Powering Innovations in MicrofinanceConference on Microfinance

Asian Development Bank, Manila, PhilippinesJuly 24-25, 2008

Experience, Issues and Challenges in Agricultural and Rural Development

By

Malik Fateh Khan

National Rural Support Programme, Pakistan

NRSP Pakistan 2

Pakistan – An Agrarian Economy

Pakistan’s 796,095 sq km territory include wide

variety of landscapes, from arid deserts to lush

green valleys to stark mountain peaks

Geographically, Pakistan can be divided into three

regions1. Low lands along the Indus river in

the south and east

(Province and Punjab and Sindh are

well irrigated)

2. Arid Plateau of Balochistan in

south west

(Covers almost half Pakistan’s

territory – very dry and stony

plateau, sparsely populated)

3. Mountains of the north

Cont….

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Climate varies according to elevation

April to September are pleasant months in mountains-

bring oppressive heat to the low lying plans- temp. can

exceed from 40 Celsius (100 F)

December to February are the coolest months – low land

temp. 10-25 degrees C (50-77 degree F)

Population 163.8 million with annual growth rate 2.16 %

Total labor force is 44 million (30 million rural and 14

million urban)

Estimated unemployment rate is 8%.

Nearly 34% population is living below poverty line

Cont…

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Agriculture and livestock account for 25% of

GDP.

Employs 48% of labor force

In 2004-5 the Agri sector registered an all

times high growth of 7.5 % due to

favorable weather conditions

Provides livelihood to 68% of the country’s

population of rural areas.

Major crops are wheat, rice, cotton, sugar

cane, maize and pulses

Cont…

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Pakistan’s agriculture base is 79.6 million hectares, of which 22 million hectares are cultivated area18 million is irrigated through canals, having the world’s largest canal irrigation network. 8 million hectares are rain fed and rest is unfit for cultivationWorld’s largest producer of orange varietiesRanks among the top five producers of mangoes and datesFifth largest milk producing country in the world

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Real Agriculture GDP in Pakistan 1989-90 to 2004-05

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Relationship between Agriculture Growth and Rural Poverty

Farming, livestock and non farming activities are the major sources of employment and income in rural areas.Incidence of poverty is found to be higher for those who depend solely on livestock and lower for those having both farming and livestock activities.Majority of the non poor depend on crop while poor depend on livestockPoor not only tend to be landless or small holders but also have more difficulty in managing risks because of inability to diversify their productionCrop income in rural Pakistan account for nearly 50% of total income but account for only about 27% of total income for very small farm households

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Relationship between Agriculture Growth and Rural Poverty

Wages and salaries and transfer income are other significant sourceIncidence of poverty is low in zones where the percentage of incomes from wages and salaries and transfer of income is highPoverty alleviation strategies aim at providing gainful sources of alternative employment to over 60% households (56.61% with no land and 5.12 with less than one acre) should receive much greater focus

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Land trends in rural areas and share of different sources

Wages & salaries

Transfer income

Crop income

Rental income

Livestock income

Total monthly income

% Households

No land 76.25 20.11 1.43 0.74 1.47 100 56.61 Up to 1 acres 45.46 24.07 26.73 1.00 2.73 100 5.12 Up to 5 acres 23.44 10.31 61.16 2.53 2.56 100 18.01 Up to 12.5 acres 9.40 4.33 82.44 1.64 2.20 100 13.95 Greater than 12.5 acres

4.54 2.06 89.10 2.95 1.35 100 6.31

All households 35.81 11.14 49.49 1.73 1.84 100 100.00

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Agriculture and rural development

Agriculture contributes to development in many ways; Agriculture as an economic activityAgriculture as a livelihoodAgriculture as provider of environmental material

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Four policy objectives of the agriculture-for-development agenda form a policy diamond

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Agri. Based economies, participation and income levels from Agriculture

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Government’s initiatives in Agriculture and rural development

Successive Governments in Pakistan introduced and implemented different programmes and projects with a focus on:

Development of agricultureInstitutional changes in the land systemExpansion of rural employment opportunities through expenditure on social infrastructure (water and sanitation, education and health care)

Cont…

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In addition to the existing line Departments, new institutions were set up for agriculture development

