Addressing rural poverty

It is reported that when Indira Gandhi attended the UN World Environmental Conference in Stockholm in 1972, though she never precisely said “poverty is the biggest polluter,” she asked the question: “Are not poverty and needs the greatest polluters?”

However, when this is quoted in various articles, her statement has grown into: “Poverty is the greatest polluter”. In a way this may be of true and appealing for media in India, given the magnitude of poverty prevailed at that time.

It is no doubt; one of the main policy thrusts of any government in the world would be to eliminate poverty among its (poor) population. It is no harm what measure adopts to eliminate poverty, as long as those measures are resulted in progressive reduction in overall poverty level of the country.

Sri Lanka

In this aspect, Sri Lanka has achieved a commendable success in eliminating level of poverty during last five decades.  For an example, the national poverty headcount ratio has been reduced from 15.2% in 2006 to 8.9% in 2009, which was an admirable achievement of the poverty alleviation programmes of the country.

Addressing the issue of rural poverty in Sri Lanka, one can observe that the poverty alleviating programmes adopted have been more inclined towards the transfers and subsidies programs to the poorer segments of the society.

However, time has come for Sri Lanka to explore alternative sustainable poverty alleviation programs that put more weight on capacity building of poorer population and connect them with main stream market mechanism of the country.

However, this approach is not meant for the Government to reduce the budgetary allocation (it may have to increase at the initial stages) for poverty alleviating measures when switching from direct transfers to market oriented methods, but funds should be freely available to connect markets and capacity building of the poor.

Poverty alleviating strategies

As per the Central Bank report, during the year 2011, under Samurdhi programme, one of the main poverty alleviating strategies of Sri Lanka, spent total outlay of Rs. 9 b on overall Samurdhi programme for 1.5 m families in Sri Lanka.

The special characteristic of Samurdhi programme is such that the system has been more inclined towards disbursement of transfers basically targeting individual families rather than more emphasis on capacity building, market integration and group approach for poverty reduction.

In developing livelihood programmes to build capacity and connect with markets of these poor families, individual approach yield low results due to inherent characteristics, vulnerabilities and risks associated with these individual families.

While avoiding these individual vulnerabilities and risks, certain countries have introduced successful schemes to get poorer families empowered and getting their production into mainstreams by effective disbursement of Government subsidies. In this respect, the Self Help Group (SHGs) scheme operates in India would be a good approach for us to consider with contextual modifications in Sri Lanka, if needed.

Self Help Groups

A SHG is a small group (15 to 20 members), voluntarily formed and related by affinity for specific purpose, it is a group whose members use savings, credit and social involvement as instruments of empowerment. The SHG engage in thrift and credit activities, participatory monitoring of the groups and group level poverty reduction plans.  This method is quite useful against the individual approach as the risks and vulnerabilities are subject to group collateral among the members of the SHG, where one member cannot deviate from common objective and their activities has to be responsible and accountable toward other members of the SHG.

Nonetheless, financing through SHGs reduces transaction costs for both lenders (MFI – Micro Finance Institutions) and borrowers. While lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of a SHG cut down expenses on travel (to and from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.

As indicated in the figure 1, SHG draws their capital (finance) from Micro Finance Institutions (MFI). On the other hand, MFI get their capital from government, donors such as NGOs or from private equity.

Empowering rural women

SHGs in India have immensely contributed to empowerment of poorer segments of the society, particularly, the rural women. The concept is being successfully implemented in states such as Andhra and Tamil Nadu.

The Central and State Governments and NGOs allocate reasonable amount of funds for SHG in India. According to available statistics there are about half a million women SHGs in Andhra Pradesh covering nearly six million poor women.  Andhra Pradesh alone has about half of the SHGs organised in India. It has been reported that since inception an amount of nearly $ 400 m has been mobilised as corpus by these groups in the State of Andhra.

The same concept can be replicated even in Sri Lanka with the exiting institutional mechanism with a slight orientation from individualistic approach to group collateral approach with capacity building inclination as in SHG.

However, the basic challenge of this method is to integrate the SHGs business activities and their production into mainstream markets. Government intervention and transfers and subsidies are needed most for these groups at the stage of getting their productions to mainstream with a reasonable profit in order to keep them engage in these productive economic activities.

The Government, donors and NGOs should play a crucial role in getting their products to markets. Corporate Social Responsibility (CSR) can be best observed by way of helping these groups to get their products to mainstream.

Methods that can be used for this purpose may be either direct purchase through Government-owned cooperatives, direct purchase of prominent retailers, supply to the private sector through a Government marketing arm or direct sale by SHGs at their discretion.

Implementation in Sri Lanka

The SHG scheme can be easily implemented in Sri Lanka with available institutional framework and existing funds allocate to programme such as Samurdhi. The only area we have to concentrate on is realigning our attention from an individualistic approach to group poverty alleviation and group empowerment.

More importantly, government and other stakeholders have to make sure to get these SHG group productions into the mainstream, enabling them to engage in productive activities in sustainable basis.

In the long run, these SGHs will find their way to earn profit and self propelling status, where the Government can convert its transfers to credit at an acceptable rate of interest for the SGHs.

(The writer holds a B.Sc Degree with a Second Class (Upper Division) from the University of Sri Jayawaradanapura, and has completed a Postgraduate Diploma in Economic Development at the University of Colombo. He can be reached via [email protected].)