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AHK Memorial Lectures

The Legacy of Akhter Hameed Khan

Professor Rehman Sobhan

Akhter Hameed Khan was an inspiration to my generation. I had the privilege of learning from him when I was a young teacher of economics at Dhaka University in the early 1960s. His model of rural development was then making its impact in Comilla Thana and its headquarters in the Abhoy Ashram in Comilla had already became a place of pilgrimage for those at home and from abroad seeking inspiration for resolving the problems of poverty in an increasingly unequal society. What lent credibility to Akhter Hameed sahib’s endeavours was his own human personality and willingness to realign his career choices to conform to his beliefs. The simplicity of his manner, the austerity of his life style, the wry, self-deprecating humour with which he dealt with people of all classes, age groups and background served as a testament to his commitment and integrity as a human being.

The Comilla model was essentially targeted to the small or subsistence farmer who survived in an unequal relationship with the surplus farmer and therefore needed to be brought together in a cooperative framework to help themselves through access to credit and irrigation. This model did not accommodate the landless who constitute the ranks of the poorest segment of the population. For these groups he designed the rural works programme offering state funded employment in the dry season. The Comilla model had its limitations because of the scope for capture of the rural cooperatives by the elite which subsequently compromised its replicability across the country. But few questioned the sincerity of Akhter Hameed's intentions or the value of his immediate efforts in Comilla. The ultimate tribute to Akhter Hameed's contribution to changing the lives of the less privileged are to be found in the role models he inspired. In Bangladesh people such as Mohammed Yunus, founder of Grameen Bank and our most recent Nobel Laureate, targeted the landless groups as the principal beneficiary of collateral free micro-credit. In Pakistan, Shoaib Sultan Khan used the Aga Khan Rural Support Programme (AKRSP), to demonstrate that the dispossessed can indeed help themselves through collective action. Both the Grameen as well as AKRSP model built on the Akhter Hameed Khan tradition that the less privileged can help themselves if they aggregate their efforts and minimal resources are made available to them.

It is an exceptional privilege for me to be invited to give the first Akhter Hameed Khan Memorial Lecture. His work in Orangi, his commitment to the cause of the deprived and above all, the decency, humanity and humility which he communicated throughout his life, continue to inspire those of us who had the privilege of knowing him and a much larger constituency of ordinary people in our countries who were exposed to the impact of his life's work.

My own presentation originates in the tradition which motivated the life work of Akhter Hameed Khan. His work was inspired by the belief that poverty is the product of an unjust society where manmade institutions hold captive the creative energies of the resource poor. What is needed to liberate these energies, is an awakening of the sense of self-worth amongst the deprived and a redesigning of the advantages of self-reliant action whether individually or collectively. The Comilla model was founded on a belief in cooperative action. The Grameen model, built upon micro-credit, invested in the capacity for enterprise of the landless or land poor (less than 0.5 acres of land) sections of the population. The Orangi and AKRSP model both emphasize the importance of collective action in rebuilding the social and physical infrastructure of communities, whether in metropolitan Karachi or the remotest areas of North West Pakistan. In these various models and their innumerable replications not just in South Asia but around the world, the important message, which was originally articulated by Akhter Hameed Khan, was the need to move away from grandiose, foreign aid inspired projects, by investing in the capacity of the most deprived households and communities to solve their own problems.

Confronting poverty in a changing society
My presentation draws upon this same tradition of promoting self-reliance amongst the resourceless but seeks to take this process forward to respond to the demands of a transformed development process evolving within a fast globalizing world. The world has changed dramatically from the days when the Comilla model was conceived. Today, economies have become much more integrated, not just at the national level but with the global economy. In Bangladesh, massive investments in the rural road infrastructure have meant that even in a riverine country such as ours, there are now few Unions which cannot be reached by road. Even the mighty Jamuna river has been bridged, as have the 3 rivers which had to be crossed between Dhaka and Chittagong so that you can now travel across Bangladesh from Chittagong to Dinajpur within a span of 12 hours. Today, there are 12 million cell phones in use in Bangladesh and 300,000 Grameen Telephone ladies who sell mobile phone services, door to door, in remote rural villages. Today, perhaps 10 million Bangladeshis work abroad not just in Karachi and Delhi but in the jungles of Bolivia and the northern most areas of Finland or the remotest parts of Japan. Dhaka city has grown from a mofussil town of less than a million in 1971 to a metropolis of over 10 million people today, projected to reach 25 million in the next 15 years. As a result of such changes the rural economy is also undergoing a transformation. In Bangladesh, for example, close to 40% of rural household incomes originate in the non-farm and informal sector. Such a structural transformation is going on all over South Asia, which is merely following the paths of structural change which had already swept East and then South East Asia.

These changes in the economy are also impacting on our societies. The old class divides are being overtaken by new forms of inequality. The power and authority of the traditional feudal elites, structured around the ownership of land, is being superceded by new elites whose wealth and power originates in the capacity to connect to market forces and political power. In some countries feudal elites have transformed themselves into businessmen and political entrepreneurs. In other areas these elites have been superceded by a new class whose influence lies in their ability to connect with political as well as bureaucratic power which empowers them to mediate the inflow of development funding channeled to their areas. Democratic politics has accentuated the restructuring of the traditional hierarchies of power so that in virtually every country of South Asia new coalitions of power and influence determine how public resources will be distributed and market opportunities will be accessed.