Agricultural commissionsPakistan agricultural research council/centersAgriculture development corporationsProvincial seed corporationsWater and power development authorityAgriculture development bank of Pakistan

Cont…

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Government’s recent InitiativesPakistan Poverty Alleviation Fund (PPAF)Khushali Bank Devolved Govt. Khushal Pakistan ProgammeCitizen Community BoardsKhushal Pakistan Fund National Program for Rehabilitation of water coursesEducation sector reforms programmeInitiatives for the development of livestockHealth and family Planning ProgrammesMicro finance institutions

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Land reforms (1959,1972, 1973 and 1977)

Government resumed 1.58 million hectares and redistributed 1.30 million hectares to more 272,000 beneficiaries

Resulted into some positive and long lasting impacts on the rural lives, socio-economic development of tenants and better income distribution among the most disadvantaged entities of society

Had positive impact on the level of productivity and employment.

Provided far greater security of tenure than existed ever before

Cont…..

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Bottlenecks/ short comings were :

1. Substantial part of the distributed area was not of high quality

2. Land less wage workers did not benefit directly in the sense of gaining land for cultivation

3. Absence of a follow-up or support system such as the distribution of farm credit, inputs and the establishment of new or encouragement of present organizations

4. Land fragmentation, especially of small holdings has become very serious problem

Cont….

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Issues/short comings in Agriculture:1. Non availability of irrigation water and low water use

efficiency due to unlined water channels

2. Government support prices are not competitive with market

3. Poor Agri. Extension and research services

4. Farmers are forced to sell their produce at lower prices due to ban on district to district movement and involvement of middle man

5. Lack of coordination between Federal and provisional agencies, research and extension services.

6. Expensive Agri. Inputs and farm machinery and their on time availability

7. High electricity rates for lift irrigation

Cont….

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Soil preparation Seed cultivarseed rateSowing timePlant density

IrrigationWater lodging and salinityNutrient applicationPlant protection

Modern TechnologyInvestmentMarketing systemInputs availabilityCredit

Causes for Low farm Yield

The per hectare yield of major crops like wheat, rice, cotton, sugar cane and maize is lower than the potential the major factors are:

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Rural development Programmes

1. The village aid programme 1953-962

2. The rural works programmes 1963-1970

3. The integrated rural development programme 1972-1977

4. Peoples works programme 1973-977

5. Rural development programmes (Prime Minister’s 5 point programme, Tameer-e-Pakistan, Khusal Pakistan etc.) 1978-1988 and 1990-2007

6. Devolved Local Government System (2003- to date)

Cont…

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Impact

1. Creation of infrastructure such as roads, bridges, dams, irrigation channels, drains and embankments in the rural areas

2. Creation of a nucleus of planning and development at the local (union council) level and local leadership

3. Improved agriculture technologies

4. Reduced unemployment in rural areas

5. Linked the villages with mainstream of development activities

6. Provision of agri. Machinery, seed, fertilizer and other agricultural inputs

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Bottleneck and short comings

1. Followed blue print approach to achieve the physical targets setup by Govt. departments/agencies

2. In many cases the implementation was half –hearted and usually very costly

3. Schemes and programmes were abolished or terminated as result of change in Govt. without adequate assessment or rational for new scheme

4. Generally fell far short of their intended objectives and physical targets

5. Rarely assessed for their impact on the lives of the poor and marginalized groups in rural areas.

6. Lack of coordination between various line agencies and departments

7. Political dominated programmes ignoring peoples capacity for self reliance by making them more dependent on government.

8. Majority of the projects had no local contributions thus resulted into lack of ownership

9. Low quality physical work and services

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Emergence of Rural Support Programmes- Concepts of participatory and community driven rural development

From the experiences of last four decades three important lessons can not be ignored

1. Successive governments failed to deliver on their basic responsibility particularly in providing adequate social sector services due to political volatility, week governance and corruption

2. Exclusion of poor from the mainstream developments. Even in the best years of economic activities the so called “trickle down” effect remained elusive, with most of the benefits of development going to the better off.

3. Frequent wars and continued tension on the borders with India and the situation in Afghanistan resulted into allocation of major resources for defense and combating law and order situation

Cont….

