almost</sup> 500 subdistrict BKK units and<sup>3,000 village outposts (WDR 1989:120).</sup>

# COMPATIBILITY WITH TRADITIONAL<sup>PROJECT FRAMEWORKS</sup>

Although analysis of institutional<sup>aspects of poverty reduction</sup> has received increased attention<sup>over the last few years, it is probably fair</sup> to say that institutional development<sup>has been less successful in making in-</sup> roads into project implementation<sup>and design (Chopra 1989:15). This lag stems</sup> in part from the fact ID requires<sup>some alterations in the way projects are</sup> traditionally conceptualized,<sup>implemented, evaluated, and funded. But this</sup> does not imply ttuat projects,<sup>per se, are incompatible with ID. Indeed, the</sup>
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USAID ARIES13 project supports<sup>ID by providing resources to intermediate</sup> institutions to enhance their capacity<sup>to serve small anid micro-</sup> entrepreneurs, and many examples<sup>ofadditional successful ID projects are</sup> cited in this paper. Nevertheless,<sup>the four issues highlighted below continue</sup> to prevent institutional development<sup>interventions from becoming integral</sup> components of many poverty projects.

First, institutional development requires<sup>a relatively long-term</sup> perspective (Chopra 1989:15-16).<sup>ID projects may be initiated in traditional</sup> four to seven year project time frames,<sup>but this is rarely long enough to</sup> achieve institutionalization, especially<sup>when interventions are intended to</sup> change behavior (for example, involving<sup>women in agricultural expenditure) or</sup> performance incentives (for example,<sup>bureaucratic reorientation).</sup> Considerable progress can be made<sup>in a short period, however. Significant</sup> improvements in water distribution<sup>and operations and management were made in</sup> the Gal Oya irrigation project in the<sup>first three years. But, project</sup> designers and implementers should<sup>not expect a revamped, committed, pro-poor</sup> Irrigation Ministry after only<sup>seven years. They should expect to see a</sup> transforming bureaucracy. As the NIA<sup>experience suggests, there may be some</sup> advantages to experimenting first<sup>in pilot areas (1975 to 1979) and then</sup> expanding to a larger scale based on<sup>that experience (by mid-1986 NIAs</sup> participatory program covered<sup>35,000 hectares in sixty-eight provincial</sup> offices up from twenty-four in 1981).

Second, many projects use blueprint<sup>design methods. Yet the</sup> learning process approach, critical<sup>to many institutional investments,</sup> 13 ARIES stands for Assistance to Resource<sup>Institutions for Enterprise</sup> Support.
> - 40 -

requires that there be mechanisms for feedback to allow project clesigns to evolve and change. For example, one of the issues raised by the World Bank's Operations and Evaluation Department in their review of rural development projects (World Bank 1988:51) was the restrictiveness of the traditional project appraisal process. This blueprint procedure tends to be inflexible; implementers adhere to project designs which may not accurately reflect local conditions. The OED suggests that although the need for a definitive appraisal is associated with the banking and "bankability" notion of financing, it may be at odds with some realities of sustainable rural development. In contrast, they present an alternative to the one-time appraisal which allows for continued appraisal and reappraisal. This learning process approach has had considerable success in the World Bank-assisted Aga Khan Rural Support Program in the Northern Pakistan.

Third, donors face considerable pressure to disburse funds. But over-funding can undermine ID initiatives when institutions attempt to expand too quickly beyond their organizational and management capacities. For example, when the Voluntary Agencies Development Assistance (VADA), a Kenyan NGO, received a $12 million dollar grant from a bilateral donor, the organization's staff were diverted from delivery of management services for rural development to devising internal management procedures to satisfy donor demand for financial oversight (Bratton 1988:19).

Fourth, evaluating and designing ID can be a complicated undertaking. Results may be neither immediate nor quantifiable making assessment difficult. Moreover, how does one, for e-.ample, document the benefits of, or design a well-trained, committed, effective manager? Yet these qualitative features are critical to project effectiveness (USAID
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198<sup>9</sup> a:72). Primarily for these four reasons--the need for a longer term perspective, the tendency to use blueprint designs, the pressures to disburse money, and the complications ID poses for evaluation and design--mainstream poverty-oriented projects have rarely incorporated ID interventions in a systematic way.

# DECENTRALIZATION

The centralized/decentralizedl<sup>4</sup> dichotomy frequently posited in development management is misleading. Some pro-poor institutional development activities can be quite centralized (for example, building central power systems) while others may be highly decentralized (for example, local level NGO activity in group organizing). But for most programs, a combination of central and local level input will be required. For example, resources accumulated locally will probably have to accompany training, funding, and technical assistance provided centrally for effective sustainable poverty reduction. The limitations of using strictly local funds is exemplified in the case of North Yemen. When the central government, motivated primarily by budget constraints, transferred development administration to Local Development Association (LDAs), only limited objectives were achieved. The LDA could only handle very simple projects, once projects were expanded they failed because of lack of sufficient training and technical skills that 14 Traditionally, decentralization has referred to a devolution of power from the central government to local authorities or a deconcentration of power from central administrators to local level civil servants or semi-autonomous government agencies. In addition, it sometimes refers to the process of allowing non-governmental and/or private organizations to channel resources to local levels. See Uphoff (1986b:221-227) and Leonard (1982:28-34) for paradigms of decentralization.
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potentially could be provided by central authorities (Hage<sup>and Finsterbusch</sup> 1987:207-213).