The million of overseas migrants who are remitting billions of dollars into South Asia have opened up new areas of opportunity as well as new patterns of inequality in each country. What, however, remains common to all of South Asia and links the past to the present, is the persistence of both poverty and inequality in all our societies. It could be argued that poverty has been reduced in every country of the region through a combination of growth, economic diversification, public spending and targeted interventions to reach the resourceless through micro-finance as well as other such grassroots initiative by the NGOs. However, in all societies of the region, inequalities have increased even though the sources of affluence have been restructured. In no society would the elite only expect to derive their incomes from land rents. Today the rents to be extracted from access to political power and the opportunities of patronage, the capacity to access bank credit and the privilege of being able to default with impunity on its repayment, have created a new and more entrenched elite. The new elite is leavened by a new class of export entrepreneurs and now an emerging professional elite, particularly in the IT sector, who are at the vanguard of the globalization process in South Asia. This new market linked elite are, however, not in control of the levers of political power which remain with the rentier elite who are positioned to generate the black money which has become the life blood of democratic politics in South Asia.

In this fast changing world, what has not changed is the unequal nature of our societies. In all countries of South Asia a vast class of resourceless households remain disconnected from the global and even national markets. They live out their lives as tenant farmers, day labourers casual workers, hawkers, mendicants, with casual access to welfare resources derived from the new hierarchies of clientelism which reinforce the powers of the rentier elite within our societies.

The spread of education has done little to reduce there inequalities as our societies have become more divided by the vast disparities in the quality of education and healthcare which divide the elites from the underprivileged. The relative size of this underclass, its social composition, its primordial roots, varies in each country as do opportunities for some individuals to escape from their deprivation, through migration or from opportunities offered through micro-finance or even acts of individual enterprise within the informal sector, including from the fast growing industries of crime and politics, which are symbiotically linked.

In such a world of unimaginable opportunities and deepening inequalities it is no longer meaningful to address the issue of poverty and inequality as merely a problem of income generation for the poor. Nor can solutions to end poverty be found in traditional micro-oriented income generating programmes or exclusively localized rural activity. The resourceless need to be equipped to participate in the dynamics of the market place by challenging the structures of injustice which inequitably distribute access to resources as well as power and determine the terms on which people participate in the market place.

Sources of Injustice
If we remain genuine about eradicating poverty from our societies the central goal of any development strategy in South Asia must be to address these new asymmetries in the development process, within a globalizing world. Such a strategy for coping with the inequities of globalization must aim to democratize the development process so that the disempowered and resource poor can directly participate in the opportunities created by the market in a globalised world. In the remainder of my presentation I discuss some of the sources of injustice in South Asian society and then move on to present my ideas on how these structural injustices can be corrected so that the resource deprived can participate on more equitable terms in the development process.

The main areas of structural injustice in South Asia may be addressed under the following heads:
Productive assets
Markets
Human Development
Governance

Unequal access to assets
In South Asia inequitable access to wealth and knowledge desempower the poor from participating competitively in the market place. Indeed the market itself, as it operates in the real world rather than in text books, is designed to compromise the opportunities on offer to the resource poor. A substantial proportion of the rural population in South Asia have insufficient access to land, water and water bodies. Where they access such resources they do so under exploitative tenancy arrangements.

Such inequities in title and access to agrarian assets do not derive from the competitive play of the market but from the injustices of history and therefore lack moral as well as social legitimacy. Such an inequitable access to productive assets in the rural economy also tends to be inefficient because small farmer's have proven to be both more productive as well as likely to spend most of their income derived from their meagre assets, in stimulating secondary activity in the rural economy. Where there is a dichotomy between the owners of land and the actual tiller of the land, this serves as a disincentive to both investment of capital, as well as more productive effort on the land.

Unequal participation in the market
Within the prevailing property structures of society, the rural poor, in particular, remain disconnected from the more dynamic sectors of the market, particularly where there is scope for benefiting from the opportunities provided by globalisation. The fast growing sectors of economic activity tend to be located within the urban economy, where the principal agents of production tend to be the urban elite, who own the corporate assets which underwrite the faster growing sectors of the economy. Even in the export-oriented rural economy, in those areas linked with the more dynamic agro-processing sector, a major part of the profits, in the chain of value addition, accrue to those classes who control corporate wealth.

The rural poor, therefore, interface with the dynamic sectors of the economy only as producers and wage earners, at the lowest end of the production and marketing chain, where they sell their produce and labour under severely adverse conditions. This leaves the rural poor with little opportunity for sharing in the opportunities provided by the market economy for value addition to their labours.

Unequal access to human development
Low productivity remains an important source of income poverty. Higher income and ownership of wealth remains closely correlated to higher levels of education. Low productivity, thus, originates in insufficient access to education and technology. However, a more serious problem facing the deprived of South Asia lies in the growing disparity in the quality of education which divides the rural and urban areas as well as the majority of the people from a much narrower elite. In such societies today, the principal inequity in the education sector is manifested in the growing divide between a better educated elite with access to private as well as foreign education and the resource poor who remain condemned to remain captives within an insufficiently funded and poorly governed public education system supplemented by poor quality private or denominational schools. In an increasingly knowledge based global economy, which is driving the IT revolution, inequitable access to quality education, relevant to the dynamics of the market, could emerge as the principal deprivation of the resource poor.

Insufficient and inequitable access to health care is also compounding the inequities in education. The dominant problem in South Asia is not the complete absence of health care but the incapacity of the public health care systems to deliver quality health care or for the market to meet the needs of the resource poor. Ill-provisioned public and private health services expose the poor to a life of insecurity, where earning opportunities can be disrupted by episodes of ill health. Poor health and nutrition can undermine both individual as well as national productivity and can influence the lifetime opportunities of the poor. In contrast, a small elite who are positioned to avail of private and even foreign health care, enjoy first world health standards. This growing disparity between the health status of the elite and the resource poor in South Asia is inherently unjust because it denies all citizens equal chances of living a healthy life and compromises their capacity to compete in the market place.