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Circumstances led the stakeholders in Govt. and civil society to seek development solutions out side the public domain with an objective of supplementing and complementing the Govt. efforts to combat povertyFilling the gap in service delivery in case of weak and non existent government services by seeking innovative solutions in partnership with communitiesFocus on helping poorer, build their resources and skill to be able to participate more actively in main stream development

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Rural Support Programmes (RSPs) in Pakistan

RSPs are working in 93 out of 107 Districts in Pakistan. The RSPsare:

1. Agha Khan Rural Support Programme (AKRSP) – 1982

2. Baluchistan Rural Support Programme (BRSP) - 2001

3. Ghazi barotha Taraqiatin Idara (GBTI) – 1995

4. Lachi Poverty Reduction Project (LPRP) – 1997

5. National Rural Support Programme (NRSP) – 1992

6. Punjab Rural Support Programme (PRSP) – 1998

7. Sarhad Rural Support Programme (SRSP) – 1989

8. Sindh Graduates Association (SGA) –1972

9. Thardeep Rural Development Programme (TRDP) – 1987

10. Sindh Rural Support Organization (SRSO) – 2003

Cont…

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Distinguishing common features of these new generation Programmes are:

1. Their participatory approach;2. Social mobilization;3. The initial project area is

unpromising in terms of location, economic opportunities and has a high incidence of poverty;

4. Minimal role of foreign assistance;5. Galvanizing role of the

initiator/charismatic leader needs to be supplemented by a process of institution-building;

6. A remarkable ability and desire to diversify activities, initially sectoral or parochial, become more encompassing.

Cont…

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What is Social Mobilization?

Social mobilization is based on the assumption that poor and asset-less have a tremendous capacity to do many things themselves.

Social mobilization means mobilizing poor for harnessing their potential.

Social mobilization focuses on poor and poverty alleviation and not on projects.

Social mobilization is demand responsive and does not talk about pre conceived packages.

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KotliChakwal

RwpAttock

VehariLodhran

Bahawalpur

BadinThatta

Hyderabad

D.G Khan

Malakand

Mirpur KhasGwadar

Turbat

Rawalakot

PallandariICT

MardanSwabi

Bhakkar

RYK

Rajanpur

Bahawalnagar

BALOCHISTAN

SINDH

PUNJAB

NWFP

Jammu & KashmirDisputed Territory

Northern Areas

NRSP Assisted Area of Operations

Awaran

Lasballa

Nawabshah

Sanghar

Multan

Lodhran

Khanewal

MianwaliJhelum

SargodhaKhushab

Sahiwal

Muzafarghar

SwatMuzafarabad

India

Afghanistan

Iran

China

Arabian Sea

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Harnessing people’s potential to help themselves

a. Helping people to organize themselvesb. Identifying true and genuine activistsc. Training and capacity building of village

activists on a very large scale to substitute a large army of paid extension workers.

d. Identifying and prioritizing what people are willing to undertake in terms of opportunities and not demands.

e. Undertaking feasibility of identified opportunities

Cont…

NRSP’s approach

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f. Facilitating, arranging and securing flow of required resources for undertaking identified opportunities.

g. Monitoring, lobbying on behalf of communities, establishing linkages between communities and government departments and others such as District Councils, Union Councils, NGOs and Donors.

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Why Poverty in Pakistan?

Massive investment by the Government through Annual Development Plans but low impact.

Government makes huge investments but does not create a receiving mechanism for delivery of goods and services.

Creating a receiving mechanism in the community requires “Social mobilization entailing”.

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Identifying poor people by the poorOrganizing the poor by the poor to bring unityCreate environment that potential of the poor comes out by building their capacity (training , exposure visits etc)Showing them a way how to access capitalKnowledge should be provided / create an environment so that they select right type of livelihoodBuilding the capacity of poor people to fight against social evils/ issues (attitudinal change)Creation of “SAFETY NETS” as Poor work under many risks.

If we can understand “HUNGER” only then wecan understand poverty.

