Abstract The development field is currently dominated by two powerful and interconnected ideas: the idea of participation, and the idea of a bottom-up approach. The idea of participation emphasizes the process of development, and claims that development is more likely to be successful if as many as possible of its beneficiaries are actively involved in improving their own conditions. The bottom-up approach—which has a parallel in fiscal decentralization in public finance—maintains that the beneficiaries should choose democratically the means and objectives of the development strategies that concern them.
Indian NGOs have created at least one million self-help groups with 17,000,000 members since the self-help group concept was developed by MYRADA in the late 1980s. India is unique in that banks are permitted to lend directly to unregistered self-help groups and by May 2001, banks and cooperatives had financed 461,478 of these groups, with almost 200,000 new self-help groups financed between May 2000 and May 2001, indicating an accelerated process of expansion. The National Bank for Agriculture and Rural Development (NABARD) trains banks and refinances their loans. The key to NABARD's success is decentralization. Responsibility for group development and training is devolved to NABARD's 2,100 NGO partners and almost 450 banks and cooperatives provide banking services to the groups. According to the Microcredit Summit Report, 2,663,901 of the 6,651,701 active members of the groups financed through NABARD (most of them women) were categorized as "the poorest," making NABARD the largest microfinance initiative in Asia, with Grameen Bank a close second. (If the number of members of self-help groups not linked to bank financing are included, the number of the poorest being reached through self-help groups is at least double.) Local costs per group member to train and support a group until it can operate independently range between $4 and $12.
The need for secondary education financing has been growing since independence, due to persistence of household poverty in the country. Since its inception in 1988, the bursary scheme for secondary education was managed by the Ministry of Education (MOE) in conjunction with school Boards of Governors (BOGs). However, in 2003, management responsibility was decentralized to constituencies under the patronage of Members of Parliament (MPs). Three years down the line, there were indications that the Constituency Bursary Fund (CBF) experienced challenges such as delayed disbursement, over-funding of some students, while others are under-funded and lack of transparency in the awarding process among others. Using a survey design, primary data were sourced from 308 students, 243 parents, 52 teachers and 3 officials from the MOE. Secondary data were obtained from school attendance registers and bursary allocation records. The study found that the CBF played the greatest role in financing secondary education. However, the potential of the scheme was undermined by inadequacy of funds, ineffective committees, lack of appropriate institutional linkages, delayed disbursement of funds and financial malpractices among other issues. The study recommended the need to: revamp the bursary kitty; strengthen monitoring and evaluation frameworks; spearhead resource mobilization; develop strategic plans; improve record keeping; empower households, especially women; and initiate Income Generating Activities (IGAs) in schools, among others.
The term "development finance \n institutions" (DFI) encompasses no only government \n development banks, but also nongovernmental micro-finance \n organizations, that match grants to attempt to promote \n community development, decentralization of power, and local \n empowerment. Measures of the social cost of DFIs that \n receive public funds, help to check whether DFIs are good \n uses of public funds, i.e., if the social benefit of a DFI \n exceeds the social cost, then public funds are indeed \n well-spent, further improving social welfare. This report \n describes the measurement of costs but not of benefits; but \n even without knowledge of benefits, knowledge of costs can \n help to adequately spend funds. Two measures of social cost \n are presented: first, the Subsidy Dependence Index (SDI) - \n the ratio of subsidy received to revenue from loans; and, \n subsidy is the social cost of the public funds used to run a \n DFI - which does not discount flows, rather it works in \n short time frames, or when the rate of time preference is \n low; second, the Net Present Cost to Society (NPCs) - like \n standard present-value measures, it discounts cash flows, \n and works in any time frame. Both SDI and NPCs are tools, to \n help establish benchmarks, chart trends, and compare a DFI \n with identical clients, and services. It is stipulated that \n measurement of the social cost of public DFIs matters \n because funds earmarked for development are scarce, while \n subsidies for DFIs could be adequate, provided social \n welfare improves in a broader scale.
Over the years there has been an increase in the number of bank failures in both centralized and decentralized economies (Saunders, 1994; Williams, 1995; The Economist, 1992; European Bank of Reconstruction, 1993). Internal reasons given for the bank failures include reckless lending, corruption, non-use of prudent classification risk assessment methods, fraud and management deficiencies. External factors such as deregulation; lack of information among bank customers; homogeneity of the banking business, connections among banks do cause bank failure. For centrally planned economies government and political interference in the banking operations and policies also contribute to bank failure. Tanzania, which until recently was characterized by a centrally planned economy, and the government having majority (51%) share holding in parastatals and banks also experienced bank failure in form of non-performing assets (NPAs). In Tanzania, bank policies reflected government directives and policies as well as political motives. Due to the dual government ownership of the bank and the parastatals, bank lending policies, procedures and regulations favored parastatal firms and agricultural marketing boards. For example, at the end of 1998, out of 78% NBC loan portfolio the majority went to parastatals and cooperative unions, with only 3% going to private firms. The majority of parastatals and cooperative unions were frequent loss makers and financially distressed. For continued existence they had to depend on the government subvention, which proved to be a heavy burden to the government. As a result, when the parastatals were experiencing financial difficulties and unable to pay the bank loans, the government solved the problem by directing the National bank of Commerce (NBC), the only commercial bank, to offer loans to the troubled parastatals and cooperative unions. By 1991, due to increased lending to financial distressed parastatals and cooperative unions, the NBC suffered large non-performing loans (NPAs) equal to 70% of the total bank NPAs. Considering the high rate of NPAs suffered by NBC, this paper has tried to show that government and political interventions and the non-use of prudent credit scoring methods had contributed to the NBC failure. African Journal of Finance and Management Vol.9(1) 2000: 14-30
The paper has two main objectives. The first is to trace the progress in the process of decentralisation in the provision of public services in India. The second is to test the hypothesis that decentralisation in the system of public service delivery in primary health care and education led to improved outcomes for the rural Indian population. Before 1992, with few exceptions, there was little movement towards decentralisation. Rural local bodies functioned primarily as program executing agents for government line departments, with little control over finances, administration, or the pattern of expenditure. The only decentralisation that existed was in the importance of state governments vis-à-vis the centre. After the 1992 Constitutional Amendments, significant progress has taken place in the form of the passing of conformity legislation by state governments, the setting up of State Finance Commissions to examine the distribution of resources from states to local bodies, and accelerated moves towards transfer of planning and expenditure responsibilities to village bodies. The paper used data from the 1994 NCAER survey to test the hypothesis that increased decentralisation/democratisation positively influences enrolment rates and child mortality once the influence of socioeconomic circumstances, civil society organisations, the problem of capture of local bodies by elite groups, and so on are controlled for. Our main empirical findings are that indicators of democratisation and public participation, such as frequency of elections, presence of non-governmental organisations, parent-teacher associations and indicator variables for decentralised states generally have the expected positive effects, although these are not always statistically indistinguishable from zero.
