These Jokers Are Serious

India's terror tally: 6 days. 58 bombs. 3 cities. 53 dead.

Just before he kills his victims the villain of The Dark Knight, this summer's white hot Hollywood blockbuster, likes to ask them a question: "Why so serious?" The Joker, played by the late Heath Ledger, does not expect an answer. But as the victims realize the end is near, he relishes their rising fear – it suggests they hadn't been taking him seriously enough.

The terrorists who set off dozens of bombs in Bangalore and Ahmedebad last weekend and scattered handfuls more around the Gujarat port city of Surat seek a similar response. As with the Joker, the horrors have come rapid-fire, yet each has lingered longer than the last. Bangalore's eight blasts occurred over 15 minutes, killing 2. In Ahmedebad the 21 explosions took more than an hour, and have now killed 51. Surat residents discovered 21 slow-ticking bombs across the city over a period of nearly 30 hours.

A few of the Surat bombs were found in public garbage cans. One was placed behind a hoarding under a traffic flyover. Another had been secured in a low-hanging tree branch. Nobody knew where or when the next might appear, or whether it might reveal itself more rudely than the others. Was that part of the plan? Unsure whether the bombs were intended to explode, the police have theorized that they may have been a distraction, or a test to measure response times. Whatever the case, Surat may have been saved from physical damage but by all accounts the city is psychologically shattered.

Ahmedabad, too, has been scarred. Monday commuters leaped from a smoking city bus, later found to be suffering from an overheated engine. In the Ghodasar neighborhood an unclaimed tiffin prodded locals to call the police, whose investigations revealed the offending lunch case had been forgotten by a young boy. Residents have been phoning in false bomb alarms and mental health professionals in both cities report a spike in anxiety and stress disorders.

A Joker-like strategy of inciting fear is not the only cinematic homage hidden in this week's terror. The pattern of the Ahmedebad blasts closely follow the Bollywood film Contract, which arrived in local cinemas the previous week. In the movie a terrorist leader details his plan for a series of bomb blasts in Mumbai, followed an hour later with several blasts at city hospitals. The Ahmedebad bombs followed this very outline – with an extended first round of strikes followed by blasts at two major area hospitals, with the latter doing the lion's share of harm and ratcheting up the horror.

Dozens of analysts have outlined detailed policy proposals on the editorial pages of India's daily newspapers. Most cite the need for a unified central intelligence agency and various multi-pronged initiatives intended to redouble surveillance and security, increase Muslim development and foster community awareness.

Fine ideas all, but we should first grapple with what we are facing. These terrorists have three objectives: to incite widespread fear and make over a billion Indians ill at ease; to throw a wrench in India's widely lauded economic progress, its rise to superpower status; and finally, to sew religious enmity, particularly between Hindus and Muslims.

On the first score their success has been obvious and widespread. The fear has even reached Delhi, where the Japanese embassy was evacuated and shuttered Wednesday after receiving an anonymous bomb threat via email, and the southern state of Kerala, where a bomb-warning phone call panicked police.

On the second point the bad guys have made decent headway. Bangalore is a global IT hub. Ahmedabad is one of India's leading manufacturing centers. Surat operates one of the country's biggest and busiest ports. All three are now less attractive to local and international investors and businesses. Foreign trepidation has already risen its head; Japan recently warned its citizens about traveling in India. And in an email from Indian Muhajideen received minutes before the Ahmedabad blasts began, the attackers put leading businessman Mukesh Ambani and four major Muslim film stars in their crosshairs. These targets are well chosen; India's global profile has grown due in large part to its business dynasties – with the Ambanis, Tatas, and Birlas in the vanguard – and Bollywood celebrities like Shah Rukh Khan.

The third and most combustible objective has not yet come to pass, despite the seeming efforts of the opposition BJP. Party leaders have called the ruling UPA government "soft on terror," and a spokesperson said the problem "requires a Kashmir-type operation to tackle terrorism and root out the outfits supporting it." Strange choice of model, because India's war against a Pakistan-backed insurgency there has droned on for nearly two decades and resulted in some 50,000 dead. Further, this week the BJP urged residents of Jammu, the state's predominantly Hindu winter capital, to create a blockade in order to keep crucial goods such as meat, vegetables and dairy products from reaching the mostly Muslim Kashmir Valley. This in a region rife with long-simmering religious tensions.

The Dark Knight climaxes with the Joker's most insidious stunt. Two ferries – one full of criminals, the other full of law-abiding Gotham citizens – have been wired to explode. The Joker gives each boat a detonator for the bombs on the other boat, then gleefully announces to all passengers that if neither pushes their button for 30 minutes, both boats will blow. It's a moral dilemma, a deadly game of chicken, and Gothamites find it in themselves to stay calm and embrace life.

Can India do the same, or will its impressive progress be stalled by fear and communal rage? A good question, and just cause to get serious.

-- published in Aug 4 Tehelka, an Indian newsweekly.


Nearing Milestone, the Peace Corps Reaches a Crossroads

In a December 2007 campaign speech Democratic presidential candidate Barack Obama offered his solution to the United States’ depressed global stature. “To restore America’s standing I will call on our greatest resource – not our bombs, guns, or dollars – I will call upon our people,” the Illinois senator told a crowd of supporters in Mount Vernon, Iowa. Among his promises was this: “We will double the size of the Peace Corps by its 50th anniversary in 2011.”

The Peace Corps in middle age is a bit like a late model Studebaker: It’s nice to know it’s still around, embodying the unbounded optimism of a bygone era, but you might not want to look under the hood. A former country director and several returned volunteers have recently done just that, pointing out major flaws in Peace Corps operations and raising serious questions about its effectiveness.

Like any bureaucracy, the Peace Corps is cumbersome; current officials believe laying the groundwork for an expansion could take years. And perhaps most troubling, Obama’s words suggest the program’s focus has shifted from helping the poor to gaining political capital.

A wave crests, slowly

Established in 1961, the Peace Corps was borne of President John F. Kennedy’s desire to employ young, idealistic Americans to help developing countries and foster cross-cultural exchange. Kennedy envisioned sending out 100,000 volunteers every year, and the number zipped to 15,000 by 1966. Then realpolitik intruded – the Vietnam War reversed that growth spurt, beginning a 16-year decline that led to a nadir of 4,600 volunteers in 1982.

A slow climb began under President Ronald Reagan and matured under President George W. Bush, resulting in a slightly more robust Peace Corps today. The 2007 total of 8,079 volunteers is the agency’s highest in nearly four decades. Still, after 47 years, returned volunteers total less than 200,000, a profound disappointment considering Kennedy’s original goal. Further, the Peace Corps’s global and domestic profile remains low.

“It’s a great brand, but the weight of the brand on the world scene is so small it hardly registers,” said Lex Rieffel, an expert in overseas volunteering at the Brookings Institution, an independent think tank based in Washington, D.C. “If this is a brand that is good for America – if only because it’s good for the world – then let’s build on it.”

Connecticut Sen. Christopher J. Dodd, who served as a Peace Corps volunteer in the Dominican Republic, is spearheading legislative efforts to double the size of the Peace Corps. In summer 2008, the National Peace Corps Association’s More Peace Corps campaign, with a primary goal of doubling the program, hosted events in cities across the country. Kevin Quigley spearheads that campaign and sees a “perfect storm of conditions” buffeting his efforts: a need to improve the United States’ global standing after the bullying Bush years; both major presidential candidates’ stated support for doubling the program size; growing political awareness as a result of the Dodd bill; and widespread desire for reform in the run-up to the 50th anniversary.

“We’re at, I believe, a historic moment,” said Quigley, president of the National Peace Corps Association, an organization of alumni volunteers. “If it’s ever going to happen it’s in the next three to four years.”

For an agency that, after 9/11, had slipped from the American consciousness, the interest is invigorating. “This is a wave that, as I see it, is just in the process of forming,” Rieffel said.

Hitting the wall

The wave may have slowed after Robert Strauss pointed out that the emperor’s clothes were looking rather tattered. In a January 2008 New York Times op-ed the former country director for Cameroon (2002 to 2007) complained that the volunteer selection process was not rigorous enough, that a lack of oversight and management rendered much of the work useless, and that funding shortfalls meant volunteers and staff were inadequately supported. He described how volunteers were constantly mis-assigned – the Peace Corps continued to send volunteers to teach English in Cameroon, for example, even though Cameroonians repeatedly listed English instruction as their lowest priority.

Strauss urged the Peace Corps to seek out and accept only the best and the brightest, to assign volunteers more effectively and to reform before it considered expansion. A few months later he expanded these complaints in an article in Foreign Policy magazine, arguing that the Peace Corps had “never lived up to its purposes or principles.”

Many volunteers relish their volunteer experience and return transformed. Yet others bear out Strauss’s criticisms. The latest edition of Peace Corps’ internal biannual survey found that less than half the volunteers felt their job took advantage of their skills, interests and experiences. Ecuador volunteer Jeffrey Jackson, for instance, left his Peace Corps assignment early because, as he explained on his blog, “in a school of 35 students, with eight qualified teachers and four volunteers, the role of room checks and kitchen governor didn’t seem sufficient for two years of my life and service.”

Often fresh out of college, many volunteers are unprepared for the seriousness of the work. A perusal of Peace Corps volunteer blogs (www.peacecorpsjournals.com) finds volunteers enjoying Carnival in South America, brewing their own beer in Burkina Faso, and tanning on Caribbean beaches.

“Those are not the activities the Peace Corps is hoping for from them,” Peace Corps Director Ron Tschetter acknowledged in an e-mail.

For Rieffel, such failures are related to funding and thus inherently political.

“Many of these problems would be easier to solve in the context of a very different foreign policy articulated by a new president and supported by a new Congress,” he said. “The Peace Corps has been fed scraps from the budget for the last 30 years, and that pattern has had the result of putting it inside a protective shell.”

American taxpayers might not consider the Peace Corps’s 2008 budget of $330 million mere scraps. That breaks down to about $40,000 annually per volunteer in the field; volunteers are paid about one-tenth that amount. Supporters say this is only a third the expense of maintaining military, diplomatic and aid personnel working abroad.