Unjust Governance
This inequitable and unjust social and economic universe is compounded by a system of unjust governance across South Asia which discriminates against the poor and effectively disenfranchises them from the political benefits of a democratic process. The poor, where they are not directly oppressed by the machinery of state, remain underserved by available public services. Where such services are at all accessible to the poor, they pay high transaction costs for these services. The agencies of law enforcement insufficiently protect the poor and frequently oppress them for personal gain as well as on behalf of the elite. The judicial system denies the poor elementary justice both on grounds of poverty as well as the social bias of our judiciaries. However, in recent years we have witnessed the positive role that can be played by the judiciary in protecting the rights of the resourceless. The enabling role of the Supreme Court of India, in response to public interest litigation asserting the right to food and work, has demonstrated that the judicial process can also be used in the service of the resouceless.

In such a social universe the poor remain tyrannized by state as well as money power and have to seek the protection of their oppressors, within a system of patron-client relationships, which perpetuates the prevailing hierarchies of power. Where the democratic process has been renewed, often after long episodes of autocratic rule, the poor are denied adequate access to representation in the systems of democratic governance from the local to the national level. Representative institutions tend to be monopolized by the affluent and socially powerful who then use their electoral office to enhance their wealth and thereby perpetuate their hold over power. In such an inequitable and politically unjust environment, the benefits of democracy remain the privilege of the elite supported by small collectives of sectional power.

Unjust Globalization
There is growing evidence, supported by a rich literature, on the unjust nature of the globalization process. The inequitable working of global markets and the undemocratic structuring of global institutions such as the World Bank, IMF and WTO, indicate that the international system, in its prevailing incarnation, is no friend of the poor. However, this particular dimension of structural injustice demands independent discussion which will be addressed by me elsewhere and is not covered in my presentation in this paper.

Policy interventions to correct Structural Injustice
In the third part of my presentation I discuss some policy interventions, at the national level, needed to confront the issue of structural injustice in South Asia. This discussion addresses the issue of correcting injustice through empowerment of the resource poor, by strengthening their capacity to participate in a market economy and democratic polity. For purposes of economy in words we will refer to the resource poor or resourceless as the poor. The proposed policy interventions are structured under the following heads:

Expanding the ownership and control of the poor over productive assets
Enhancing their access to a knowledge based society
Strengthening the capacity of the poor to compete in the market place
Redesigning budgetary policy to reach public resources to the poor
Restructuring monetary policy to deliver credit and provide savings instruments to the poor
Designing institutions for the poor
Empowering the poor

The subsequent discussion is largely suggestive and is designed to initially stimulate debate. I am currently engaged in a work programme initiated by the South Asia Centre for Policy Studies and the Centre for Policy Dialogue, Dhaka where I am working with research teams in India, Nepal, Pakistan and Sri Lanka to provide more substance to the proposals presented below.
Expanding the ownership and control of the rural poor over productive assets
The principal assets available to the rural poor tend to be land and water but this remains inequitably distributed across South Asia. The issue of agrarian reform has, thus, for many years been on the agenda for reformers though it has in recent years, become unfashionable to address this in the policy discourse. The reservations of some scholars and international agencies about confiscatory land reform, remains open to challenge largely because the prevailing title to such land, in most developing countries, is grounded in unjust and often illegitimately acquired title to such land. However, we need to recognize that the correlation of political forces to underwrite a radical agrarian reform are not particularly propitious in South Asia today. If such a coalition could be put in place it is arguable that a radical reform, which could transform the political economy of rural society, would not only help to end rural poverty but could also dynamise the economies as well as democratize the polities of our region.

Whilst such a social revolution may not be round the corner there is no reason why we cannot explore agrarian reforms which are more politically feasible in South Asia as well as economically sustainable. Within such a perspective, some areas of agrarian reform which could be considered are presented below:

Transforming tenancy rights into either ownership rights for the tenant or through right of permanent tenancy.
Redistribution of ownership of uncultivated land
Giving title to the resourceless to lands and water courses owned by the State.
Correcting injustice in the system of land administration
Enabling the poor to benefit from adding value to their primary produce of labour and commodities
Empowering the rural poor to benefit from collective action in building the infrastructure in their own areas
Empowering the rural poor to collectively participate in accessing agricultural inputs and marketing of their produce
Providing opportunities for rural enterprises to come together to derive the benefit of scale economies, to enhance their productivity and competitive capacity.

The above suggestion require elaboration and would need to be tailored to respond to the specific circumstances prevailing across South Asia. Many more interventions which could contribute to promoting structural change in rural society would also be explored.
Enhancing access to human resources
In the area of human development, courtesy of the pioneering work of scholars such as Amartya Sen and visionaries such as Mahbub ul Haq, human development (HD) is already recognized as a mainstream concern of the development agenda. As a result, in South Asia budget allocations and GDP ratios for HD show considerable improvement as have HD indicators. Today MDG goals for HD in Sri Lanka and Maldives have been largely realized whilst other South Asian countries remains in varying degrees, capable of meeting a number of goals, though perhaps not the primary goal of halving poverty levels. However, such quantitative gains in HD budgets and goals have done little to bridge the growing societal divide within the education and health care systems of many of our countries. The interventions proposed in my presentation, thus, move beyond quantitative target setting by placing emphasis on democratizing access to education and health care through enhancing the quality of HD services directed to the deprived.

Such an agenda for human development would move beyond ensuring education or health for all, which should remain on all our agendas. The priority for the next decade should move towards substantially enhancing investment for the purpose of upgrading the quality and governance of schools and health care facilities serving low income groups to a level where they do not feel disadvantaged compared to the expensively serviced members of each society. Such a goal carries formidable implications for South Asia as to costs and governance. What may, therefore, be more feasible in the short run is a phased series of investments in upgrading these public facilities so that the budgetary impact and governance problems could be more easily absorbed. At the same time, within the next 5 to 10 years, the graduates of such a process of quality enhancement efforts should be both educationally equipped and financially supported to compete for university places with the elite. The spectacle of children of the poor rising to positions of professional, economic and political influence will, itself, have an empowering effect on the poor of South Asia to demand more rapid democratization of opportunities for human capacity development.

