IFPRI Forum talks with Fazle Hasan Abed about BRAC’s activities to benefit the poor in Bangladesh, Afghanistan, and Africa.
: BRAC, which is one of the largest nongovernmental development organizations in the world, has strong programs that target the poorest. How have these clients been affected by the food price crisis and the current financial turmoil?
Abed: In Bangladesh, nearly 40 percent of the population is poor and 20 percent is extremely poor. The poor spend 70 percent of their income on food, and nearly 40 percent on rice, the dominant staple food. During 2007-08, the price of rice increased by 60 percent and the price of edible oil almost doubled. Since the level of consumption of rice must be maintained to meet energy needs, the increase in rice prices forced the poor to spend more on rice and cut back on other food items, both in terms of quantity and quality. This has resulted in adverse nutritional outcomes, especially for children. It has also had a negative effect on children’s school participation.
A BRAC study on the impact of rising food prices found that between 2006 and 2008, there was a 9 percentage-point increase in wasting among children under 5 and a 10 percentage-point increase in the proportion of underweight children. This has caused about 650,000 more children under the age of 5 to become malnourished in the short term. Given the already high and obstinate levels of child malnourishment in Bangladesh, this trend is very worrying.
BRAC now reaches almost 7 million mostly poor households with programs on health, education, and microfinance. One specific program on eliminating extreme poverty targets the bottom 10 percent of households—households that remain outside the purview of most anti-poverty programs. Its main aim is to develop capacity for income generation by providing a minimum amount of assets, along with intensive training and supervision on the effective use of those assets, for two years. It is expected that after the two-year period, those households will be able to sustain the gains achieved through participation in labor and tenancy markets and in microfinance programs, and can emerge out of the poverty trap. A “quick and dirty” monitoring of the coping mechanism for the escalation in food prices found that beneficiaries who have been with this program for a longer period did better in coping with the crisis.
: The current financial and economic crisis poses serious challenges to countries, rich and poor, across the globe. BRAC is very active in banking with and for the poor. How has BRAC itself been affected and how will BRAC’s priorities or approach change in response to the crisis?
Abed: The current financial and economic crisis will increase the cost of loan funds for microfinance. This will reduce the small amount of surplus that we generate from the microfinance program, which is reinvested for social-sector services such as education and health, for which we cannot charge our beneficiaries. Nearly 20 percent of our budget of about US$450 million is financed with grants from development partners. We have not yet faced any problem in mobilizing this support, but we remain concerned about the decline of grants in the future if the global financial crisis continues.
Finding ways to increase our efficiency through management restructuring and greater use of technology will be key to the new business model of pro-poor microfinance. The right type of regulatory arrangement that will enable microfinance institutions to mobilize voluntary savings and take advantage of emerging technological opportunities is also an important ingredient for the new business model for microfinance.
: BRAC has recently expanded to several countries in Africa. In what ways do lessons from your experiences in Bangladesh apply and not apply in the African context?
Abed: The key elements of BRAC’s approach to comprehensive rural development and poverty alleviation are piloting in response to an emerging challenge; learning, adapting and innovating from the experience; and scaling up to achieve national-level impact. BRAC believes in flexibility in operations, attention to detail, learning from mistakes, necessity for change, continuous training for capacity enhancement of staff, and sensitivity to local cultural values and customs. These principles and values have been helpful guides in BRAC operations outside Bangladesh.
The ground realities within which BRAC’s approach evolved are widespread poverty, governance failure, the uncertainties and frustrations of post-conflict political environments, deep inequities, weak and missing markets that fail to serve the poor, and unnecessary and preventable deaths. Despite complex differences across countries and cultures, we felt our experiences of working with the poor in these realities and the relatively lower cost of using experienced Bangladeshi staff for training locals at the initial stage of replication gave us an edge over many organizations working in international development.
Before we started work in Africa, we went to Afghanistan in 2002. By 2005, we were inspired by our ability to adapt the BRAC approach to Afghan ground realities, by the positive response from local leaders and people, and by the rapid expansion of operations within a short span of time. We felt that we may have something to offer from our combined experiences in Bangladesh and Afghanistan to further energize and accelerate poverty-alleviation efforts in other countries of the South. It is this spirit of South-South camaraderie that drives and underpins our overseas work.
The African context itself is widely varied. We work in relatively stable and growing economies such as Uganda and Tanzania. We also work in post-conflict countries with their own diverse complexities, such as Southern Sudan, and recently in Liberia and Sierra Leone. Our entry point is the microfinance program, which allows us to build the outreach and the community-level social infrastructure on which we build other activities in healthcare services and agriculture. Making an impact at the national level is one of the core objectives driving our work in Africa.
With the strong track record of our work in Bangladesh and Afghanistan, our willingness and ability to adapt and deliver, and the strong support of many top leaders in African countries as well as of donor agencies, civil-society leaders, and think tanks in developed countries, we feel that we can create effective pro-poor development and an alliance with a southern core.
: BRAC has participated in partnerships with the private sector. What kids of innovations do you see emerging from the private sector? How can the private sector be more engaged in reaching the poor in ways that benefit both business and the poor?
Abed: BRAC has never shied away from entering into the private-sector domain as a pro-poor actor, to create more secure and rewarding links between the market and the livelihoods of the poor. This has led BRAC to venture into many frontier-market developments that create backward and forward linkages to the enterprises of the poor. BRAC experiments in high-risk ventures have sometimes shown the private sector ways to invest in a new area.
For instance, when BRAC started introducing high-yielding poultry as an enterprise for poor women borrowers, it soon became apparent that a timely supply of quality day-old chicks was a major constraint, which led BRAC to set up hatcheries that are run commercially. Another constraint was high-quality poultry feed; that led BRAC to engage in marketing imported hybrid maize seeds, and setting up feed mills. A whole system of logistics management had to be woven around these enterprises to connect to the poultry business of the poor. This is why at BRAC we like to refer to our commercial enterprises as ‘program-support enterprises.’
Such an approach to building viable private-sector enterprises as a pro-poor actor with the explicit aim of poverty alleviation requires an innovative structure of ownership and governance. The private sector’s partnership with NGOs is driven mainly by two factors: commercial and regulatory compliance. The most important issue that stands in the way of a meaningful and sustainable partnership is the fact that markets do not attach any premium to “socially responsible” behavior by corporations. This results in traditional private-sector actors concentrating mostly on financial parameters and compliance, which is rewarded by the market.
The real potential of a meaningful and sustainable partnership will perhaps emerge from NGOs pioneering sustainable businesses that fulfill a social need and the private sector partnering to bring in core competencies in terms of innovations in products, processes, and financial discipline. This will create efficiencies that will ensure longer-term sustainability. BRAC’s investment in BRAC Bank Limited (BBL), which focuses on creating access to finance for small and medium enterprises, can be seen as an example. BBL started as a closely held company, with BRAC, Shorecap (a U.S.-based investment company), and the IFC as sponsors. Shorecap, which has experience in this sector, and BRAC, which has a strong background in financing microenterprises, leveraged their synergies to the benefit of BBL. Today, BBL is a public limited company that is considered a pioneer and a role model in the field of small- and medium-enterprise financing.