While the number of volunteers increased about 30 percent over the past five years, the budget expanded by just more than 10 percent, Strauss pointed out.

“The potential is still there for the Peace Corps to be a wonderful organization and a tremendous American initiative,” Strauss said. “That’s never going to happen as long as people respond to criticism by defending the orthodoxy.”

Mission statements

That orthodoxy is represented by Peace Corps’s three goals: development, cross-cultural exchange and understanding. Strauss sees the cultural exchange aspects as mere icing.

“If you don’t have a cake, there’s not a lot of point in having icing,” he said. “What Peace Corps sells to other countries is that it’s a development organization that’s going to help them with trained personnel; if that’s what the United States is promising, that’s what we should be delivering.”

Peace Corps Deputy Director Jody Olsen has several problems with Strauss’s criticisms. Firstly, host countries are not under the impression that the Peace Corps is primarily a development organization.

“I’ve had those conversations setting up Peace Corps programs with host country ministries,” the former country director for Kazakhstan said. “It’s made clear that we will learn the language, be part of the community, live with host families and we learn from you and bring that back.”

She added that the host countries are aware that a good number of volunteers will be relatively inexperienced. More importantly, said Olsen, Strauss misses the point.

“We have never been and are not seen as nor should be seen as a development agency,” she said, referring to the three goals of Peace Corps work. “It’s the integration of those goals that creates the trust which is where in small-scale ways Peace Corps volunteers make a difference, make a development difference.”

Rieffel called the goals debate narrow-minded.

“A federally funded international volunteer program is going to work best when it doesn’t have arbitrary constraints and defines useful activity broadly,” he said.

But how broadly can one define useful activities when projects involve goal-oriented development funds? The President’s Emergency Plan for AIDS Relief, or PEPFAR, for instance, has given the Peace Corps more than $50 million over the past five years. Some of that money has been used in Ethiopia, in fact, where officials recently told Peace Corps Country Director Peter Parr that volunteers sent to work on HIV/AIDS need expertise, not mere zeal.

Fine-tuning the approach

In mid-June, Rieffel and Quigley attended a weekend conference on re-envisioning Peace Corps for its next 50 years. Most attendees – a group that included architects of the program, former directors, analysts, and representatives from non-governmental and nonprofit organizations – agreed that the core idea, while good, needed considerable tweaking.

“We can be a lot more innovative with how the program is run,” said Quigley, who is convinced Peace Corps could expand to 10 or 20 times its current size via partnerships with the aid agencies of other governments, nonprofits and NGOs like World Teach.

“This would allow Peace Corps to experiment in a way that it just hasn’t for years and years,” he said.

That’s news to Olsen, the Peace Corps deputy director.

“Peace Corps already works with many, many NGOs all over the world,” she said. She pointed to Peace Corps volunteers reporting to the local official of the Academy for Education Development as part of an HIV/AIDS project under PEPFAR in Malawi, and estimated that 50 percent of volunteers work with either local NGOs or local offices of international NGOs. “We work with NGOs all the time but the critical element is we work with them in country,” she noted.

The need for innovation remains.

“We can’t only do what Peace Corps has done in the past,” Rieffel said. “There have to be other flavors of Peace Corps service.”

He and Quigley believe the 27-month service requirement should be just one option among several time commitments, that the agency should invite more older volunteers and that it should build a group of experienced aid workers and former volunteers to use in a variety of ways, including more development-oriented work.

Under Tschetter’s leadership, the Peace Corps has made some moves in this direction. His campaign to bring in more older volunteers has proved a quick success – with applications from volunteers aged 50 and over up 65 percent in the past year. His use of Peace Corps Response – which offers four- to six-month tours to returned volunteers – and the creation of an office to perform annual field evaluations that will include effectiveness feedback from host country communities suggest a leaning toward impact-oriented development work.

Volunteer Service Overseas, a British volunteer organization, moved much further in this direction years ago. Today, applicants need to have development experience and are placed in jobs that match their credentials. Service commitments can be anywhere from one month to two years and the emphasis is on combating global poverty, not cultural exchange. As a result, fewer volunteers (1,500 in 2007) work more effectively, and the average age is 41, compared with 27 for the Peace Corps.

Bigger should be better

If the Peace Corps is to double to 16,000 volunteers by 2011, it needs to get moving.

“It would be, I think, a several-year effort,” said Olsen, who has been with the Peace Corps since serving as a volunteer in Tunisia from 1966 to ‘68. She said the various host countries would first need to request the additional volunteers. The Peace Corps would have to prepare, too.

“The proper structures need to be in place to support a doubling in the number of Volunteers,” Director Tschetter said in an e-mail. “We have to maintain the quality of the program and most importantly, the safety and security of the volunteers.”

The demand is there; at least 20 countries have requested new programs, according to the More Peace Corps campaign. Rieffel points out that no volunteers are serving in India, Russia, Brazil or Indonesia – four major developing economies of clear geostrategic significance.

Perceptions of the United States abroad have improved in response to humanitarian relief initiatives, according to a study by Terror Free Tomorrow, a Washington-based nonprofit group whose advisory board includes McCain, the likely Republican presidential candidate. Polling data indicated nearly 60 percent of Indonesians and 75 percent of Pakistanis held a more favorable view of the United States following tsunami and earthquake relief efforts. Like Obama, many believe an expansion of the Peace Corps could further such efforts.

In his first inaugural speech, President Kennedy outlined a rather different vision of the Peace Corps: “To those peoples in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves.”


Fast factsName: U.S. Peace Corps

Established: 1961

Mission: Help developing countries meet the need for trained men and women and promote understanding between Americans and other peoples.

Headquarters: Washington, D.C.

Budget: $330 milion (2008)

Focus: 36 percent education, 21 percent health

Presence: 74 countries

Volunteers: 200,000 so far, including 8,000 in field

Volunteers characteristics: average age is 27, the oldest is 81, 93 percent are single, 95 percent hold undergraduate degrees

-- posted to devex.com on July 25, 2008

Views from the Field

Peace Corps China volunteer Danny Cassiday hosts "The Dubbing Show," in which his students dub Chinese films into English. Photo: Unknown student.

By David Lepeska
Mary Owen admits to being a bit Jekyll and Hyde about the Peace Corps. "It's a very good ambassador program," the former volunteer said, dubbing the Peace Corps "the best program at widening the minds of Americans." But that might not be enough. "I think we all want it to do more," she added. "But what is more?"

Good question. As its 50th anniversary looms in 2011, proponents and politicians are working to expand the Peace Corps, which suddenly finds itself in the crossfire.

An internal Peace Corps survey found that three quarters found their service rewarding, and nearly 85 percent would recommend it to their friends. Four returned volunteers gave Devex a more nuanced view.

Owen returned a year early from her stint as an educational events organizer and sometime teacher in the Philippines because she "felt like I'm kinda done here."

Her problems began right after her arrival in 2005.

"They used a new training model for my group," she recalled, referring to the three months of training every volunteer receives upon arriving in their host country. The training focused on culture and language and was paired with community walks in which the volunteers were to assess the needs of locals and, later, build programs around those needs.

"A lot of these kids were just totally bored out of their minds, and were lost," said Owen, adding that part of the problem was more volunteers than available positions - the Phillippines program is the Peace Corps' largest, with more than 130 volunteers. "They had a lot of difficulty being useful; many of these jobs weren't even jobs - job descriptions were so amorphous you don't even know what to do."

Still, Owen applauded the Peace Corps for acknowledging such limitations.

"We don't want to go in there and push solutions to problems that they don't think are problems," she said. "I don't envy the people who are going to try to make Peace Corps relevant."

Buoyant in Burkina

Michigan native Kara Tierney taught math and science in Burkina Faso from 2005 to 2007. She had no teaching experience and had never heard of the west African country until the Peace Corps invitation packet turned up at her house. Yet upon arrival on site she was able to adjust quickly because of a very helpful teaching advisor who prepared lesson plans and provided lots of useful instruction. Input from volunteers who had already been teaching in the region for a year also helped.

"They could relate to us well, and knew what we were going through; they gave us a lot of great tips," said Tierney, who was confident she made a difference in the community she was stationed in. "My school had a shortage of teachers and if I hadn't been there the students would've missed out on a lot of class."

It wasn't perfect, but Tierney relishes her Peace Corps experience.

"I joined it basically because I didn't know what else to do and I always wanted to live somewhere really different," she recalled with a laugh. "I didn't have a ton of expectations going in, but I'm really happy I did it."

Tierney admits to days of frustration and some rough patches, but she thinks she's found a career.

"I'd never thought about teaching," she said, "but it turns out I really like teaching."

Chinglish not spoken here

In August 2007, Danny Cassiday began teaching English to college students at a school of traditional medicine in southwestern China.

"The China program is very structured," he said, speaking from Guizhang. "It's clear-cut what courses you're going to teach, and you begin teaching right away."

Guizhou province is poor, so class sizes can be large and unruly. Cassiday taught about 250 students in his first semester - a period he called a "train wreck" on his blog - and had more than 350 students in his second, including a speech class of 78.

"You try to do what you can," he said. "I'm absolutely not going to improve the English of every student with whom I come into contact, but certainly I could have a positive impact on most."

He encouraged the students to create several weekly English-speaking events and is confident he has helped many begin to grasp a language that is never spoken in their day-to-day lives.

Cassiday called his experience "transformative," and said his staff and China's foreign affairs officials have been extremely supportive.

"A lot of the criticisms don't really apply here," he said.

According to Cassiday, there are more than enough available volunteer jobs, many of the volunteers have master's degrees and a good number are older and more experienced.

"One is a retired principal," he noted. "She's got a big advantage, and is so helpful in so many ways."

Cassiday looks forward to his second year with the Peace Corps, and to more older volunteers arriving soon.

Moroccan misfire

Nam Lamore was 35 when he started his 2-year Peace Corps stint in 2005. As an older, more experienced volunteer, he was encouraged to provide more input into his placement and was pleased to end up helping develop small businesses in Morocco. He relished the intensive culture, language, and skills training but his excitement cooled soon after he arrived on site.