Until public services in the health sector can be brought to a competitive level with better quality private services, public resources should be channeled to establishing a system of health, disability and old age insurance for the poor to enable them to also access private health care. A number of countries in the developing world, but not in South Asia, offer some form of insurance coverage through public and private programmes but these facilities in most countries have a rather narrow coverage. This system needs to be substantially expanded, through collaboration between the state, private sector and possibly the non-governmental organizations (NGO).

The knowledge revolution is now being brought within the reach of the poor by advances in telecommunications where India, in particular, has registered dramatic advances. Formidable opportunities are being opened up in the area of distance learning and telemedicine, for urban standards of education, medical diagnosis and prescription to be delivered to the most remote villages. Here major investments to build the infrastructure to take the IT revolution to the villages, remains a major goal of public and global development policy. In India a programme launched by the private corporate giant, ITC, known as e-chaupal, is using rural internet kiosks to connect farmers to the market for accessing better prices for their produce and to procure agricultural input at lower costs. Grameenphone in Bangladesh remains another important example of how poor rural women can be brought into the communications revolution as both providers as well as users of IT services. In similar vein, the direction of R&D agendas, both in our region and at the global level, to not only address the concerns of the poor, but to develop technologies for the rural poor, merit urgent attention.

Strengthening the capacity of the poor to compete in the market place
Market based institutions for the poor
The capacity of the poor of South Asia to operate on more equal turns in the market place, depends in considerable measure on their capacity for collective action. The weakness of the poor, in the market place, originates in their isolation. Here investment in institutions, whether sponsored by NGOs or representing collective action by the poor, in the form of marketing cooperatives or corporate bodies of the poor, need to be imaginatively conceived and developed.

Since South Asia is littered with the debris of captured, corrupted or failed cooperatives, directing collectives of the poor into such a risk-prone area as the market should not be underestimated. However, there are also many success stories of the impact of collective action. AKRSP in Northern Pakistan has shown how collective effort can be mobilized to build the rural infrastructure. Lijjat in India has brought together 40,000 poor women and built a corporate enterprise which has become the largest suppliers of papads in India.

Such initiatives indicate that the key issue remains to invest the poor with the collective capacity to develop the financial and organizational strength to sell their products and services, at a time and in a market, which offers them the best terms, rather than to sell their produce out of distress or the need to subsist. Such a perspective would demand interventions in the macro-credit market to underwrite such marketing ventures as well as deployment of professional management skills to assist the poor in participating in the market place.

It should be kept in mind that commercial managers are professionals who can be hired in the market place and can be provided with incentives for good performance by collectives of the poor no less than corporate enterprises. The task ahead would be to empower the poor to draw upon such professionals without feeling socially intimidated by their own hired employees. Conversely, such a process should encourage the emergence of a socially motivated class of managers who would not necessarily remain undercompensated, who could specialize in serving such organizations of the poor who have dared to venture into the market place. World famous business schools in the South Asia region such as LUMS or the IIMs in India, should be encouraged to design MBAs to train a class of socially motivated social entrepreneurs to manage the corporate assets of the poor. International development agencies as well as the corporate financial sector may be persuaded to initially underwrite some credit support as well as management inputs for such commercial organizations of the poor. But in the final analysis such ventures must be sustained in the market place.

Adding value to the labour of the poor
Many NGOs around the world are already providing marketing services to the poor, for particular commodities, in particular markets. However, the best service that can be provided is to help the poor to add value to their labours by moving upmarket through either agro-processing or providing inputs to the corporate sector. The pioneering role of Amul Dairy cooperative in India and more recently, BRAC, in Bangladesh, to enable small dairy farmers, or just poor households who own a cow, to become part of a milk processing chain, enables the poor to share in the profits from selling pasteurized milk or cheese in the metropolitan market. Amul Dairy is today the largest dairy enterprise in India which is owned by the resource poor and works in their service. Similarly Grameen Bank's initiative to support rural handloom weavers to upgrade their product to provide Grameencheck fabrics, as inputs to Bangladesh's leading export industry of readymade garments, provides significant new opportunities for value addition to the labours of the poor, rural based, weavers.

Such initiatives could be taken one step further, by financially empowering the vast body of small farmers servicing the private agro-processing sector, as well as handloom weavers, to become equity stakeholders in the upstream enterprises which add value to their produce or labour. Tobacco, cotton, sugar cane and jute growers, servicing export-oriented corporate bodies, could be brought together, as corporate bodies or as members of a dedicated Mutual Fund, to acquire a stake in large private corporate enterprises engaged in the task of value addition which serve national and even global markets. For example, Nestles which operates a large dairy industry in Pakistan, could be encouraged to offer the thousands of suppliers from whom it procures milk, an equity shares in the value addition process by becoming shareholders in their corporate enterprise. This marriage between the small farmer and the downstream agro-processor could also be promoted by local civil society organizations and consummated through a dowery provided by both multilateral and bilateral funding agencies to organized groups of small farmers to buy into such ventures. Similarly, the private sector could take its own initiatives to invite their suppliers to become stakeholders in their enterprises. This would be a profitable investment because it would not only ensure stability in the supply chain but would encourage the corporate enterprise to make long term investments in their rural suppliers.