Leibniz-Informationszentrum Wirtschaft, Hans Dieter
Nepal is one of the poorest countries in the world, with 70% of its population below the poverty line. Subsidized national poverty lending programs have failed to attain viability, mobilize savings and reach the poor in significant numbers. Informal institutions such as the ubiquitous dhikuti were ignored. During the 90s the government has created a new policy environment focusing on decentralization, poverty alleviation, economic and financial liberalization, and a differentiated legal framework for microfinance institutions (MFIs). This has paved the way for innovations such as the establishment of Grameen replicators as banks; the upgrading of dhikuti activities to savings and finance companies with doorstep services; and the transformation of the small farmer credit operations of the Agricultural Development Bank into profitable local MFIs cooperatively owned by their members. In the framework of a wider UNDP-supported program of the Asian and Pacific Development Centre in Kuala Lumpur on Microfinance for the Poor in Asia-Pacific, six MFIs were selected from Nepal and analyzed in terms of outreach to the poor, resource mobilization, viability and sustainability: two Grameen Bank replicators - one a bank and one an NGO; two NGOs sponsored under the government's Rural Self-Reliance Fund; and two cooperatives. The outreach of the NGOs was found to be insignificant while the outreach of the Grameen Bikas Bank at the regional level and of the cooperatives at the local level was sizeable. The cooperatives performed well in terms of portfolio efficiency and were found to be financially viable; the NGOs did reasonably well; while the Grameen Bikas Bank, substituting donor funds for internal resources, was lowest (though improving) in operational and financial self-sufficiency - despite a 100% on-time repayment rate. On the whole all MFIs appeared rather hesitant to utilize their newly won freedom to vigorously expand their market, mobilize internal resources, and differentiate their products and interest rates.
This paper first identifies major proposals being considered now for restructuring rural financial institutions (RFIs). It then discusses main reasons which may have prompted these proposals. These are (1) inefficiencies of multi-agency approach, (2) dependency of RFIs, (3) autonomy of RFIs (in regard to reserve requirements, priority sector lending, loan appraisal, monitoring and recovery, and interest rates), and (4) explicit and implicit viability of RFIs. Various proposals are evaluated to find out whether they are suitable or not and if not, what alternatives are required to tackle the problems of RFIs. Based on this the paper shows that neither the upward revision in lending rates nor these restructuring proposals are required for improving viability of RFIs. An alternative proposal of restructuring RFIs is then suggested. This proposal discusses six strategic organizational principles of developing RFIs. These are (1) encouraging multiple institutions, (2) promoting appropriate forms of organization, (3) achieving vertically integrated organizational structure, (4) developing suitable density of field-offices, (5) enlarging reach or coverage of rural clients, and (6) accelerating diversified and multiple functions. Both systemic and procedural macro and micro innovations that stress the process aspect of institutional development are outlined. This restructuring proposal emphasizes the mission of decentralized institutional development of RFIs. Its vision is diversified, multiple and joint-products oriented rural banking that is autonomous but accountable. And it has a potential to make RFIs more viable and agricultural and rural growth-oriented.
The relationships among transaction costs of lending and the size of borrower, capital market imperfections and economic development, and small enterprise financing and informal credit markets are described. Transaction costs include both administrative costs and default risk. Financial innovations reduce these costs and thus lower the costs of lending and borrowing and narrow the interest rate differential. In India, the Syndicate Bank has used financial innovations to compete with larger banks. The major feature of these innovations has been the creative adaptation of banking technology to suit local conditions, including recruitment and promotion policies, decentralized decision-making and avoidance of paper work, and innovative deposit schemes. The Syndicate Bank until 1965 was considered an unsophisticated rural bank, and the Central Bank did not like some of its innovations. However, since the 1969 nationalization of 14 major banks, the Central Bank has been induced to expand branches in rural areas. In forcing this emphasis on the widening and deepening of the geographical and functional scope of the banking system, the Syndicate Bank has been regarded by the Central Bank as a model bank. Tabular financial data are appended.