The program was completely unstructured, compared to work he'd done in the past with non-governmental organizations. In addition, he was regularly harassed; because of his Vietnamese heritage many Moroccans didn't accept him as an American.

"It took me a good 10 months to get really integrated into the community," Lamore said. "In Morocco it's all about relationships and if you don't have the relationships it's hard to do the work."

Lamore said that he helped many locals run their businesses more efficiently but felt the Peace Corps program itself could have been better organized. He suggested harassment training and a mentoring program for incoming volunteers.

"The idealism I totally believe in," he said. "The execution I'm frustrated with."

-- posted to devex.com on 25 July 2008


Up From The Ashes

SRINIGAR, INDIA: Surging China is a dragon, roaring India a tiger. But what is Rising Kashmir? It's a sleek new daily newspaper, for one, launched here last Monday with all the pomp of the latest Apple gadget. Despite predictable jeers, the hopeful moniker might apply.

For 18 years this emerald-green Himalayan valley has been ravaged by fierce conflict between the Indian Army and independence-seeking insurgents, resulting in over 50,000 dead. But the uprising lost steam last year, with a third fewer violent incidents leading to 777 conflict-related deaths, a steep drop from the 4500 of six years prior. Indian authorities estimate only 450 insurgents remain, down from about 4000 a decade ago. And that number is dwindling as nearly every week a few haggard militants clamber down from mountain redoubts to surrender for lack of manpower and funding.

Meanwhile the siren song of progress has gained voice. Protest marches remain frequent, but these days locals cry for development as much as azaadi, or independence. Just last week hundreds of road transport employees demonstrated for increased wages and benefits and dozens of doctors marched for enhanced security and better-trained assistants. Both won a measure of success.

Kashmir's economic growth – 6 % and gaining speed – is slower than that of broader India but impressive for a disputed region. “The change is quite obvious and visible,” says Kashmir University Business Professor S. Fayaz Ahmad. High-profile national banks HDFC and ICICI recently opened Srinagar branches. Sleek mobile phone shops have popped up in the central business district. Construction of commercial complexes as well as overpasses and apartments has real estate prices soaring. A 500 sq. ft. space along increasingly posh Residency Road now sells for $250,000, about 80 times what it cost before the violence flared and double the rate of just a few years back. With its hopeful new flying-dove logo, the J&K (Jammu & Kashmir) Bank is the flagship of the local economy and one of India’s fastest growing financial institutions. Its $75m profit through three-fourths of fiscal 2008 points toward 35 % annual growth.

For students, the lure of lucre has overtaken the appeal of militancy. Prof. Ahmad points to a sudden keen interest in business courses, and with good reason. The first graduating class of KU’s popular new two-year Master's in Finance course recently passed out with 100 % high-level job placement, against 10 % for all graduates.

For aid and development organizations the region is safer and more responsive. NGO's Save the Children and Action Aid India ramped up their local efforts last year and the Asian Development Bank recently began a $250m Valley-wide infrastructure rehabilitation program.

For outsiders Kashmir is a paradise reborn. A 1970’s Bollywood film was not complete without a giddy duet set against a vertiginous Kashmiri backdrop. But Indian filmmakers shunned the Valley during the conflict – only two major productions visited from 1989 to 2003. Now Bollywood is returning, with five films shot locally since 2004 and more in the works. Perhaps consequently, Kashmir welcomed nearly 420,000 tourists in 2007, the highest total in nearly twenty years. In Kashmir, tourism is the tide that lifts all boats. Lodgings, restaurants and handicrafts all feel the boon, and a gorgeous early spring points toward a banner 2008.

One boat may be taking on water. The livelihoods of thousands of locals are under threat as India’s Geographical Indications Registry debates whether to award Kashmir sole ownership of the pashmina brand. Sheared from the downy coats of Himalayan mountain goats, the impossibly soft fabric originated in Kashmir and is now among the world’s most coveted. With increased global demand over the past decade -- annual sales now approach $125m – production has proliferated. Pashmina is made across the Line of Control in Pakistan-administered Kashmir, as well as in New Zealand, Nepal, and China, often with automated machines that undercut the time-consuming labor of Kashmir’s expert hand-weavers. Without a Kashmir-specific patent a significant segment of the local economy remains under threat.

Local spirits seem unbowed. Rising Kashmir, that new daily, flew off newsstands this week; several downtown hawkers were sold out by noon. Could be a passing fancy, like many signs of progress here. Could also be a phoenix taking wing.

-- sold to Economist in April 2008.

A Man of the Soil

By David Lepeska

Agronomist Stephen Carr gauges the degree of hunger stalking the Malawian countryside by opening his front door. “In a bad year I have 12 starving people on my doorstep every morning begging for food,” said Carr, who has lived in a cabin on Zomba mountain in southern Malawi since 1989. “This last year I had two old ladies in a month.”

As Carr’s stoop can attest, two bountiful maize harvests have filled stomachs and cupboards across this devastatingly poor sliver of southern Africa. Malawi exported a record 280,000 tons of maize last fall and felt generally flush for the first time in recent memory – a direct result of a bold new government-run fertilizer subsidies program.

Although loathe to take any credit, this humble octogenarian used his intimate knowledge of Malawian smallholder farming, his familiarity with the donor community and his aggressive charm to reduce donor opposition to the subsidies that helped the farmers buy the fertilizer that enriched the soil that grew the maize that overturned received wisdom in Washington.

Stumbling toward success

After graduating from London University in 1952, Carr moved to Sudan and began working with small-scale farmers. Years later Carr moved with his wife to Uganda, where they worked as agricultural missionaries and had two children. “We were extremely happily settled,” said Carr.

So much so that in 1971 he was considering an application for Ugandan citizenship when the Obote government was overthrown. The underlings of new strong-armed dictator Idi Amin Dada learned of Carr’s efforts to relocate locals to more fertile lands. “Without asking anybody they assumed that I was organizing a guerrilla camp to overthrow the government,” he said. “We grabbed our family and we escaped.”

Thus began the institutional mid-section of his career, from agricultural adviser posts with the governments of Sudan and Tanzania to a position with the world’s foremost development institution. “I joined the World Bank almost by accident,” Carr said of his hiring.

In mid-1978 the bank needed someone familiar with southern Sudan, its languages, farming and traditions, and it settled on Carr, who had spent two dozen years living in huts in African villages. “The bank found me moderately useful and so eventually I finished up as principal agriculturalist for all of sub-Saharan Africa,” Carr remembered. He also won the Royal African Society’s medal for “dedicated services to Africa” and became an Officer of the British Empire along the way.

In 1989 Carr approached retirement age in the World Bank and was anxious to get back to village-level work. He had planned to return to Uganda but had second thoughts. “I was sent to Malawi by the bank half a dozen times and encountered the worst poverty, and the most intransigent agricultural problems that I’d seen anywhere on the continent,” he recalled. “I decided I’d be of more use here than Uganda.”

A second career

In Malawi, Carr had a mountain to conquer. “When I came here the opposition to a subsidy by WB and USAID was so strong that it was absolutely like a brick wall,” he said. Although small fertilizer subsidies were offered through the 1980s and into the ‘90s, donors refused to extend the policy and it soon ended.

After attempting several organic soil improvement techniques, Carr started a fertilizer-for-work program. Locals built access roads and implemented irrigation and reforestation projects in return for inputs – mostly fertilizer and seed. Even with support from USAID and the United Kingdom’s Department for International Development, “it just became apparent at the end of ten years that we were not getting anywhere near the number of people on board, that this was never going to feed the country,” Carr recalled. “So I just switched my efforts.”

That switch occurred just before a devastating harvest in 2005, which prompted newly elected President Bingu wa Mutharika to reinstate and increase fertilizer subsidies despite staunch skepticism from the United States, Britain, and the World Bank. “As long as I’m president,” Mutharika famously declared, “I don’t want to be going to other capitals begging for food.”

The Malawi government turned to Carr to soften the international community’s opposition to Malawi’s fertilizer subsidies. Carr explained to major donors that at current prices the great majority of Malawians had no hope of buying fertilizer and thus little chance of feeding themselves without help.

Constant rejection spurred him on. At one event an American aid official told him the U.S. did not tolerate subsidies. Carr pounced. ”’Would you like to clarify,’” he asked her, ”’that while it’s perfectly alright for yellow, brown, or white people to be subsidized, you will not tolerate subsidies for black people?’” Carr recalled with a laugh. After another speech, a friend approached and told him he liked the subsidies idea but it wasn’t sustainable. “But 800,000 tons of famine relief every year is?” Carr responded.

“What one has to ram home to people is that there is not a third way,” he explained. “You either make inputs available to farmers so that they can grow their own food or you deny them the opportunity of growing enough food for themselves and you have hungry people and you stop them from actually starving by bringing in relief.”

The end of the rainbow

Over time Carr wore the opposition down, and President Mutharika’s subsidy plan went into effect in early 2006 with $8 million from the U.K.’s Department for International Development. The results have been staggering, with corn harvests nearly tripling from 1.2 million metric tons in 2005 to 3.4 million metric tons in 2007. Some, like U.S. ambassador Alan Eastham, believe the bountiful harvests are merely the result of good rains. But eight of the past 20 years witnessed as much precipitation as 2006 and 2007.

According to Carr the reason for success was simple: fertilizer became affordable for a larger portion of the population. The World Bank’s subsidy program of the 1980s and early ‘90s subsidized 35 percent of the fertilizer cost, enabling only the wealthiest quarter of the population to buy fertilizer. The new government-run plan, which subsidizes 70 percent of the cost, is affordable for two-thirds of the populace.

Jeffrey Sachs, director of Columbia University’s Earth Institute, now uses Malawi as Exhibit A in his “aid is good” argument. The country’s success has sparked a reappraisal of the value of farm basics — fertilizer, improved seed, and farmer education — and could ultimately become a tipping point for public support of fertilizer subsidies. Carr believes a few more good years would change donor minds.