Redesigning budgetary policy to reach public resources to the poor
Restructuring the budget
In its present configuration, budgetary policy in South Asia, as in most developing countries, aggregates public expenditure programmes without setting any explicit goal to serve the poor who tend to remain marginalized in the design of the budget. Hopefully the Poverty Reduction Strategies Papers (PRSP) now in place in Bangladesh, Nepal, Pakistan and Sri Lanka, will ensure that budgets become more transparent in their direction of budgetary expenditure towards reducing poverty. However, so far such a redesign of budget architecture is yet to emerge in any country. In the absence of any explicit structuring of the budget to serve the poor most budgets contain a plethora of projects/programmes ostensibly targeted to the poor which tend to be underwritten by a variety of aid donors. A not insignificant part of the expenditure targeted to the poor, does not reach the poor, due to high transaction and delivery costs, which enrich the non-poor or expatriate consultants.

Much of this misdirection of public expenditure remains concealed under opaque budgetary practices which make it impossible to identify the share of the budget directly reaching the poor or estimating its outcomes on the circumstance of the poor. In this respect, targeted aid programmes are no less likely to carry high transaction costs, with poor outcomes and weak sustainability.
Any serious attempt to dedicate public expenditure budgets to the concerns of the poor in South Asia should be transparently structured to clearly identify not just projects explicitly targeted to the poor but resources delivered to and directly impacting on their lives. A number of such efforts, usually at the level of civil society, have attempted, every year, to restructure the national budget in order to isolate its contribution towards poverty eradication. The pro-poor budgeting exercises in Porto Allegre, Brazil, have acquired global recognition. A few such exercises have been attempted in Bangladesh at the level of civil society. However, such efforts in our region remain under-resourced, some carry unresolved conceptual problems and tend to exercise insufficient leverage for persuading our Finance Ministers to more carefully calibrate their budgets to reach the poor. Nor have likeminded donors been any more successful than civil society, inspite of many efforts at promoting budgetary reform in South Asia through provision of technical assistance, in making national budgets more transparent in defining their impact or reaching public resources to the poor.

Inducting the poor into the budgetary process
Apart from targeting public expenditure to the poor the more serious limitation of the budgetary process lies in the absence of consultation with the poor. A quite disproportionate amount of time is spent consulting business leaders and economists on budget design. Much less, if any, effort is invested in consulting the poor about what they expect from the budgetary process. Some consultative exercises, often at donor initiative have tended to produce some rather self-conscious exercises where the sponsors end up hearing what they want to hear. A number of civil society initiatives to consult the poor have yielded more promising results. However, unless such efforts are institutionalized and can serve to influence policymakers, they degenerate into episodic exercises in providing some catharsis for the grievances of the poor.

Since most South Asian countries claim to be democracies its governments should reach out to the poor whose votes elect them to office. Such an effort should not, however, manifest itself as a pro-forma, pre-budget exercise in bureaucratic tourism of some rural areas but should be institutionalized into the structures of governance. The consultative process, each year, should be preceeded by a process whereby the concerns of the poor are systematically recorded and reviewed by the budget makers before they embark on their annual consultative encounters with the poor.

All such efforts at making budgets more transparent and consulting the poor will be meaningless if they do not end up reprioritizing public expenditures to put resources into those sectors that serve the poor. This process will have to precede the task of ensuring that allocated resources actually reach the poor. However, redirecting budget priorities is not a positive sum game and the political economy of a society needs to be taken into account in any discussion on the budget. If the poor are to compete with the Defense Forces to influence the allocative choices of the Finance Ministry, they will need to collectively empower themselves to compete in the political arena rather than to depend exclusively on the social conscience of the policymakers.

Fiscal policy
The instruments of fiscal policy in South Asia are usually not designed to address the concerns of the poor. It must, therefore, be recognized that fiscal systems can also be redesigned to do more than provide incentives for business enterprises and relief to the poor. The poor are also producers of goods and services and remain sensitive to the incentives offered by a well-designed fiscal policy. The instruments of direct as well as indirect taxation need to be calibrated to make better use of their distributive and poverty reducing power. Fiscal specialists should be invited to join hands with poverty specialists to rethink the design and mechanisms for formulating a fiscal policy which can better serve the needs of the poor.

Restructuring Monetary Policy
Taking micro-credit out of the ghetto
Nowhere is there a greater need for developing a macro-perspective for poverty eradication than in the area of monetary policy. The instruments of monetary policy appear to be exclusively targeted towards ensuring macro-economic stability, moderating inflation and meeting the credit needs of the corporate sector. The financial needs of the poor, once left to the informal sector, have now been segregated in the micro-credit market. This apartheid within the monetary system remains a major anomaly in the global development discourse. The micro-credit movement has, in many ways, revolutionized the banking system of many countries such as Bangladesh and indeed in most other South Asian countries by moving a large segment of the rural population, from the informal to the formal capital market through access to institutional credit. In Bangladesh 15 million poor borrowers, mostly women, have graduated from the informal money market into organized banking, where recognition of their innate sense of fiduciary responsibility for repaying loans and making regular savings has been institutionalised. These numbers are comparable to those who participate in the commercial banking system. No less important, the micro-credit system has established the creditworthiness of the poor and laid to rest the myth that only men of property should be eligible to access the institutional banking system.

It is not intended here to discuss the merits and limitations of micro-credit or to suggest that it is the panacea for poverty eradication. Indeed, it could be argued that, by its very nature, micro-credit can never aspire to eradicate poverty since it only addresses one component of the various markets which condition the lives of the rural poor. It is arguable that by locking the poor into the micro-credit system, based on the fiduciary responsibility of the household, they have been excluded from participating in the macro-economy, have been isolated from collective action and condemned to live on the fringes of the poverty line. It is, therefore, not surprising that countries with the most substantive exposure to micro-credit, remain mired in poverty. This caveat on the limits of micro-credit remains without prejudice to the enormous contribution of micro-credit in alleviating poverty and distress, as well as enhancing the self-worth of the poor. Today Mohammed Yunus and Grameen Bank's contribution towards alleviating poverty have been globally recognized through the award of the Nobel Peace Prize. As a Bangladeshi and as the former Chair of the Board of Grameen Bank for 6 years, I take great pride in this achievement.

