Growing the Wealth of the Poor - World Resources Institute

D R I V I N G T H E S C A L I N G P R O C E S SPORTABLE BRIDGES SAVE TIME AND REDUCE COSTOF MOBILITY IN SAVAR AREA, BANGLADESHTIME (minutes)COST (taka)Before After Before AfterNearest school 60 15 15 5Nearest hospital 75 22 20 7Nearest market 60 15 15 5Source: Jahan and McCleery 2005:35–36One of the strengths of a community-based approach toinfrastructure is that it often directs resources to problems thatlarge-scale infrastructure programs ignore. For example, whilemany national road projects are focused on building or upgradingprimary roads that connect villages and cities, recentresearch makes it clear that improvements in road infrastructureshould not stop there. Feeder roads as well as a variety of informalvillage paths and tracks are also crucial for the day-to-daytransport that supports rural businesses and gives the pooraccess to natural resources (Hettige 2007:2–3). In Uganda, stateinvestments in rural feeder roads are three times more effectivein reducing poverty than expenditures on paved roads, becausethey directly contribute to greater agricultural productivity(Fan et al. 2004:47). Maximizing the effect of road-buildingprograms on ecosystem-related businesses thus requires reorientingthem to include these crucial secondary routes—routesthat would be appropriate targets for community-based efforts.Community-driven infrastructure projects also confer thesame kind of empowerment and engagement benefits thatother community-based efforts do. Participation of communitymembers in planning and execution of infrastructure projectsbuilds a sense of collective ownership of the roads, waterworks, or other infrastructure that is built. Cost-sharing andresponsibility for long-term maintenance of the facilitiesreinforce this feeling and make it more likely the infrastructurewill continue to deliver benefits in the future. Working togetheron infrastructure projects builds community solidarity andsocial capital in the same way that joint resource managementdoes (Jahan and McCleery 2005:36–38; Adato et al. 2005:xi).In fact, the two may reinforce each other, with small-scaleinfrastructure programs acting as a catalyst for a variety oflocal enterprises, and these enterprises in turn providing arationale for continued infrastructure maintenance. Conceivedin this way, it is not hard to imagine that infrastructure investments,when appropriately planned and executed in a way thatmeaningfully involves the user communities, can play a criticalrole in scaling up nature-based enterprises.While the community-based approach to infrastructuredevelopment has clear advantages, it still depends on strongsupport from national government to succeed. Infrastructurenetworks clearly require high-level planning and coordination—traditionally a government responsibility—if they are to providetransportation, communication, power, or water in anintegrated and equitable manner. And even if local communitiescontribute a portion of the budget through cost-sharing, thebulk of infrastructure financing will appropriately come fromstate coffers. In addition, government expertise is needed tohelp communities evaluate the safety of existing infrastructuresuch as bridges and roads in the face of the increasing risk ofnatural disasters associated with climate change. Governmentoversight and facilitation will thus continue to be required evenif local communities are given considerable budget authorityover local projects. Governments must therefore carefullybalance their coordination, oversight, and funding roles withoutunduly interfering in the conduct of decentralized, small-scale,locally driven projects if they are to discharge their mandate toprovide the “built capital” that rural development requires.Providing Adequate FinanceLike all businesses, small rural enterprises need financing tobankroll their start-up costs and expand their operations as theymature. Yet access to such financing has traditionally beenextremely limited. Community-based businesses—particularlywhen undertaken by the poor—are characterized by highvulnerability and lack of collateral, a financial profile that has leftcommercial banks reluctant to extend conventional loans to thissector. Loan sharks were often the only available source of funds.Today the microcredit industry has begun to address thisfinancing void. Over the last three decades, small loans—typically between US$20 and US$500—have becomeincreasingly available to a range of rural and urban enterprises.Inspired by the success of Grameen Bank and other similarinitiatives, a host of NGOs, credit unions, community-basedorganizations, and government funds have entered the microcreditmarket. The Microcredit Summit Campaign, a nonprofitdedicated to tracking these services for the poorest populations,reported that at the end of 2006 there were 3,316 microcreditinstitutions worldwide, serving more than 133 million creditrecipients (Daley-Harris 2007:2). This growth—and muchmore—is necessary to finance any substantial scaling up ofnature-based enterprises. At the same time, the microcredit fieldhas morphed into the broader “microfinance” industry, expandinginto other financial services targeted to the poor, such as“microinsurance.” Even remittances—the funds sent home byfamily members who emigrate to urban areas or to othernations—have become a target of the microfinance industry, asservice providers try to reduce the costs and increase the impactof these transferred savings.The microfinance world is maturing in other ways as well.Urged by governments and encouraged by the success of NGOand government microcredit operations, commercial banks haveincreasingly entered the microcredit field, servicing over 17percent of all microcredit customers (Gonzalez and Rosenberg2006a:6). The private sector role is growing across all forms ofmicrofinance. Many major banks are adding microfinance179