Yet hurdles remain. The government has taken a staunch lead role, giving Malawi’s relatively mature private sector minimal involvement. This has meant slower distribution, according to Carr, but could become more problematic in the near future. USAID has demanded a greater role for the private sector as a condition of its acceptance of the subsidy program, which means continued governmental control could jeopardize the program.

Still, Malawi has undergone an economic sea change, as Carr’s empty front stoop can attest. Even more encouraging, a Malawian doctor recently reported an 80 percent drop in seriously malnourished children at his hospital.

Carr is happy to have played a part. “What I have done is act as a midwife,” he said. “It was Malawians did the hard labor.”

-- posted on devex.com on 18 May 2008

The Future of Farm Output in Africa and the Promising Case of Malawi

By David Lepeska

A food crisis grips the planet. Prices of rice, wheat and other essentials skyrocket, leading to food shortage riots in a dozen countries and jolting governments and policymakers to rethink their ideas about commodities markets, biofuels and agricultural production in the developing world. World Bank President Robert Zoellick has said the losses could drop 100 million people back into extreme poverty, wiping out a decade of development gains. World Food Program Executive Director Josette Sheeran has called the crisis “the silent tsunami.”

Within this haystack of gloom shines the needle of Malawi, where a government-led fertilizer subsidies program has produced two bountiful maize harvests, filling stomachs and cupboards across this formerly destitute sliver of southern Africa. Last year Malawi exported 280,000 tons of maize as child malnutrition dropped an impressive 80 percent. And the good times are set to continue. Despite the global economic downturn the International Monetary Fund is forecasting nearly 8 percent growth for Malawi in 2008, as compared to 3.7 percent globally.

The success of Malawi’s subsidy program has overturned conventional donor wisdom and may have set an example for other African nations to follow. As we enter an era of high food prices, increasing Africa’s agricultural production is of greater urgency than ever before.

Few are more familiar with these issues than Uma Lele and Stephen Carr. In separate interviews and an e-mail discussion the duo discussed why the Malawi program worked, what it might mean for the policies of the World Bank and other major donors, and whether Malawi offers a replicable model.

Malawi and the problem of soil infertility

“The world is fed by inorganic fertilizer and good seed, and the only continent where that’s not being used is Africa,” said Carr, the World Bank’s principal agriculturalist for sub-Saharan Africa throughout the 1980s. He has lived in Africa for more than 50 years and was instrumental in getting the Malawi subsidy program off the ground.

Low soil fertility contributes greatly to low agricultural productivity in Africa. China’s farmland boasts 279 kilograms of fertilizer nutrients per hectare. South Asia’s receives 113. Africa, on the other hand, makes due with 6 kilograms, a paltry sum considering only 6 percent of this vast continent's land has high agricultural potential.

“We’ve got to find ways of giving farmers access to fertilizer,” says Carr.

Malawi found a way, with Carr wearing down donor opposition and the government managing a comprehensive plan that covered 70 percent of the price of fertilizer. The impact was immediate and revelatory.

“This program succeeded because it made fertilizer affordable to the majority of the population,” Carr said. Because of import, distribution and marketing costs, Malawi’s pre-subsidy fertilizer is about 40 percent more expensive than that of the United States, and representative of sub-Saharan Africa. “What the 70 percent subsidy has done is bring the Malawian farmer to the same level playing field as the American farmer," he noted.

American farm subsidies have long been a target for critics of Western aid policies. If the United States, European Union and other Western nations removed all domestic subsidies and tariffs on imported cotton, soybeans and other oilseeds, the developing world’s share in these products would jump from its current 50 percent to more than 80 percent, according to some experts. And it’s not only wealthy Western nations that provide farmer hand-outs; India and China spend lavishly to boost production.

African nations are not so flush.

“What are these countries supposed to do when [Organisation for Economic Co-operation and Development] countries are not reducing their subsidies?” wondered Lele. An agricultural economist, she worked at the World Bank for 35 years and has written extensively about funding of farm basics. The United States doles out $5.2 billion every year in direct subsidies to farmers, while fertilizer prices have doubled, even tripled, across much of sub-Saharan Africa in the past six months. “They’re facing a ridiculous world market situation; there isn’t a willingness to recognize the reality," Lele added.

Some experts recommend a policy shift akin to India's Green Revolution in the 1960s. As new high-yield varieties of rice and wheat were introduced, major donors encouraged the Indian government to provide their farmers with essential inputs – seed, fertilizer and credit. The government also set floor prices to ensure farmers a return on investment. The result was a decade of vigorous productivity growth in India, and robust public spending on agriculture across the developing world.

But in the 1980s huge farm surpluses from developed countries depressed prices and slashed farmer's profits. As a result, developing nations cut farm budgets in half between 1980 and 2004. Donor agricultural aid also dropped by half over the same period as production growth dropped two- to three-fold across the developing world.

As donors and governments begin to increase investment in developing world agriculture – part of a post-millennial push to reduce global poverty – the Malawian success story has become Exhibit A for the backers of farm funding.

The World Bank mulls its options

In recent years the World Bank has undergone a transformation far beyond the arrival of Zoellick as a replacement for the disgraced Paul Wolfowitz. As the single largest donor to African agriculture since 1990, the bank remaims integral to the future of farming in Africa. But on fertilizers and farm inputs it’s still dragging its feet.

The most recent edition of the World Bank's annual global review, the World Development Report (WDR), focuses on agriculture and argues that “subsidies must be used with caution,… [and] need to be part of a comprehensive strategy to improve productivity and must have credible exit options.”

However subsides are implemented, Lele believes donors hold far too much sway. “The reality is that donors have much more power in Africa than they did even in the heyday," when policies were much more holistic, she said.

In a December interview with National Public Radio, Ngozi Okonjo-Iweala, the World Bank’s new managing director, acknowledged the bank had pushed political reforms abroad in the past. “The bank has changed dramatically from that period,” she said. Nowadays, “each country should take the lead.”

Carr agrees, in part. “The nature of the bank has changed a great deal,” he said. “With interest rates at up to 75 percent, little government oversight and no smallholder credit, the bank has been driven to get more involved in macro policies.”

These broader policies have led to diminishing returns, according to the latest report from World Bank watchdog the Internal Evaluation Group. It found that the donor community has neglected the agriculture sector and that the World Bank’s strategy for agriculture has increasingly been subsumed within a broader rural focus, limiting its success.

During the 1980s Carr used his technical knowledge on straightforward projects such as smallholder irrigation. “At that time the projects department had virtually nothing to do with policy,” he recalled. “I didn’t have to deal with the organization of whole governments.”

The IEG report found the importance of agriculture had declined, with a subsequent loss of technical skills. The bank’s Agriculture and Rural Development Department in sub-Saharan Africa had 17 technical workers in 2006, compared with 40 in 1997.

That loss of technical skill can be seen in bank policies that pay little heed to ground realities like widespread hunger. For example, according to the report the bank “appears to have addressed soil fertility more as an environmental than as an agricultural productivity issue.” As food shortages lead to starving and riotous populations across the developing world, that error looms ever larger.

Spending the right way

To feed those masses production must be increased, most likely via aggressive governmental involvement. But public spending on farm inputs such as fertilizer must be done with deliberation and foresight. The WDR warns of the dangers of politicians claiming ownership of the beneficial subsidy program as well as the dependence such programs can create.

Yet Malawi's current administration has taken the lion’s share of the credit for the good harvests resulting from its “boma,” or government, fertilizer – and watched its popularity soar.

What will President Mutharika do now that fertilizer prices have increased by 120 percent across southern Africa? Will he turn to donors he so recently spurned? And what if the price hike forces the discontinuation of the program – will Malawians again go hungry? If they do they will know where to point the finger.

Carr says greater private-sector involvement would have improved procurement and distribution in Malawi. Yet he believes African governments must fund farm basics to “maintain food production aligned with growth.” Risks – such as inadequate oversight, price fluctuation and corruption – will remain, and policies will vary from country to country. Regardless, implementation is paramount. “It depends how effectively the plans are carried out,” he said.

System design will be key, too.

“Developing national systems is very complex,” said Lele, adding that many developing countries require policy advice and help in building reliable institutions. Dedicated people who understand local traditions and farming techniques have to be part of any successful program. "Money is necessary but not sufficient to do those things," she noted.

Furthermore, funding for farm inputs link fertilizer and seed often have less impact today because the structure of international farm markets has fundamentally changed since the Green Revolution. Not only are prices of seed and fertilizer much higher, but credit is less readily available to farmers, particularly during the ongoing global credit crunch. Also, supermarkets account for half of food sales even in developing countries, further reducing farmer control over pricing. India will disburse $37 billion to farmers in fiscal 2008 - $15 billion to cover debt and $22 billion for fertilizer subsidies - an increase of 50 percent and not a scheme to be emulated in sub-Saharan Africa.

Africa’s lack of funding, poor infrastructure and weak public sector and civil society hamper productivity growth. “African countries don’t have the benefit of indigenous volunteer organizations, like India and some other developing nations,” said Lele. “Malawi occurred under very unique circumstances.”

Malawi, floodlit

The IEG report recommended the World Bank and other donors help governments design efficient mechanisms to provide farmers with critical inputs such as fertilizer. Now, into donor laps falls the case of Malawi. In a May op-ed in Time, Columbia University Professor Jeffrey Sachs, head of the Earth Institute and author of “The End of Poverty,” urged policymakers "to scale up the dramatic success of Malawi" and create an "international fund based on the Malawi model." He suggested $10 per developed world citizen, or $10 billion total, and argued the fund could fight hunger as the Global Fund battles AIDS, tuberculosis and malaria. But could Malawi serve as a model, a tipping point in ending the donor fad against fertilizer subsidies?

Lele is skeptical. “We think it’s a simple idea – fertilizer subsidies – but transportability of the particular design elements of that intervention are so intricate and complex," she said. "This is what often people don’t appreciate and they try to multiply things when it becomes a fad – and then they fail.”

Carr cites Rwanda and Burundi as possible imitators, as well as Tanzania, which recently sent consultants to review Malawi’s program. But he's more concerned about Malawi’s continued success.

