Better Spending for Localizing Global Sustainable Development Goals: Examples From the Field by Fayyaz Baqir & Nipa Banerjee & Sanni Yaya

Author:Fayyaz Baqir & Nipa Banerjee & Sanni Yaya [Baqir, Fayyaz & Banerjee, Nipa & Yaya, Sanni]
Language: spa
Format: epub
ISBN: 9780367338459
Amazon: 0367338459
Published: 0101-01-01T00:00:00+00:00

8

Market-led development

Shakeel Ahmad1

Markets and the private sector could play an instrumental role in social development. This chapter argues that donors spending for developing markets for social and economic development is one of the better spending models. It presents the story of how the microfinance market in Pakistan has evolved through donor funding. It discusses how donors have aligned their support to the different phases of the development of the microfinance industry from pure grant-based funding, to limited subsidies, and to purely commercial lending. In doing so, the donors have not only developed self-sustaining microfinance institutions but have also been able to leverage limited financing for a much larger impact at scale. The chapter provides examples and case studies from Pakistan, where aid was used to help establish self-sustaining and profitable social businesses generating social impact at scale. Developing and strengthening markets for the delivery of social goods has emerged as an innovative model for the “better spending” of aid that yields high social returns for donors and recipient countries alike.

Keywords

Social development, markets, private sector, microfinance, Sustainable Development Goals, impact financing

Introduction

In December 2012, United Nations Development Programme (UNDP) undertook the impact assessment of one of its Rural Development Projects which was concluded five years back. The objective was to assess the post-project impact and sustainability of activities or models introduced by a five-year project titled Lachi Poverty Reduction Project (LPRP), implemented during 2002–2007. The main findings of the evaluation were that the microfinance model of the project had survived and was still operating on its own. The microfinance programme was up and running and was providing services to its clients even after the closure of the project five years back.

The microfinance component of LPRP was a small component: not more than 10% of the project budget was spent on it. However, it was different from the rest of the project’s components in the sense that it was a loan programme, whereas all other components were based on grants. The model was such that grant money the project received was converted into a “revolving credit pool.” The money was lent to the clients as a standard microfinance product. It was a self-sustaining enterprise recovering its operational and capital costs from the loan operations.

The stories of other microfinance institutions are not different from LPRP’s microfinance programme. Today, the microfinance industry in Pakistan is estimated to have a potential market size of 20.5 million clients. It has reached this level over a period of approximately 22 years. As of December 2018, the micro-finance industry has had a client base of 6.9 million active borrowers, gross loan portfolio of Rs. 274.7 billion (around US$2 billion),2 and a total assets base worth of Rs. 330 billion (around US$2.35 billion). The industry may not be the biggest or most fascinating in South Asia, but it is a great example of how international aid has built a self-sustaining and self-expanding microfinance market.

In this case story, we will present how the donors’ money was used to develop the markets for microfinance services.

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