Regrettably, few Finance Ministers in South Asia of across have registered the crucial lessons from the micro-credit revolution that the poor are bankable and creditworthy. The logic of this discovery would be to enable micro-credit organisations to graduate into corporate banks or financial enterprises, owned by the poor. This, indeed, is the path followed by Grameen Bank which is a corporate body with over 5 million shareholders, composed mostly of poor women, who are also the clientele of the Bank.

Bangladesh and indeed a number of other developing countries, are ready to sustain many more banks, owned by the poor and serving the poor. Given the high level of non-performing loans in the regular banking system in Bangladesh and I believe, Pakistan, the fact that Grameen Bank, with a credit volume comparable to the largest commercial banks, can limit its portfolio of non-performing loans in the range of 1-2%, demonstrates that it has the capacity to operate as a competitive commercial bank, whilst serving the needs of the poor. There is, today, no reason why such organizations, of the maturity of Grameen Bank, with such a consistent record of debt recovery, should not graduate into the macro-finance system by accessing the deposits of the public and even marketing its assets at the global level, through such financial instruments as securitisation, which are in widespread use in more advanced financial systems. Indeed BRAC, Bangladesh's second largest MFI, has already securitized some of its outstanding loans.

Today a move is underway to seek such a redesignation of the MFIs such as Grameen Bank, BRAC and ASA, to access deposits from the public, including remittances from our millions of overseas migrants. These MFIs have a far reaching network in the rural areas to reach such remittances to every household as fast as any hawala transaction. The scope for MFIs emerging as the intermediaries connecting migrants drawn mostly from the rural areas of South Asia, with not just their rural households, but rural markets, has far reaching implications for using migrant remittances as a resource for both developing and restructuring the rural economy.

Restructuring financial services to serve the poor
If Grameen Bank can move upmarket, there is no reason why commercial banks should not redirect their loan portfolios to the poor on account of their creditworthiness, particularly in an environment when many of their largest commercial borrowers remain habitual defaulters. This is not to suggest that commercial bankers have to immediately move out of their air-conditioned offices and visit each client in their village home, as is the practice with the micro-credit organisations. A number of commercial banks in South Asia are already using NGOs and even community-based organizations to retail banking services to the poor. Such organizations which reach out to the grassroots are uniquely equipped to link the urban-centric financial institutions to the wider concourse of the poor. Commercial banks can use these grassroots institutions to adjust their perspective as well as portfolios to the market opportunities provided by the poor who remain highly bankable and yet are deprived of the wide range of services that they need.

Corporate banks may be more inclined to do this if the government were to incorporate such a redirection of banking services into the design of financial sector reforms. The World Bank has, for many years, been promoting financial sector reforms in South Asia to correct distortions ostensibly attributed to public policy failures. Regrettably, there is no evidence of any recognition by the World Bank of the more glaring market failure in the financial system of our region which deprives millions of potentially creditworthy customers of financial services. Nor has there been any serious effort in the various BWI induced reform processes to restructure the macro-financial system to deliver financial services to the poor on grounds of both market efficiency as well as alleviating poverty.

Mutual Funds for the Poor
Apart from the issue of redesigning monetary policy to deliver credit to the poor, the monetary system also needs to put in place a much wider spectrum of financial instruments which can serve to mobilize the savings of the poor. An organisaiton such as Grameen Bank has accumulated Tk. 10 billion (about $187 million) in savings from its 5 million members. All these savings remain on deposit with Grameen Bank and are used for further lending to its members. Savings mobilized by other NGOs in Bangladesh, as well as by individual households, indicate that the poor remain formidable savers. In India, a large number of small community organizations in Andhra Pradesh State, have, in aggregate, accumulated savings of around $180 million which remain on deposit with the banks.

Our monetary systems needs to design special financial instruments to attract these micro- savings into the corporate sector, particularly where it can be structured to serve the poor. Again, Grameen Bank has taken the initiative in launching the first Mutual Fund of the poor, where it is providing opportunities for investing a small fraction (Tk. 150 million) of the savings of its members, in a managed, close-end, Mutual Fund which would invest its portfolio in the corporate sector. The potential of this experiment has to be tested within the small, rather unstable capital market of Bangladesh.
Whatever may be the fate of the Grameen Fund, the concept of Mutual Funds for the poor provides a significant institutional mechanisms to move the poor out of the village economy and into the more dynamic corporate sector, to a stage where a significant share of corporate wealth could be owned by the poor. The savings of the poor can not only augment the savings base but also broaden the investment capacity of the economies of South Asia whilst transforming the poorest rural household into stakeholders in the process of national economic growth.

The channeling of the savings of the poor into corporate investments should be matched by the channeling of urban savings to finance the corporate as well as micro-credit needs of the poor. An integrated monetary system is a two-way street where financial intermediation by the banks should be able to channel the savings of the rich to underwrite the investment needs and creative capacity of the poor. Within such a perspective, credit from the commercial banks should also be made available to organizations of the poor to leverage their investments in the corporate sector.

Such an integrated financial system carries obvious risks associated with the nature of the market mechanism, as well as the probity of the corporate sector, which will demand special safeguards to protect the interests of the poor. But unless these opportunities for linking the poor to the corporate sector are explored through widening the horizons of monetary policy, the poor will remain permanent captives in the ghetto of the micro-economy.