“If Malawi’s subsidies become too politicized, or there’s too much corruption, or too inefficient, the international community’s going to say, ‘There you are, this shows that this kind of program cannot be run in Africa,’” he cautioned.

Lele sees no quick fix. "Short-term solutions are necessary in times like today," she acknowledged. "But not sufficient – holistic and long-term approaches with consistent, predictable policies are needed to develop food and agricultural sectors."

Malawi is headed in the right direction. “If we had another two or three really successful years,” said Carr, “it would be very hard for the donor community to go back to famine relief rather than helping people grow their own food.”

-- posted on devex.com on 15 May 2008

In Conflict Zones, Aid Gets Defensive

By David Lepeska

The end of humanitarian innocence arrived with a bang on August 19, 2003, when a truck bomb gutted the United Nations’ Baghdad headquarters, killing 22 staffers and wounding more than 120. There had been gruesome and deadly attacks on aid efforts in the past, but none had been so devastating and pointedly directed. The blast tore off the building’s fa├žade, exposing its guts to the dusty city. Parts of desks, chairs, and bodies were strewn about the grounds of what had so recently been the Canal Hotel.

Among the dead were Special Representative and highly regarded career humanitarian Sergio Vieira de Mello and a host of selfless and determined young Arabs. Then-U.N. Secretary General Kofi Annan said the attack “brought us face to face with danger in a new and more intimidating form.” It also removed any lingering doubt about the sanctity of the humanitarian space and irrevocably altered the aid security dynamic.

Even so, the Baghdad bombing was just an exclamation point in a steadily building drumbeat. Major attacks on aid workers more than doubled from 1999 to 2005, according to a joint study by the British government-supported Overseas Development Institute and New York University’s Center on International Cooperation. Even adjusted for a considerable increase of field workers over that span, the incidence of attacks per 10,000 workers rose more than 50 percent. The report, “Providing Aid in Insecure Environments,” also found that aid workers were attacked more for political than economic reasons. “The perception that aid workers are associated with political processes clearly exists in the minds of local belligerents,” the authors state.

As the line between humanitarian and military activity has blurred aid worker security has eroded along with neutrality, jolting humanitarian actors into action. Some of their security decisions have raised ethical questions about equal treatment for all national and international staff. This report dissects what international development organizations have done to adapt, which strategies have been most successful, and what still needs to be done.

Shifting Policy, Coordinating Security

Within weeks of the Baghdad bombing, the United Nations pulled 600 staffers out of Iraq and assumed a lower international profile, as did the International Committee of the Red Cross. Their share of attack victims has decreased considerably in the past five years, the aid worker security report found, but progress towards entrenching adequate security in policy and planning has been fitful.

On the plus side, the U.N. and Interaction, a consortium of U.S.-based NGO’s, have each created Minimum Operating Security Standards, which have been broadly mandated and widely applauded. Furthermore, in 2006 the U.N. joined together with a network of non-governmental organizations to enact a security framework called Saving Lives Together.

Interaction Security Coordinator John Schafer related a tale of the project’s effectiveness. When the Democratic Republic of Congo erupted in violence this past summer a U.S. citizen found himself stuck alone in his compound after local staff left to take care of their families. “Fighting was continuing the whole time,” recalled Mr. Schafer. “It was right outside his gate – there were bodies in the street.”

The American field worker called the U.S. embassy, which told him there was nothing they could do as their doors had already been locked. He called the local U.N. peacekeeping mission, which told him they didn’t know where he was. Finally he called his own headquarters, which in turn contacted Mr. Schafer, who called the head of the Department of Peacekeeping Operations at U.N. Headquarters in New York and gave him the field worker’s position. The U.N. relayed the American’s position back to the field and UNDPKO quickly mounted a rescue mission and saved the worker.

The entire process took six hours, during which Schafer kept up the aid worker’s spirits via Skype chat and used Google maps to pinpoint his location. Mr. Schafer was pleased with the result but acknowledged that Saving Lives Together was more Plan B than anything else. “We can talk all we want about the importance of having security plans on the ground but when the actual emergency hits rarely is it within the parameters of what we planned,” he said. “That’s why it’s important to have a little bit of flexibility in our plans.”

Other efforts have been less successful. As part of the post-Baghdad bombing shake-up the U.N. created the Department for Safety and Security in 2004, which replaced the Security Coordination Office, established in 1988. The new department was given higher-level leadership, additional resources, and tasked to create a new and innovative vision for defining, assessing, and enhancing security for its own and other humanitarian operatives.
Reports of UNDSS have been unfavorable. “Many complain that operation restrictions remain the principal security strategy used by the U.N. in many field-settings,” says the ODI study, adding that the department suffered “from considerable distrust among international NGOs, both in terms of capability and intent.”

Programmers and policymakers have long wanted a database in which to report, record and analyze attack incidents and security failings. Used universally, such a tool would offer a wealth of invaluable security and planning information. But initiatives such as UNDSS’ Security Incident Reporting Service have fallen short of expectations. “It looked like we were about to get going with this universal shared database of incidence and analysis but it’s just completely stalled,” Abby Stoddard, senior fellow at the Center on International Cooperation and the ODI report’s lead author, said in an interview. “It hasn’t gotten up and running, either at the U.N. or through NGOs.”

Nationals in Harm’s Way, Ex-Pats Far Away

Inevitably, the burden has fallen to international NGOs to provide field security, which, according to the industry bible, Koenraad Van Brabant’s Operation Security Management in Violent Environments, is marked by three elements: protection, deterrence and acceptance. The first means reducing vulnerability, the second involves presenting a counter-threat, and the last is about cultivating positive relationships with locals.

For example, Somalia is one of the world’s most high-risk humanitarian environments. An ODI backgrounder advocated community-based strategies yet noted that such practices are often ineffective because “local authorities do not accept national staff members, but want to interact directly with leading expatriate staff.” And with only a few locations accessible for internationals and a heavy reliance on nationals, such interactions seem unlikely anytime soon.

In a perfect world strategies would stress acceptance, but growing security concerns often render acceptance-heavy strategies too costly and difficult to implement. In such areas some aid groups take extreme steps, such as removing all identity markers from facilities, staff, and vehicles to maintain an ultra low-profile. Others take the opposite tack, arming staffers and fortifying offices or hiring military protection. “Both of these approaches can compromise security,” write Ms. Stoddard et al. “Once an organization has confined its staff to a compound, accepted military protection or adopted clandestine programming, its access to security information becomes extremely limited.”

In high danger zones most actors have kept the aid flowing by localizing their efforts. “The way they’ve done this is through remote management, where they will have their national staff or other national organizations that they’ve subcontracted to, or private contractors, do the work,” Ms. Stoddard said in an interview. “The plus side of that is more aid getting to more people because they’re operating.”

Reliance on national staff in the most dangerous and distant aid environments is not new. Oxfam used what some called “long-arm programming” over 50 years ago in India and others employed similar techniques in Ethiopia, Eritrea, Somalia, and Afghanistan throughout the 1980s and 1990s. In theory, such practices decrease risk. But Ms. Stoddard says these practices mean less efficient delivery, a loss of strategic focus, and increased corruption and accountability concerns.

Yet remote management has boomed. Overall, field-based international staff dropped 20 percent from 1997 to 2005, and some of the bigger humanitarian organizations went much further: international field staff for the U.N., CARE and World Vision hovers around three percent today. Most local staff, or foreign nationals, work without adequate training, resources and support. “It’s very uncommon that you would leave them your radios, that you would give them training, that you would give them any of the security assets that you would have,” said Ms. Stoddard.

As a result, national staffers have been left twisting in ever more dangerous winds. While total aid worker victims rose from 66 in 1999 to 211 in 2006, the number of international victims dropped while national victims jumped four-fold. Moreover, of 83 aid workers killed in 2006, 78 (94 percent) were nationals. “What they are doing is abdicating their responsibility for protecting people that work for them,” said Mr. Schafer, pointing out that life insurance payments are considerably lower for a national worker.

Ms. Stoddard explained some of the reasoning behind remote management. “These are local organizations that are doing this work anyway,” she said. “It’s employment for one thing but also they have incentive to help and to partner with internationals… The nationals haven’t really thought through what it means ethically. They’re more concerned with, ‘we want to keep the aid flowing.’”

Protecting Your Own

Although remote management is problematic, it does do precisely that. And because building local capacity has long been a key goal of humanitarian work there is little debate about the utility of nationalizing aid and relief. It simply has to be done better. “The true definition of security is providing it for the entire community,” said Mr. Shafer, referring to internationals and nationals as well as their friends and family. “There can’t just be an evacuation plan only for your ex-pats.”

Ms. Stoddard concurred. “There needs to be some way of assessing what risk you’ll be putting these nationals in,” she said. “They have different vulnerabilities than international staff – that has to be part of your risk assessment. I haven’t seen any evidence that people are now looking at their national staff and coming up with better remote management strategies.”

Conor Foley, a veteran aid worker writing a book about humanitarian aid, said many NGOs were increasing training and resources but that these improvements had been generally ineffective. “Security has become a buzzword,” he said. “But it’s been a bit un-thought out.”

Recently, a major NGO bid on a $300 million USAID project in Pakistan without consulting their security director about the budgeting. “The problem is most people don’t have the systems in place to even make educated decisions on what is acceptable and unacceptable risk for their organization,” Mr. Schafer said. “They don’t have a management system for their security program.”

Thus, many key questions are left unanswered. What is the line of acceptable risk, for instance, and how do you draw it? How much will aid delivery cost you in a higher threshold of risk? What security info are you gathering to quantify the security situation, make programming decisions and put together an operational plan? And if you pull out, how do you assess risk and game plan for nationals, as opposed to internationals?

Because the security risks are not assessed beforehand there’s no funding leeway in the event of a worsening security situation. “First and foremost the NGO’s have to develop systems internal to their organizations,” said Mr. Schafer. Once funding had been tied into security, he added, donors would fall in line.

