The Impact of Poverty Reduction Funds: Is There a Lesson to Learn from PKSF?

A ‘Fund’ is generally termed as an institutional mechanism of using financial resources for achieving a well specified set of social development objectives. There are various types of ‘Fund’ with different kinds of institutional arrangements seeking varied kinds of socio-economic development objectives. Fund may have different tenures, i.e., perpetual fund and non-perpetual fund. It could also be used to achieve, short-term, medium-term and long-term goals. However, it works well if it fits with attaining sustainable development goals. There are some examples of poverty reduction funds that have significant contributions in achieving social development objectives. For example, very recently, in July 2015, an agreement was signed to set up the World Bank Group (WBG) and China Trust Fund to help developing countries in achieving inclusive and sustainable development. The fund worth $50 million is expected. Another important fund titled Japan Poverty Reduction Fund (JPRF). It was established by Japan in May 2000 to provide grants for projects supporting poverty reduction and related social development activities that can add value to projects financed by ADB. As of 31 December 2014, the total JPRF funds made available was about $662.4 million.

Now, let me share the experiences of an innovative fund- Palli Karma-Sahayak Foundation (PKSF). It was established by the Government of Bangladesh in 1990 for sustainable poverty reduction through employment generation. It sets the goal of creating self-employment opportunities primarily in rural off-farm sector, initially, by extending sustainable credit facilities to the rural moderate poor. The important factor that contributed to the emergence of PKSF is crystallisation of the idea of providing impetus to self-employment through critical minimum interventions, i.e., through providing credit to potential micro-entrepreneurs at market rate of interest. For providing credit support to this group of people, emergence of new breed of institutions termed as Microfinance Institutions (MFIs) was recognised. They are expected to be pro-poor institutions.        

PKSF creates conducive environment so that a number of pro-poor institutions can be emerged. Those pro-poor institutions are supported by PKSF, subject to adherence of some specific standards. Creating conducive environment for emerging pro-poor institutions is a unique contribution of PKSF in the field of sustainable poverty alleviation. PKSF called those institutions as Partner Organisations (POs).  PKSF supports building and strengthening the institutional capacities of the POs in order to provide necessary resources to the poor in a sustainable manner. Initial continued finance of PKSF to its POs has worked as a pulling resource.  For example, BRAC and ASA were PKSF’s POs. Both of them currently have a loan outstanding around US $ 2.5 billion. If PKSF was not there, it could have been merely around US $ 800 million.

PKSF model of financial intermediation and institutional development support has become quite well known as an effective mechanism. PKSF has around 200 pro-poor financial institutions working all over Bangladesh. It makes possible to bring 11 million poor families under the network of those POs. This loan programme, launched for rural moderate poor, has been diversified over time in accordance with the changing needs of different kinds of poor living in different parts of the country. PKSF’s present inclusive financing programme includes support for moderate poor of both urban and rural areas, ultra-poor, micro entrepreneurs, marginal and small farmers.

Many POs have acquired the capacity to borrow from the commercially available sources. It may not be possible for many POs if PKSF did not finance them on a continuous basis at the beginning of their loan operation. Partnership with PKSF is often treated as an accreditation for POs for pulling  other funds from different sources.  

PKSF has acclaimed both national and international recognition. For example, IFAD-funded ‘Microfinance for Marginal and Small Farmers Project (MFMSFP), has won ‘Development Impact Honor Award’ from the Treasury Department of the USA, through international competition. Some countries have already established PKSF-like organisations, such as Pakistan Poverty Alleviation Fund (PPAF) and Rural Microfinance Development Centre (RMDC) in Nepal. Many of them follow standards, guidelines and modalities developed by PKSF. In addition to the GoB, many development partners have extended their support to PKSF. For example, the World Bank, the USAID, the Asian Development Bank (ADB), Department for International Development (DFID), European Union (EU), International Fund for Agricultural Development (IFAD) and the Kuwait Goodwill Fund (KGF).

Initial financial stability has allowed PKSF and its POs to provide demand-driven non-financial services to address multi-dimensional aspects of poverty. PKSF and its POs now provide a wide range of development services including basic education, primary health care, appropriate technology and business development, value chain, micro insurance, climate change adaptation, skill development, social advocacy and knowledge dissemination services to the disadvantaged segments of Bangladesh getting support from development partners and using PKSF’s and its POs’ retained surplus. There is a shift of paradigm that PKSF and its POs are using their retained surplus to provide those non-financial services keeping their financial sustainability on track. PKSF and its POs evolved as organisations from microcredit lending to inclusive financing for achieving people-centric development and establishing human dignity. PKSF will continue its efforts to improve the economic condition of the disadvantaged people and ensure their human dignity. It has achieved laudable success but we are also learning along the journey.