Steps for Poverty Alleviation

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Indicators of social mobilization

Willingness of the people to develop1. Unity of the community (How strong is the

CO?)2. Capacity of the people to identify their bottle

necks/ problems which effect their lives 3. Capacity of the community to find the root

cause of the problems4. Capacity of the community to “PLAN” to

over come the bottle necks / problems5. Capacity of the community to pool up the

resources (external and internal) to implement the “PLAN” to solve the problems

6. Implementation of plans by the people (not to be implemented by contractors or high jacked by others

7. In social mobilization, problem will come. (The capacity of the people to overcome those problems)

8. Results of social mobilization should go to majority of the needy people (equity)

9. Sustainability of above indicators

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Preparation of Poverty Profile

Communities themselves classify each household in the village into five categories:

Better OffWell to doPoorVery PoorDestitute

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Examples of Poverty indicators used for preparation of Poverty Profiles as perceived by the communityDetails Rich Middle Poor Very Poor DestituteLandholding >10 acres <5 acres 0 0 0

irrigated Tractor Yes No No No NoBank balance Upto 1 lac Does not need Needs credit Needs credit Needs credit

credit for emer-gency needs

Livestock >10 <5 1-2 0 0House Large & concrete Middle & concrete Small & concrete Small & concrete Small & mud

but with insufficientaccommodation

Transport Yes, car or Yes, motorbike Yes, bicycle None Nonemotorbike

Servants Yes No No No No

Regular income Members of Yes Shop, milkman Daily wages Zakat, occasional

households in farm worker labour

service/business

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Preparation of Portfolio of Opportunities

Levels Plans Identified InterventionsHousehold Level Income Generation - Line of Credit

- TrainingGroup Level Land Improvement - Line of Credit

Joint Enterprises - TrainingCollective Supplies - Technical Assistance

and MarketingVillage Level Social Sector Needs - Engineers’ services,

such as - Proposal writing, Linkages, - Drinking Water Supply - Fund raising- Schemes and Sanitation- Health and Family Planning- Education- Infrastructure Needs

4

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NRSP’s Micro finance program for agriculture development

NRSP is largest both in terms of outreach and access to the poor communities for micro creditNRSP’s total disbursement as of June 08 has been Rs 27.940 billion (US $445.5 million)Repayments are tied with cash flow of the farmers- bullet loans repayable upon harvest.Even in case of livestock, repayments largely depend on successful cropping, hence are linked to harvest period on average 6-8 months time.

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Largest Providers of Micro credit (Active Borrowers)

4.774,172PRSP5

7.7122,507FMFBL4

19.6312,439Kashf3

20.3323,131KB2

31.1495,503NRSP1

Market Share(% of active borrowers)

Active Borrowers

(31 March 08)

MFPS#

Source: Micro Watch Issue7: Quarter 1 (Jan-March 2008)

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Source: Micro Watch Issue7: Quarter 1(Jan-March 2008)

A. Top 5 MFPs: Increase in Active Borrowers (Net)

NRSP

FMFBL

KASHF

PRSP

OLP

0 10 20 30 40 50 60 70 80 90 100Increase (000’s)

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Characteristics of NRSP’s micro finance for agriculture

1. NRSP is a multi sector development organization

2. It carries out various development activities through social mobilization

3. Rural communities are organized into community organizations (COs) comprising 15-25 households represented by men, women or both

4. The COs are used as platform for identification and implementation of various programmes including micro finance

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Factors contributing the success of NRSP’s Programme

Proper situation analysisDetailed survey of the new area is carried out before entryNRSP staff gets demographic information about the area with information regarding previous credit history, behaviors and economic status of the population.

Improved targeting strategySmall farmers desperately need financial services for purchasing agricultural inputs on time.Timely provision of micro credit to such needy persons creates loyalty among the clients for NRSPUpon harvest they give first priority to NRSP to return the loan.Cont…

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Credit plus initiativesNRSP’s micro finance clients also have access to other services such as:

Technical assistance for agri and livestockSkills trainingsHealth and educationHospitalization and accidental death insurancePhysical infrastructure services at the village level i.e. drinking water, sanitation, street pavements, link roads, lining of water courses etc.Develop beneficial partnerships between organized communities and other agencies both public and private.

Cont….