One hopes they appreciate the urgency. In late October, CARE International’s Battagram, Pakistan compound was riddled with machine-gun fire mere hours after the office of a nearby NGO was bombed, wounding eight Pakistanis. Unknown gunmen attacked and shot dead two Agency for Technical Cooperation and Development staff in Uganda’s Amuru district on Halloween.

In late November unidentified gunmen shot up a Medecins sans Frontieres car in south Sudan, killing four. And in early December top U.N. aid official John Holmes visited Somalia, the world’s most high-risk humanitarian environment. “It is very hard for aid agencies to operate in Somalia because of the general security situation,” Holmes told reporters. He pointed out frequent checkpoints, at which aid workers were harassed and halted, and sharply curbed operations overall. “We need to do more.”

Indeed, multilaterals, aid groups, and donors need to better adapt to a world in which humanitarians wear bullseyes and another Baghdad bombing constantly looms. Adapt, that is, or continue losing ground.

-- posted on devex.com on 17 March 2008

It Takes (A Little More Than) A Village

In a cramped shop in Orangi, a sprawling squatter settlement in Karachi, a weaver adds sequin designs to a shawl. Photo: David Lepeska

By David Lepeska

KARACHI, Pakistan – Akhtar Hameed Khan arrived in Orangi, Karachi's sprawling squatter settlement, with no expectations. The year was 1980 and, after working with farmers in Bangladesh, he had come at the request of his friend, a bank president, who wanted Khan to build a charitable school or hospital. Unconvinced that was the best way to improve lives, Khan asked for more time.

He strolled the lanes of Asia's largest slum for six months, observing the lives of its one million residents up close.

"The crucial problem was sewage disposal," recounted Perween Rahman, who worked with Khan for 16 years until his death in 1999. "The entire place was full of filth and excreta, people's houses were being damaged, the children's health affected, property values going down."

Khan suggested the residents do something about the sewage problem but many refused, claiming it was the government's responsibility.

Then Khan had an epiphany.

"He noticed that in some lanes people were doing the sewage disposal for themselves," said Rahman. "He saw that a house owner, if given proper guidance - his house and his neighborhood will improve."

Thus was born the Orangi Pilot Project, which started with sewage and sanitation and nearly three decades later oversees a miniature empire of empowerment and urban planning. First OPP helped over half a million Orangi residents clean up their lives. In the years since the organization has loaned tens of thousands of dollars, helped institute low-cost housing and assisted with the maintenance of 650 schools and the creation of hundreds of small businesses and dozens of clinics.

OPP's ascendance is timely. Pakistan's population recently became more urban than rural, and about a third of those city dwellers live in katchi abadis, or squatter housing, and lack basic infrastructure such as drinking water and sewage disposal.

Despite the urgent need, it took Khan six months to motivate 20 families to connect their homes to his new sewage system.

"Within that same week five more lanes got mobilized," recalled Rahman, Khan's successor as director of OPP. "That's the power of demonstration."

The organization began working outside Karachi in 1990, and now disburses microloans across the country and designs sewage systems, nurtures sanitation and drinking water initiatives and provides city planning in 15 Pakistani metros.

A model approach

Self-help is a term heard often in the halls of the OPP's small warren of offices, and it's not an empty catch phrase. An afternoon stroll through Orangi in mid-April found a man digging sewage trenches with his sons - he was connecting his home to the township drainage system. A couple dozen youths gathered in a sweltering living room to learn math. Up and down the lanes were small businesses and residents working on new home construction.

Many of these projects were initially funded or have been supported by OPP. Yet nowhere could a visitor find a logo or stamp, or any sign of the group's helping hand.

"OPP is only a facilitator of the people's agenda," said Rahman, explaining that the initiative should come from the people and OPP's work should remain invisible.

"It's the people's work," he explained. "We are only a little actor in between who provides a little social and technical guidance."

OPP aims to support community initiatives with social and technical guidance and encourage partnerships between people and governments. To be sustainable, projects must involve local resources and funds.

"We say the government, instead of partnering with the World Bank and ADB [the Asian Development Bank], should partner with the people because that is where it's sustainable," said Rahman. "The people's work provides a model of decentralized privation."

Development theorists and practitioners from across the world come to Orangi to study that model. A recent glance at the visitor's book found the signatures of representatives from the ADB and doctoral candidates in development from the Frankfurt School of Economics.

"The OPP is seen widely to be a success," said development analyst Syed Mohammed Ali, a former fellow at the Open Society Institute, a think tank based in New York City. "The component sharing approach of the OPP has been supported by the World Bank and the Lodhran Pilot Project, also funded by the World Bank, has subsequently adapted the OPP model of providing sewage in dense urban settings to the rural areas of southern Punjab."

The fruits of their labor

Education has been one of the Orangi residents' more impressive initiatives. Fed up with Karachi's useless public schools and too poor to pay for private schools or tutors, hundreds of Orangi youths set up small schools in their cramped living rooms throughout the late 1980s and early ‘90s. Without funding from the government, or even from their parents, most barely stayed afloat.

Starting in 1996 OPP distributed Rs 3,000 (US$45) grants to extend verandas, purchase books or provide a cooler and fan. OPP initially supported 350 schools. Some 50 failed, but the rest survive to this day, with many more coming on board. In early 2008, OPP helped several schools create joint savings accounts. After only a few months one of the accounts had a balance of Rs 180,000 (US$2,800).

"Now many of the schools are self-sustaining or dig into their savings whenever they need funds," said Rahman.

Those savings accounts will soon be linked to OPP's microfinance program, which is run by the Orangi Charitable Trust. Begun in 1986, the program has handed out 21,000 loans to some 68,000 clients. Loans support ongoing businesses and average around Rs 12,000 (US$190).

"We work not just in Orangi, but across Pakistan," said Nylah Ghias, the program's co-director. "We've supported a wide variety of businesses and created hundreds of jobs."

Nearly every other Orangi home hosts a small business: A mother of eight may string together fake flowers into garlands to sell in the market. Boys as young as 10 embroider silk shawls with sequins and intricate designs. Young men pound and stitch faux leather into wallets.

As it grew and succeeded - with a 97.5 percent recovery rate - the microlending program attracted considerable attention. The Sindh Microfinance Bank and the Pakistan Poverty Elevation Fund have become contributors.

Still, OPP manages a slim budget of PRs 6 million (about US$92,000). Initially funded wholly by the Bank of Credit and Commerce International - the very bank run by the friend who brought Khan to Orangi - OPP's financial backing now comes mainly from two European charity organizations.

The government lends an ear

From the beginning, OPP's relations with Islamabad were hardly cozy.

"At first they thought we were real fools, working here," Rahman recalled. "We'd come and visit and they'd offer respect to Dr. Khan and give us tea and feed us but they would never listen to us; they thought this was the work of great consultants."

The World Bank and the ADB designed and managed the majority of major development projects across Pakistan throughout the 1980s and ‘90s. Then, the Islamabad government appeared to believe developers and planners had to be born and educated abroad. Times have changed.

"Now it's a case that they need us," Rahman said.

The Pakistan government recently adopted OPP's S3 sewage plan for all of Karachi, a bustling Arabian Sea port of some 15 million. In a first, the entire project cost of $1.2 million will be provided by the government - no donor funds will be needed.

Further, the government is implementing OPP sewage and urban planning ideas in cities across the country, and regularly turns to OPP engineers for advice and input.

Pushing the people's agenda further

Rahman is already looking ahead to a new challenge.

"We are seeking expansion, but our strategy is different," she said. Rahman wants to strengthen non-governmental organizations and build stronger relationships between the people, NGOs and government. "In the future we'd like to be less us-oriented, more partner-oriented," she said.

The director was asked if OPP represented a replicable model.

"Our work in itself is based on what people are doing," Rahman said. "You have to respect it, learn from it; the work tells us where to go, and we're always talking and listening."

She recently visited Namibia to observe a project modelled on OPP. The major difference was that the Namibian government controlled the design and the cost estimates.

"Who funds and who designs the work is the make or break factor," Rahman explained, shaking her head. "People do it better, all the time."

-- posted on devex.com on 18 July 2008

World Bank Water Project Imperils Pakistan Fisherfolk

Mallah fisherman desperate for a good catch at Zero Point, a popular Badin district fishing spot. Photo: David Lepeska

By David Lepeska

HAJI HAJAM, Pakistan: John Wall has warned about poverty in Pakistan for years. "Poverty is an ethical concept, not a statistical one," the World Bank country director for Pakistan wrote in a 2006 editorial. "This clustering of Pakistan's population just above and just below the poverty line implies that families are quite vulnerable to falling into poverty with the slightest run of bad luck."

Wall cited drought and illness as examples of that luck, but the fisherfolk of southern Pakistan's Badin district ran into a more destructive and unnatural type of misfortune: a faulty World Bank project.

A vast alluvial plain unmarked by hills or rivers, Badin is one of Sindh province's poorer districts by most socio-economic measures - health care, education, infant mortality, income. Within Badin, no area is worse off than the coastal dhands, or shallow estuary lakes. The average family size is six, and many of them live on less than 200 rupees (about US$3) per day. Electricity coverage is minimal. Unemployment is rampant, eight out of 10 locals are illiterate and the nearest clinic is 40 kilometers away. Yet for centuries thousands of Mallah, or fisherman, families have called this soggy, desolate land home.

Those days may be numbered.

In 1984 the World Bank initiated the Left Bank Outfall Drain (LBOD) program to "reverse the deterioration of the land resource base caused by waterlogging and salinity." The key component was the construction of a 300 km outfall drain, or tidal link, from eastern Sindh into the Arabian Sea. Seen as the first stage of major regional drainage overhaul, the project received more than $1 billion from the World Bank, Asian Development Bank, Saudi Fund for Development and others.

By 1997, when the World Bank closed the project and replaced it with the National Drainage Program (NDP), agricultural production had perked up along the north end of the drain. Some farmers had returned after seeking work in urban areas because of waterlogged, saline farmland.

But in the summer of 1999, heavy rains burst through the drain and destroyed thousands of acres of farmland. In 2003, widespread flooding wrought even more havoc, killing at least 50 villagers, inundating 75 villages and displacing about 50,000 locals. Damage to 1.5 million acres of farmland in Thatta and Badin districts - near the southern end of the drain - resulted in dislocation and extensive economic losses. Because of high salinity in the ground water, drinking water became scarce across the region.