Expanding the stakes of the poor
The Mutual Fund is but one institutional mechanisms to link the poor to the corporate sector. The underlying premise of the Mutual Fund is the notion of creating possibilities for the poor to own corporate assets. We have already identified the opportunities for linking the farmers to the agro-processing corporate sector by giving them an equity stake in such enterprises. Financial policy could also be restructured to ensure that all assets, from urban land, to real estate development, from banks to corporate trading houses, could be redesigned to accommodate the poor as equity partners. The two institutional instruments to make this possible remain the Mutual Fund and the need for private limited companies to transform themselves into public limited companies. Here monetary and fiscal policy can provide incentives to encourage the corporatisation of private wealth along with the reservation of space for equity ownership of this wealth by the poor.

It may be suggested that the opportunities for democratizing ownership of corporate wealth should not be limited to the rural poor but could be extended to workers, to own shares in the enterprises where they work. The 2 million women, mostly from the rural areas, who earn monthly wages of around $30 and provide the substantive value addition in Bangladesh's principal export of readymade garments, are no less deserving of being made stakeholders in the most dynamic sector of the economy, than are the rural poor. In India, one of its largest conglomerates, Tata's have shown the way by divesting 89% of their share ownership in their tea estates in South India, to their workers. Under worker management these losing concerns have been made profitable and Tatas are now expecting to make a similar divestment of ownership to the workers in their tea estates in North East India. The Tata experience suggest that across South Asia workers in tea, sugarcane or other plantation based corporate enterprises could be given an equity stake in the enterprises where they work, even though the management may be retained by the original owners.

Institutions of the Poor
Collective action by the poor
The poor survive as individuals with no institutional persona. The primary task of building institutions for the poor should be to enable them to rediscover their collective identity. The forging of such a collective identity does not, however, develop out of abstract notions of identity but is likely to emerge out of a process of collective action. Such collective action tends to be constructed around particular social actions or through shared participation in pursuit of economic gain. Here, if the poor are to be mobilized for collective action, special institutions of the poor, may need to be constructed. Two such institutional arrangements are discussed below:

Corporations of the Poor
Collective action needs to structured around a body of institutions invested with a legal personality. Grameen Bank has shown the way by incorporating itself as a limited company owned by the 5 million borrowers who are mostly poor women. The bank thus functions not as an NGO but as a commercial bank. Its corporate status has empowered it to diversify into a variety of corporate enterprise. The best known of these is Grameen Telecom which has emerged as Bangladesh's single largest corporate enterprise. Grameen Bank has entered into a partnership with Telenor, a Norwegian telecom multinational, to provide cellular telecommunication services. In a short period of time it has provided over 10 million cellular phone connections across Bangladesh making it the largest provider of such services in the country, larger than the state owned telephone company which provides landlines as well as cellular services. Grameen Telecom has spun off Grameenphone which provides rural telephone services through over 300,000 telephone ladies who have been given micro-loans to buy cell phones which are used to market telephone services in the villages on a door to door basis. The significant feature about Grameen Telecom is that 34% of the corporate enterprise is owned by Grameen Bank, which in turn is owned mostly by poor women. The goal of Grameen Bank is to eventually become the majority owner of Grameen Telecom when millions of poor women will be owners in what will emerge as the largest corporate enterprise in Bangladesh. The scope and implications for expanding Grameen Telecom was directly raised by Professor Yunus, during his recent visit to Norway to receive the Nobel Peace Prize. Grameen Bank has also recently entered into a partnership with a French multinational, Danone, to set up a food processing project which will be the largest of its kind in Bangladesh. This again will further expand the corporate reach of the rural poor in Bangladesh.

Social Enterprises
In the course of his public address in Oslo on the occasion of receiving the Nobel Prize, Professor Yunus gave global exposure to his idea of social enterprise. This concept projects the notion that a class of such corporate enterprises, pioneered by social entrepreneurs, could be set up which are motivated by the urge to serve social causes rather than the pursuit of individual profit. This concept was inspired by the belief that commercial enterprise is not just motivated by the pursuit of profit but can be driven by a social purpose. Grameen Bank and now the Danone enterprise, are examples of such enterprises. But Yunus believes that many more corporate enterprises across the world can be persuaded to channel investments into such social enterprises designed to serve the needs of the poor. Yunus however also took account of a variant of the social enterprises, where the poor would be part owners of such enterprises and could share in its profits. Grameen Telecom is obviously one such variant of such an enterprise. It is this latter concept of social enterprise which remains congruent with the idea of corporations of the poor and corporate ownership by the poor which I have presented in this paper.

Restructuring NGOs
The Grameen model of social enterprise can be extended to the wider constituency of NGOs across South Asia many of whom still remain legally committed to provide welfare for their client households. Over the last two decades the NGOs in South Asia have come to play a growing role, principally as delivery agents, contracted by donors to deliver certain services targeted to the poor. Whilst we may argue about their institutional efficacy, systems of accountability and even cost-effectiveness, it is generally accepted that NGOs tend to be more effective in delivering resources directly to the poor than the machinery of state. It has, however, been argued that the evolution of the NGO as an aid contractor, keeps them heavily dependent on aid. This external dependence is increasingly compromising the role of NGO's as social mobilizers and advocates of the poor.

It is suggested that the long term sustainability of the NGO, as a financially autonomous institution of civil society, lies in its reinvention as a corporation of the poor or as a social enterprise. The future of the NGO as a social institution lies in its ability to use its institutional capacity, which has extended into rural communities across the world, thereby giving them direct access to vast numbers of the poor, to use this reach to link the poor to the market. This can be done through transforming NGOs into corporations of the poor, where their micro-beneficiaries are transformed into the owners of a corporate NGO. Through such a measure, the individual weakness of the poor could be aggregated into the legally recognized power of the many.

