When an international financial institution like the World Bank or a government aid agency like the U.S. Agency for International Development talks about fighting poverty, it’s of course a laudable cause, but one should always keep in mind that poverty often stems from a “macro” perspective.
This means that these organizations are considering global, regional and national economic indicators, and not “micro” stakeholders like a person, a family or a small business.
If you are 23 years old, already with a child on the way, trapped in poverty in a rural community with poor infrastructure and no job prospects what do you do — smuggle drugs, join a gang or the Taliban, move to the city or another country to look for work, or begin a productive enterprise?
For most people trapped in poverty around the world, the latter option seems like a pipe dream. But sustainable development programs can give many a chance to do just that, and not with handouts but through a sound business approach where the buyer takes the lead.
In a recent USAID project I worked on in Bolivia, we helped more than 10,000 families overcome poverty through the buyer-led approach. This strategy implies that small producers trapped in subsistence jobs and poverty can become serious suppliers in value chains. Beginning with the buyer means that the market — and not the donor or the implementer — directs the development project toward potential suppliers (small producers) that have viable options.
However, the experience has raised some questions and concerns. For instance, applying the buyer-led approach cannot be done effectively through the normal practices of project implementation. In Bolivia, it required re-engineering of virtually every aspect of traditional development programs.
Here are the ten most important issues we had to change at the “micro” level:
1. Self-selection. Rural families took the initiative to establish commercial business activities by forming producer groups, instead of the project selecting “beneficiaries.”
2. Gender. Forming separate groups according to gender didn’t work, as full support of both spouses and sometimes other family members is an essential ingredient for the success of most business ventures.
3. Co-investment. The concept of counterpart (beneficiaries contribute a small amount of resources to complement project activities) had to be replaced with co-investment, so the project itself only contributed a minor share to help get business activities underway.
4. Benchmarking. Project co-investment grant funds were disbursed directly to client groups, with the achievement of each benchmark identified in business plans.
5. Management of funds. Client groups managed their own funds derived from various sources, including the project, sales of products and financial institutions.
6. Organization. Many producer groups that began from scratch adopted a new model that facilitates the transition from informality to legal recognition.
7. Technical services. Field technicians were selected and hired by client groups after the business plan had been developed and put in place, not before.
8. Infrastructure and procurement. Client groups themselves can contract and supervise construction firms to install infrastructure and directly carry out procurement of equipment and materials.
9. Financial services. Client groups were linked to formal financial institutions to provide value chain financing, including loans using purchase orders as collateral.
10. Service providers. Local services providers were promoted, rather than displaced by foreign implementers.
The need to reform so many varied aspects of project implementation was not foreseen, and therefore the path to take in each case was not pre-determined.
Instead, each aspect of the project became an endeavor for reform to solve problems as they arose and to improve performance toward reaching targets. This experience should be replicated many times over in countries plagued by poverty where people need viable options.
Development programs can play a vital role, but taking up this challenge may imply rethinking our traditional ideas and approaches.
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About the author
Preston Pattie
Preston S. Pattie is a senior agricultural economist with 30 years of experience in international development, especially economic policy analysis applied to practical field programs. Pattie advocates for the "buyer-led approach," which he observed can transform subsistence farmers into formal value chain suppliers, substantially increasing family incomes in rural Bolivia.