In 2005, the World Bank began to investigate the program failures at the request of local leaders. Its inspection panel concluded in a July 2006 report that the bank violated six safeguard policies and in the process caused heavy damage in the coastal areas.

"Throughout design, construction and operation of LBOD and NDP," the investigators wrote, "social and environmental aspects were largely overlooked or downplayed. In particular, the Panel found that the Project paid inadequate attention to the people and environment downstream of the irrigation and drainage system in southern Sindh."

Perhaps most damning was the finding that "significant technical mistakes were made during the design of the Tidal Link." To avoid crossing into Indian territory, the designers routed the tidal link in a southwesterly direction, towards the Indus Delta and the Arabian Sea. In doing so they went against the natural slope of the land - south-southeast to the Rann of Kutch - and routed the drain across the dhands and into the powerful monsoon winds. Devised by Mott MacDonald, a British engineering consultancy contracted by the World Bank, and implemented by the government of Pakistan, this directional shift is at the root of the trouble caused by the LBOD.

The dhands have lost some 40 percent of their water in the past decade, according to Action Aid Pakistan. Salinity has increased because of the constant sea linkage. And with 54 breaches in the tidal link, floods are a constant worry.

"If you spend $1 billion it should result in a substantive change in people's lives for the better," said Badin native Mustafa Talpur of Water Aid Pakistan. "It's not just the people, the whole environment and ecology is worse."

World Bank management responded to the panel's findings with a three-pronged action plan: a livelihoods component called the Sindh Coastal Areas Development Program; an ecological component to improve and maintain the integrity and bio-diversity of the dhands; and an irrigation component, the Sindh Water Sector Improvement Project.

"At the time the project was designed, the emphasis was on getting the biggest benefit for farmers by reducing salinity and water logging to expand irrigated areas," Wall said at the 2006 release of the action plan. "The very poorest people outside the irrigation and drainage system were neglected."

Nearly two years later, locals said they were still being neglected.

"We asked them to address the root cause of the disaster and change the direction of the drain - they refused," said Talpur. "We asked them to consult with locals - they did not. We asked that the livelihoods program target all the affected villages - it does not."

Talpur spoke about the district's troubles at last year's World Bank meetings in Washington, D.C., but said he came away with little more than empty promises.

On an April afternoon at Zero Point, a popular dhands fishing spot, dozens of haggard and rail-thin Mallah complained about a steady decline of fish. In the nearby village of Haji Hajam, one fisherman cited a 60 percent drop in his catch.

"My family fishing here for five generations," said Moula Bux Mallah, 46, speaking in Sindhi.

He was sitting on a charpoy, or raised cot, surrounded by a couple dozen village children - eight of whom were his own.

"Now it is hard to catch enough to feed my family, and I have thought about leaving," he said.

Nurri Lagoon, which used to be 20,000 acres of shallow water, full of fish and home to a bird sanctuary, has shrunk to a quarter of its former size. Fishing has dropped between 70 percent and 80 percent. In Ahmed Rajo, a village along the northern edge of the dhands, a farmer named Assim said with output for rice down 40 percent, he switched some of his fields to sunflowers.

Badin native Abdul Salam Memon, secretary of the Pakistan Fisherfolk Forum, said farmers have shifted thousands of acres of rice and sugarcane fields to sunflowers because they require less water.

"It makes about the same profit," Memon said. "But the problem is that there is less food to eat."

The World Bank's latest progress report reveals high salinity, increasingly irrevocable ecological damage, and dhands threatened by storm surges and high tides.

"The drainage system is grossly inadequate and poorly maintained," said the report, released in early 2008. "The system does not have the capacity to carry even a nominal increase in precipitation."

This in a land where rainfall is highly unpredictable and monsoon rains dominate from July to September.

The plight of coastal area villagers has worsened.

"The abject and pervasive poverty and limited livelihood opportunities of the people living and depending on the Badin dhands needs to be addressed," the researchers wrote.

Thus far, the bank's action plan has focused on building community action groups, helping develop local livelihoods and extending credit to poor villagers. According to the World Bank report, "The problem is that the dhand area communities are too weak to benefit from such a program; the program strategy needs to be re-thought to reach these poorest of the poor."

As the World Bank prepares to spend an additional $9 billion on new water projects in Pakistan, perhaps it should first repair the damage done in Badin. Talpur called it a "moral disaster." John Wall might call it an ethical one.

For the fisherfolk of the dhands it's just reality.

-- posted on devex.com on 01 July 2008

The Maturation of Microfinance

By David Lepeska

Sudden, awkward growth spurts, new and unpredictable forms of self-expression, and acts of rebellion against authority figures? It can only mean one thing: microfinance has hit puberty.

Under attack from analysts, academics and policymakers who argue that microloans rarely help alleviate poverty, the industry is redefining itself in myriad ways - going corporate, moving upmarket and broadening the very meaning of the term.

"Ten years from now the sector will be considerably less recognizable," said Jonathan Morduch, professor of public policy and economics at New York University's Wagner School of Graduate Studies.

A Poverty Killer Is Born

Modern-day microcredit began in 1976 when Muhammad Yunus - then an economics professor at Bangladesh's Chittagong University - left academia, went to the village of Jobra and lent $27 to a group of 42 villagers. They used the money to start soap-making and basket-weaving businesses and repaid their loans without default. Yunus then founded Grameen Bank, which grew exponentially and, as of April 2008, had lent over $6.5 billion to more than 5 million borrowers, with a loan repayment rate of 98 percent.

Then came the deluge. The United Nations declared 2005 the "International Year of Microfinance." Yunus won the Nobel Peace Prize the following year for his work with Grameen. Philanthropic moguls like Bill Gates and Pierre Omidyar, of Microsoft and eBay, respectively, pledged hundreds of millions of dollars and celebrity supporters appeared as if out of thin air. The global microfinance market doubled between 2004 and 2006, when more than 3,100 microfinance institutions lent nearly $4.5 billion to over 130 million borrowers.

But what do microloans accomplish? Within academic and economics circles, an anti-microfinance movement, building for years, came to the fore in early 2008.

"Microcredit is making people's lives better around the world," George Mason University Economics Professor Tyler Cowen argued in the Winter 2008 Wilson Quarterly, in an essay written with Karol Boudreaux, a senior research fellow at George Mason University's Mercatus Center. "But for the most part, it is not pulling them out of poverty."

What Microloans Can Do

Microloans typically range from $50 to $500 in developing countries, with no collateral. Relying instead on peer pressure to ensure weekly repayment, microfinance institutions lend to groups of borrowers. Women make up over three-fourths of microcredit customers worldwide, the United Nations estimates, because most MFIs see them as more reliable and more focused on responsible family financing. And 70 percent of microlending is in Asia, although the share of Africa and Latin America is on the rise.

Several studies from the past decade have concluded that microloans improve lives: Barbara MkNelly and Chris Dunford report that two in three Bolivian borrowers saw their incomes increase after joining the lending program. An Indonesian study found microloan borrowers' incomes increased more than four times those of a control group that received no loan. Three-fourths of the clients of SHARE, a major Indian microfinancer, reported significant improvements in well-being and half graduated out of poverty.

Yet the exact impact of microloans on the lives of borrowers is extremely hard to determine. External factors such as a country's overall economic growth, an alteration in national policies, and the impact of other development projects in that region as well as shifts in a group or family's income-generating abilities are nearly impossible to quantify.

The problems with microfinance don't end there. Most MFIs charge monthly interest rates of 5-8 percent (or 60-100 percent annually) on loans that are paid off within weeks or months. This interest rate cuts into the profits an entrepreneur might re-invest. But even if they were to reinvest, several studies, including that of Cowen and Boudreaux, have found that the businesses microloans fund are almost always owner-run and unlikely to expand beyond the family.

"From a tiny, owner-run business to having and paying employees, that's a big jump," said Morduch.

Further, many MFI's will only fund an existing business, as opposed to a start-up, which suggests the business may have been sustainable without a microloan, and undercuts Yunus' argument that microloans create entrepreneurs.

Microloans are often used to finance consumption and domestic expenses. Cowen and Boudreaux found that many borrowers use the money on personal expenses - fixing their roof, sending kids to school, purchasing a mobile phone - rather than on a small business. A Tanzanian microlender told them that 60 percent of his loans were used to send kids to school and a study of microcredit in Indonesia found that 30 percent of loans were spent on food and other consumer goods.

"For better or worse, microborrowing often entails a kind of bait and switch," Cowen and Boudreaux wrote. "The borrower claims that the money is for a business, but uses it for other purposes."

The duo called it "a sad reality that many microcredit loans help borrowers to survive or tread water more than they help them get ahead."

Survival is better than the alternative. Most of the developing world's poor have for decades borrowed from unlicensed moneylenders. These profiteers charge annual interest rates of up to 300 percent. Many demand collateral and, if repayment is not made on time, reputedly resort to intimidation and violence. Monstrous moneylender debt has played a key role in thousands of farmer suicides across India. In comparison, microcredit seems a pot a gold.

But when it comes to creating jobs and broader economic growth, microloans fall short.

"If it's employment generation you're after, microfinance isn't going to give you a big kick," said Morduch, the New York University professor. He remains a supporter of micronfinance, but acknowledged, "these businesses really aren't growing."

An Upmarket Shift

In developing countries, large corporations receive investment funding from major banks while poorer borrowers have access to microcredit. Long left out of the action are the small and medium enterprises (SMEs) that create more than 60 percent of all jobs in the developed world, according to James Suroweicki, who writes the New Yorker's financial page. Analysts are increasingly pointing to this "missing middle" to jumpstart growth and many donors and banking institutions have started to move upmarket.

"Businesses that can generate jobs for others are the best hope of any country trying to put a serious dent in its poverty rate," Suroweicki wrote in a March column. "Sustained economic growth requires companies that can make big investments - building a factory, say - and that can exploit the economies of scale that make workers more productive and, ultimately, richer."