Initially only a small number of NGOs would have the organizational capacity and resources to evolve into nationally competitive corporate bodies. BRAC is one such example since it already finances over 60% of its budget from its internally generated funds derived from profit making enterprises. It commands a large corporate enterprise with considerable management capability which equips it to reach every corner of Bangladesh and even abroad. However, smaller NGOs can also evolve into more modest corporate entities. Even a single village based NGO could evolve into a small enterprise which could mobilize the poor to own the village pond, build and maintain rural roads or trade in commodities produced or consumed by the poor.

This suggested reconfiguration of the NGO's would also make them accountable to their myriad owners. Such an institutional transformation could lay to rest the critique of NGOs that they are accountable only to their donors and perpetuate the partron-client system which they were designed to challenge. An NGO owned by and accountable to two million members or even 2000 members could emerge as a socially powerful organization at the national or local level with no less social legitimacy than a representative institution.

Community based organizations of the poor
The NGOs are not the only agency for forging collective solidarity within the poor. Community based or self-help organizations of the poor, cooperatives and activity based organizations, which bring groups of the poor together, should aspire to forge an institutional identity. 6991 community based organizations (CBO), covering 132,000 households, have been organized in 6 countries of South Asia under the South Asian Programme of Poverty Alleviation (SAPAP) to jointly undertake savings and investment. In Pakistan, the National Rural Support Programme (NRSP) has organized 11,000 community organizations with 241,000 members to participate in similar community actions in their village. In the state of the Andhra Pradesh the World Bank is assisting a programme for reducing poverty which socially mobilizes 5 million of the rural poor in CBOs to collectively participate in economic activity.

Corporitising these CBOs will provide the legal foundations for collective action, to enable these bodies of the poor to access credit, enter into contractual relationships and deal with international organizations. The precise legal persona of these corporations may vary from limited liability companies, with the poor as equity owners, to cooperatives with the poor as partner members. But the common feature of all such corporate entities of the poor is that they must operate in the market place and generate income rather than limiting themselves to survive as savings and loan associations.

Empowering the poor
The entire process of building a collective identity for the poor through specially constructed institutions, derives from the need for the poor to claim a place in society which is more commensurate with their numbers. The poor remain disempowered because they are isolated. Bring them together and they emerge as a major force in the economy, in society and eventually in the political arena. Incorporating the poor, around opportunities for collective economic benefit, may invest them with a sustainable sense of solidarity which may not have been possible through more episodic participation in various class actions. However, in the final analysis, it is only when the poor are sitting in the representative institutions of the state, in local elective bodies as well as in Parliament, that they will be able to ensure that their special concerns will be mainstreamed within the policymaking process.

It is argued that a South Asia populated by a large number of corporate bodies of the poor, bound together by opportunities for economic gain, could aggregate into a powerful political force which could transform the balance of power in our respective countries. This vision, however, lies in the distant future and we should not tantalise ourselves with the prospect of instant social transformation. The purpose of including the issue of empowering the poor in my presentation is to spell out a broad continuum for policy action. This approach demands a change in perspective from poverty alleviation to poverty eradication through structural change.

It is unlikely that many governments in South Asia would be inclined to rush towards building up institutions of the poor to a point where the balance of power in society could be transformed. Our discussions should, thus, not be built upon an innocence of the discipline of political economy. Building up the collective power of the poor whether of 2 million members or 200 members in a village will challenge existing vested interests at different levels across South Asia. Any serious discussion of the empowering effect of collective action will, therefore, have to contextualize the outcome of this process within its given socio-political environment in each country of the region. This recognition of political reality should not however serve as a refuge for business as usual. All social action builds upon testing the limits of commitment and tolerance of state and society. Thus, those governments who do have a genuine commitment to eradicate poverty may accommodate some measures of institutional change as for example by encouraging the emergence of a Mutual Fund for the poor or promoting community based organizations. In South Asia, for example, most governments have accepted the idea of expanding the coverage of CBOs, as an instrument for rural development. But such ideas have to be developed as politically marketable proposals and have to be tested not just on their intellectual merits but have to mobilize social and political constituencies in their support.

We must, furthermore, keep in mind that neither the concept of building corporations of the poor or social enterprises or the Mutual Fund depend exclusively on the government for its advancement. NGOs as well as private corporation are at liberty to reconstruct their corporate identity as are the poor to organize themselves though in some countries such a process may require enabling legislation. Here, the international development community can help to accelerate such a process of empowering the poor, by redirecting their aid programmes towards both encouraging the emergence as well as enabling corporate bodies of the poor to acquire wealth. This could require provision of resources to support acquisition of land, water bodies, leveraging purchase of shares, building capacity to compete in the market, and enhancing the knowledge base of the poor, particularly to participate in the IT revolution. Indeed, all such programmes could themselves derive from a new generation of locally owned structural adjustment reforms, premised on the empowerment of the poor. However, such initiatives will depend on whether governments in South Asia and international institutions with commitments to reduce poverty are willing to strike at the roots of poverty or will remain committed to business as usual.

There is little in this paper which could be regarded as particularly radical. Neither Mutual Funds or corporations of the poor should raise the spectre of the barricades. However, when such an argument is viewed within an holistic policy framework it does represent a change in the direction of the agenda for poverty eradication, away from narrow programmes of income gain for the poor to their empowerment through collective action for economic gain and social advancement. It is hoped that the ideas articulated in my presentation will encourage more substantive work and public debate on the need for and direction of structural change across South Asia which may encourage rethinking among our policymakers as well as some forward looking international institutions. At the same time the ideas generated from in my paper need to reach beyond the formal institutions of the state to both political and civil society. For such ideas to take wing, they need to be find a place in the policy agendas of political parties with a genuine commitment to social transformation and to such organizations of civil society who are seeking to reconstruct themselves to cope with the demands of a globalizing society.