The problem, then is to identify what combinations of central and local support are required and how the responsibilities<sup>between the two should</sup> be allocated (Bryant and White, 1982:155-157). Under this type of scenario what is needed is not power for either central government or local organizations but complementary strength in both (Leonard 1982a:193).<sup>Many of</sup> the examples used in this paper (for example, the NIA<sup>and Gal Oya irrigation</sup> schemes, the Grameen and BKK Banks, the Saving Development<sup>Foundation of</sup> Zimbabwe, and the rural water supply projects in Kenya and<sup>Malawi),</sup> demonstrate potential for and effectiveness of complementary<sup>and coordinated</sup> central, intermediate, and local efforts. Decentralization<sup>may pose political</sup> as well as administrative problems for governments. The political<sup>feasibility</sup> of ID is discussed below.

# POLITICAL FEASIBILITY

ID is not inherently threatening to governments for it does not overtly redistribute wealth like land reform policies do.<sup>But the political</sup> ramifications of a development strategy that promotes institutional pluralism and local level representation may make it unpalatable for some governments or local elites because it could alter local and national power structures.<sup>One</sup> need not look far to find cases of government repression of participatory grassroots organizations (for example, the Ruvuma Development Association,<sup>a</sup> grassroots NGO forced to liquidate by the Rwandan State) or local elite usurpation of benefit. supposedly targeted for the poor (the outcome a significant proportion of small farmer credit schemes).
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Institutional development initiatives could, however, increase political parties' or governments' constituencies by bringing more people into the political process. This, in turn, can improve parties' and governments' chances for maintaining or gaining access to power. Evidence of parties that seek to broaden their support base by including the poor are plentiful in competitive political systems. Examples include the British Conservative Party's courting of blue collar workers by enfranchising them in the electoral reform of 1867 which contributed to Conservative electoral victories in the latter part of the 19th century; Rajiv Gandhi's recent efforts to strengthen the system of Panchayati Raj which is meant to devolve power to village level councils; and efforts by the Christian Democrats in Guatemala to recruit support from the Rural Labor Unions. In addition, governments can get a lot of political mileage out of policies that appear to help the poor and incrpase participation (Tendler 1989:139-141). Therefore, ID may actually seem attractive to governments seeking to increase their support base.

Moreover, although poverty-oriented ID requires decentralizing administration, it does not necessary demand devolution of power from the central government (Leonard and Marshall, 1982). For example, the decentralized and influential Kenyan Tea Development Authority has not wrested power away from the central government (Lamb and Muller, 1982) any more than the community development movement in Korea reduced President Park's national control (Yoon 1985). Whether governments fully grasp ID's political potential or are able to decentralize without devolving, however, is an unanswered question.

It is also important to recognize the serious political and economic costs associated with anti-Door development. First, the poor can
44 -

-

exit either physically or economically from society which can have deleterious consequences for political leadership. In Ghana between 1970-1980, for example, destructive pricing and institutional policies led farmers to either leave the country (many found refuge in Nigeria only to be ousted in 1982 when oil prices dropped) or revert back to near-subsistence agriculture. This led first to a dramatic drop in agricultural output and government revenues and then to a successful coup d'etat.

Second, the poor are increasingly finding new means for political expression which are difficult for governments to ignore. In his article, What is not the Same About the Urban Poor, Sheldon Annis describes the political movements that have risen from the urban slums and created a real bartering structure through which the poor can engage the state (Annis 1988:143). The most recent example of the poor's political leverage in Mexico City is led by a Robinhood-like character called Superbarrio who, dressed in yellow tights and a red-cape, gains concessions from government with media and poor urban slum dweller support.

Third, there is evidence that capricious terrorism is also becoming a weapon of the poor and giving national or local leaders some cause for concern as evidenced by the NPA in the Philippines, the JVP in Sri Lanka, and the Naxalites in Eastern India. Given the political possibilities that accompany ID strategies and the potentially damaging consequences of ignoring the poor, ID may be politically feasible.
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# IV. SUMMARY AND CONCLUSIONS

This paper has attempted to demonstrate three main points. First, institutional development is critical to effective, sustainable poverty reduction and growth. This statement is based on development experience which strongly suggests that economic policies alone cannot overcome the economic, political, and cultural hurdles that prevent resources from adequately reaching the poor, and development interventions that ignore institutional considerations are often unsustainable.

Second, although there is no one model for poverty-oriented ID and ID initiatives will vary considerably cross-sectorally and cross-nationally, a number of important lessons have been learned about successful institutional development initiatives which can be delineated as six broad components. They include elements that are concerned with countries' broad institutional structures--forming or strengthening local institutions and supporting institutional pluralism and components that describe specific institutional characteristics--institutional linkages, organizational structure and managerial leadership, the learning process approach, and participation and local resource mobilization. These components emphasize flexibility, adaptability, and the need for poor peoples' involvement in programming.

Third, the paper has argued that although ID initiatives have faced considerable criticisms of cost, scale, compatibility with traditional project frameworks, decentralization, and political feasibility, these objections may be unwarranted or overly skeptical of ID's viability and potential. The paper uses case studies from different productive sectors and sub-sectors to support these propositions, and to illustrate what the various components look like in practice.
- 46 -

Governments that are willing to encourage this kind of competition and coordination among institutions are much more likely to endorse the ID interventions suggested above than those that pref'er to maintain exclusive control over poverty programs. Although some of the newly industrializing countries achieved rapid growth by combining central level planning and decision-making with local resources, there are a number of features unique to the NIC experience which would make replication difficult in, for example, Latin America or Africa. In contrast, many countries that have pursued "top down" development have faced heavy economic and political costs as a result, especially in the productive sectors.

Poor people are not merely passive recipients of government policy: they respond strongly to incentives and disincentives which should cause nonpoverty oriented governments some cause for concern. Given these realities, from both a political and an economic perspective, poverty-oriented institutional interventions should figure centrally in development that promotes poverty reduction.