Aliya Khawari, a researcher at Germany's Hamburg Institute of International Economics, reviewed several microloan impact studies in 2004 and found that higher-income borrowers experience a greater income boost from the loans.

"This is because clients above the poverty line are more willing to take risks and invest in technology for the efficiency or advancement of their activities that would in turn most probably increase income flows," she reasoned.

Many have concluded that as loan size increases reinvestment and company growth will do the same.

"A good question is how far upmarket do you need to go to have business that are creating a lot of jobs," Morduch said. "I think you have to go pretty far upmarket."

The U.S. Agency for International Development, one of the first to lend to SMEs, didn't go very far. The agency established an SME program in Pakistan in 2003 and added a second a couple years later. Called Widening Harmonized Access to Microfinance (WHAM), the latter initiative provided consulting, training, and technology to commercial banks and MFIs and helped disburse nearly 40,000 loans and $16 million in three years. The loans ranged from PRs 40,000 to 1.8 million (approximately US$650 to US$32,000), with annual interest around 17 percent.

Shorebank International, which implemented the USAID program, vetted, selected, and then helped nine Pakistani lenders identify borrower businesses with the best potential.

"Do each of these small enterprises grow and start to build factories and become multinationals?" Gregory Chen, director of Shorebank International's Pakistan operations, asked during an interview with Devex. "Definitely not - most small businesses stay small businesses."

The loans are not necessarily intended to help the businesses build factories or create jobs by the hundreds.

"The goal is to make them more profitable, more efficient, it's sort of an intermediate goal, and that might lead to the next stage," said Chen, who has been studying the impact of microcredit for more than a decade.

The idea is that every borrower has an optimal loan size, which would improve operations and possibly lead to job creation.

"The goal of Shorebank and USAID at the end of the day is to help build sustainable economies and a big part of that is poverty alleviation and improving people's standard of living," he said. "Finding the right loan size is just a means to an end."

One group argues the right loan size is rather large, and is in fact not a loan at all. The Omidyar Network has teamed with the Soros Economic Development Fund and Google.org to create a $17 million firm that will invest in small and medium enterprises. The company, to be based in Hyderabad, India, will invest between $500,000 and $3.5 million in SMEs and work closely with the Base of the Pyramid Lab at the Indian School of Business, which has considerable experience with SMEs.

"We want to show that SMEs can be profitable investments," says the firm's Web site. "We will do this by focusing on lowering transaction costs, deepening capital markets to increase liquidity, and catalyzing capital for investment."

This description omits two traditional goals of microfinance: poverty reduction and job creation. Omidyar has long advocated microfinance as a profit-making commercial sector, butting heads with idealistic first movers like Yunus as a result. In 2006 he donated $100 million in eBay stock to Tufts University, his alma mater, for efforts to promote the commercialization of microfinance.

At least one observer questions the planned SME fund.

"I think they're ahead of the evidence on this one," Morduch said. "I'm happy to see the money coming in to the market, but we don't have the evidence to make an informed choice regarding loans of that size."

Microfinance Changes Its Stripes

With the impact of SME loans uncertain, many are working to making microfinance better.

"Microcredit is not a miracle cure that can eliminate poverty in one fell swoop," Yunus wrote in "Banker to the Poor," his bestselling 2003 book. "Combined with other innovative programs that unleash people's potential, microcredit is an essential tool in our search for a poverty-free world."

Some lenders have broadened the microfinance umbrella to include health care, education and other social services while financial services firms invested an estimated $4 billion in 2007, tilting the microfinance field towards commercialization.

Hussain Tejany, the president of Pakistan's First Microfinance Bank, the country's first bank geared towards microlending, applauds this development.

"Poverty alleviation involves a series of tools - microfinance is just one," he said. "Education and health are others; we try to get involved in all."

First Microfinance was one of the nine lending institutions in USAID's WHAM program. Yet despite moving temporarily upmarket, the company continues to grant mostly smaller loans: The firm's average loan size remains around PRs 16,000 (about US$250), according to Tejany.

"Yes, it is good to build businesses and create jobs," he said, explaining that First Microfinance subsidizes health care offers financial education to poorer borrowers. "But our goal is to strengthen those people involved in small businesses, so they become capable of taking care of their family first, then we look on to the wider community."

Tejany is particularly pleased with one recent statistic: the percentage of women in micro-borrower families that are involved in some sort of business has increased fivefold in the past two years.

"There's no doubt about it," he said. "The smaller loans are better."

Reducing poverty is not only about money; it is also about, as Nobel Prize-winning economist Amartya Sen put it, "expanding the real freedoms that people enjoy." Social and political freedoms, certainly, but more importantly the things many in the developed world take for granted - public safety, basic education, public health and infrastructure. Dubbed "microfinance plus," these more holistic initiatives are making considerable headway with South Asia MFI's.

One pioneer is Vijay Mahajan, who in 1996 founded Basix India to improve livelihoods of the rural poor.

"Mahajan started with something very simple," Morduch said. "Creating this holding company that has a microfinance element alongside a livelihood strategy, drinking water linkages, technical services - it's seeing microfinance much more broadly."

Mahajan and Basix are now held up as models of industry innovation.

A program in Orangi, Karachi's sprawling squatter settlement, has been setting an example for much longer. Begun in 1986, the Orangi Pilot Project's microfinance program has handed out 21,000 loans, averaging around PRs 12,000 (about US$90, at PRs 65 to the dollar) each.

"We've supported a wide variety of businesses and created hundreds of jobs," said Nylah Ghias, the program's co-director.

Today, the dirt lanes of Orangi - Asia's largest slum in terms of population and geographic size - are filled with wallet-making, flower-stringing, and embroidery businesses. Women and young men spend long days sewing sequins and bold designs into silk shawls. Twelve-year-old boys work four to five hours after school to supplement their family income. And the microfinance program is just a small part of the Orangi Pilot Project's broader mission, which includes sanitation, sewage disposal, education, and housing construction.

Ujjivan, another "microfinance plus" lender, is indicative of the booming and innovative microfinance market in India. The firm, which was launched with seed funding from the Michael & Susan Dell Foundation and Bellwether Microfinance Fund and lends to small groups of women in poor urban areas, opened its first branch office in Bangalore in September 2005. Less than three years on Ujjivan has 47 branches and 67,000 clients across the Bangalore, Calcutta and Delhi metropolitan areas.

"We realize that their needs can be unpredictable, so we offer alternatives," said Manoj Dwivedi, chief operating officer of Ujjivan's Delhi offices.

Ujjivan offers loans for businesses, emergencies, and A combination of business and family expenses. The firm also educates women on financial services and, with backing from Viacom, the entertainment conglomerate, has opened dispensaries and clinics in borrowers' neighborhoods. Further, Ujjivan is adding technical and vocational education programs across its markets.

"We insist our customers go to these dispensaries, where for prescriptions and check-ups doctors will not charge any fee," Dwivedi said.

Tip of the Iceberg

Many financial services and venture capital firms have stayed out of microfinance, primarily because it takes thousands of $75 loans to make the sort of profit a single $40 million investment might provide. But an unexpected nugget of data has emerged in recent years to change that dynamic: Small loans to the poor are generally more profitable for lenders than larger loans to businesses and wealthier clients.

"The return on investment for [investing in] smaller firms tends to be considerably higher," Chen said.

Higher interest rates and fewer defaults are partly responsible for profits nearly double those of loans to large businesses.

Chen added another reason: "Because they're poor these borrowers don't have an office - they're in their living rooms."

Commercial investment has come to the fore in recent years, as donors such as the World Bank and USAID are replaced by the likes of Citigroup, Deutsche Bank, and Morgan Stanley. And for good reason: Consulting firm McKinsey & Co. estimates that half of the world's 3 billion poor people still lack access to institutional lending and credit. Financial ratings firm Standard & Poor's says the market could expand 10-fold, to $150 billion in microloans.

Already, nearly 100 investment funds are buying equity in microfinance institutions, according to the World Bank-managed Consultative Group to Assist the Poor, a microfinance industry association. CGAP estimates that these firms invested $4 billion in the sector in 2007. Morduch has been told this number may be as high as $7 billion. Either way, the corporate dollars bode well for the industry's future.

"I think successful microfinance has to be commercial," Cowen said in an e-mail. "There just aren't enough charitable dollars to go around; there will always be hard cases but overall commercialization is the way to go."

Critics worry about the hefty profits some MFIs take from the poor. Mexico's Banco Compartamos, for instance, charges interest rates of up to 100 percent annually. A June 2007 report from CGAP faulted the bank's rates as well as profits of more than 50 percent.

Meanwhile, other initiatives have found ways to lower interest rates. India's Women's Initiative for Self-Employment is a social business that strives to break even by offering microloans at the shockingly low rate of one percent monthly interest. It has no office and maintains no automatic teller machines. Still, since Kiran Rawat founded the firm in September 2006, loans of IRs 4,000 to IRs 5,000 (US$100-125) have helped dozens of rural women run bakeries, dairies, and toy-making businesses.

"There's so much money going into microfinance," said Morduch. "The sector just doesn't have the absorbent capacity, so there's pressure to move the money somewhere."

Thus the rise of SME loans, social businesses and various versions of "microfinance plus," not to mention insurance and savings programs, technology initiatives that provide access to smart cards and banking via mobile phone. Morduch said much of the flood of cash was a result of Yunus' Nobel Prize.

"Ironically, it was meant to go into microfinance initiatives, but now it's going far beyond that," Morduch said.

With microfinance now backed by the deep pockets of corporate finance, such innovations and permutations will continue for the foreseeable future. Chen is all for such diversification.

"All these market segments are equally important in different kinds of ways," he said.

Chen remains focused on the boom in Pakistani microfinance. With the number of loans expected to double in the next two years, the sector is going to need qualified staff, and quick.

"We have 5,000 employees in the microfinance sector," he said, noting that Shorebank International is helping to establish training centers and assisting Pakistani institutions with recruitment. "We need 20,000 three years from now."

Who says microfinance doesn't create jobs?

-- posted on devex.com on 16 July 2008