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SavingsNRSP promotes culture of savings as a preemptive measure to sustain the economic shocks due to crop failures, chronic health issues and natural calamities etc.Build the capacity of the activists through community management skills training where communities are educated in record and book keeping and managing bank accounts

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C. Largest Providers of Micro-Savings (Active Savers)

MFP Active Savers Market Share (31-Mar) (% of Active Savers)

NRSP PRSP

TRDP

SDF

FMFBL

848,232 49.5 333,714 19.5 214,141 12.5

105,664 6.2

97,488 5.7

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Character assessment of each client1. For insuring timely repayment of the loan it is

Client’s character that actually matters2. NRSP staff is trained to assess client’s

willingness to pay, his/her conduct in the society and seriousness in utilizing the credit for stated purpose

3. Appraisal is done at the CO as well as at household level

4. Client’s CO and his/her family members are informed about the loan in order to exert social pressure for timely repayment

Cont…

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Close contact with the clients

1. One room small office at village level called the village branch (VB) is established in the programme area

2. VB is operated by 2 local field workers (FW)

3. FW is responsible for loan appraisal at household level, participation in the CO meeting and collecting repayments

4. VB is a low cost mechanism to maintain frequent contact with all NRSP clients

Cont..

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Village Banking1. Is a tool to build the managerial

capacity of community organizations (COs)

2. COs pool their resources and savings in their bank account

3. Get additional financial resources from NRSP as whole sale credit at concessional rates

4. Difference between the cost of funds and the amount charged is used by CO for the operational expenditure including salary of an accountant

Cont..

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Continuous Monitoring and Capacity building of the staff

1. System of continuous monitoring established with competent supervisors

2. They visit all field areas frequently and meet NRSP staff and clients

3. The loan tracking software provides a number of reports at different levels to monitor disbursement and recoveries from different angles

4. Each staff member goes through a number of class room and on job training programmes

5. Training curriculum is regularly updated based on feed backs from the community, field staff, supervisors and other MFIs work

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Risk and challenges in agriculture finance can be divided into two categories i.e. Economic Risks and social risks

Economic RisksBeing bullet loans, repayable upon harvest are prone to many risks which may occur at the time of repayments:

1. Inability of the farmer to earn income due to crop failure as result of pest attack

2. Inability of farmers to earn income due to crop failure because of natural hazards e.g. floods, drought and unfavorable weather conditions

3. Inability of farmer to earn income due to lower price of their produce

4. Delayed payment by the traders/ middle men and mill owners resulting into overdue/defaults

Another major challenge for MFIs engaged in rural micro finance is their operational sustainability

Cont…

Risk and Challenges in Rural Micro Finance

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Social risks The targeted agriculture finance program implemented by Agriculture Development bank of Pakistan and different agencies have contributed to a bad repayment culture in rural areas due to poor management of such programmes.The people belonging to same cast living together in a village create social / political pressure for all programmes in their favor creating difficulties for MFIsEngaging/ retaining women staff is also another challenge for MFIs working in the rural areasThe charging of interest rates on credit is considered against the religion Un Islamic) by most of the rural societiesReligious activists/leaders of the religious political parties create problems for MFIs to smoothly operate in their areas of operation

The challenge for MFIs working in Pakistan is to develop micro finance products based on the Islamic principles of lending

Impact of Rural Community Development in one of the NRSP

Programme Districts

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Formation of men and women community organizations for sustainable developmentWomen empowermentHuman resource developmentSignificant positive impact on yearly income Annual Income of participating household was 61% higher than the non participatory householdThe average sugar cane yield per acre was 27 % higher while the income was higher by 38 %Monthly per capita income of participating household was 55 % higher.Creation of more household assetsAccess to credit facilities

Cont…

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Livestock health improvementImprovement in milk yieldFacilitation in obtaining national Identity cards.Increase in primary school enrollment particularly of girls.Quality education and improved health servicesPhysical infrastructure developmentProductive linkages developmentImproved marketing

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Challenges in community development efforts in Pakistan

1. Development Plans are not implemented with a consistent approach.

2. Security: internal and external threats negatively affects the development process

3. Less investment in social mobilization that hampers social capital development

4. Less participation / involvement of women in the socio–economic development process

5. Low literacy rate particularly amongst the women

Cont…

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6. Inequitable distribution of land 7. Lack of access to credit facilities by

the small farmers and landless in the rural areas.

8. Poor health facilities / services9. Access to justice10. Poor physical infrastructure11. Natural calamities (drought,

earthquake, floods etc.)

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Thanks