The Triple Partnership as an Alternative Approach – The Case for Uganda

Makoba, J.W. (2011). Rethinking Development Strategies in Africa:The Triple Partnership as  An Alternative Approach—The Case of Uganda. Oxford and Bern: Peter Lang International Academic Publishers: pp 269. Africa in Development Series, Volume 5.

Nearly three billion people in the world today live in abject poverty, most of them in developing countries, especially in Sub-Saharan Africa. The international community has made poverty reduction one of its top priorities, as exemplified in the United Nations Millennium Development Goals (MDGs), which, inter alia, aim to halve extreme poverty by the year 2015. Until recently, development aid has been seen as the primary tool to reduce poverty and promote development. However, this has proved inadequate both in reducing poverty and inequality, and in promoting sustainable economic development. As a result, the international community and governments in developing countries have embraced development-oriented nongovernmental organizations and microfinance as new agents for promoting bottom-up economic development and poverty alleviation.

In this study, we argue that the state, nongovernmental organizations and even the private sector, each working on its own and separately, cannot bring about the desired development in Africa. More importantly, the study contends that state and market failure in Africa call for a new paradigm that enables the state, the nongovernmental sector and donors, as well as the private sector, to collaborate in the development process.  We discuss this strategy within the conceptual framework of a triple partnership which focuses on three major actors, namely the state, the nongovernmental sector and donor agencies. The establishment of a proposed Autonomous Development Fund model discussed in Chapter Six is seen as a new vehicle to promote and strengthen three-way collaboration among the three dominant actors in the development process.

In the introductory chapter, we examine three interrelated themes concerning the development process in Africa. First, we consider development in broad and inclusive terms and seek to link development to a human-centred approach. Second, we make a critical examination of the two dominant models of development – the state and the market – with a view to proposing a new model that includes development-oriented nongovernmental organizations (NGOs) and microfinance institutions (MFIs). Third, we analyse the role played by aid, trade, direct foreign investment and diaspora remittances in Africa’s development.

Chapter Two looks at Uganda. It shows how, despite high rates of growth due to large infusions of aid over nearly two decades, there has been very little reduction in levels of poverty and inequality: improvement in the well-being of the majority of the population has not been significant. The Ugandan case is analogous to a ‘growth without development’ scenario (as opposed to ‘growth with equity’). The situation has largely arisen because the NRM Government which has been in power since 1986 has used donor support for policies that were neither pro-poor nor aimed at the transformation of the peasant-based rural agricultural sector, which supports four out of five households in the country. This is shown in the low investment-and-development budget allocation made to the agricultural sector. Additionally, various rural programs and initiatives intended to promote growth have not only excluded the poor (especially subsistence farmers), but have been mismanaged due to political interference and widespread corruption.

Chapter Three examines the importance of NGOs and MFIs in seeking to achieve the twin goals of improving the well-being of the poor and promoting long-term economic development in the poorer African countries, again with a special focus on Uganda. Increasingly, NGOs and MFIs have been receiving large sums of development aid, aimed at achieving either the UN Millennium Development Goals (MDGs) or specific country goals of growth and poverty reduction. As a result, poverty reduction programs (PRSPs) in many Sub-Saharan African countries, including Uganda, tend to incorporate NGOs and MFIs in their national development processes. Within the nongovernmental sector, evidence indicates that microfinance interventions have the greatest potential to reduce poverty and to contribute to food security and empowerment of the poor, especially women.

In Uganda, NGOs and MFIs have been heavily involved in providing basic social services and solutions to poverty reduction. Although microfinance services reach an estimated 3 per cent of Ugandans, microfinance and small enterprises (MSEs) provide, between them, about 90 per cent of the total non-farm employment in the country. Roughly 70 per cent of microfinance borrowers and 65 per cent of active savers in Uganda are women. In spite of this, most rural women in Uganda remain unserved or under-served. Both donors and government have cut back their funding of MFIs in the country. In particular, when the NRM Government concluded that MFIs could not achieve either increased outreach or access to rural credit, it started diverting its funding to politically-driven savings and credit cooperatives (SACCOS). However, one vehicle for increasing credit to rural areas in Uganda that may have promise is the linkage banking being pioneered by Post Bank Uganda: there are mixed results so far.

Chapter Four reviews the literature on microfinance performance and impact assessment. The literature comes up with conflicting evidence about the impact of microfinance. This is due to three major difficulties: (1) the problem of what to measure and how to measure, often compounded by MFIs seeking a double ‘bottom line’ of financial and social goals; (2) the tendency to confuse performance indicators (such as outreach) and impact assessment indicators (such as income generation or empowerment); and (3) impact studies derived from embedded or integrated approaches that seek to link performance and impact assessment. In the past, donors and microfinance practitioners took differing approaches to impact assessment, because donors focused on institutional sustainability to justify funding rather than assisting management to learn and improve their operations. However, emerging practitioner-oriented impact assessment tools such as ImpAct or Progress Tracking, seek to improve service delivery – in other words, performance – and prove impact or track progress toward desired outcomes. Hence, they seek both to improve and prove the effectiveness of microfinance on poverty reduction and client empowerment. Additionally, the chapter discusses four levels of approach used to evaluate the impact of microfinance interventions: (1) the household approach; (2) the wider impacts perspective; (3) the benefits process approach; and (4) the livelihoods framework. While most impact studies confine themselves to the household approach, the wide impacts perspective focuses on meso- and macro-levels and broadens the scope of impacts to include both participants and non-participants. On the other hand, the Sustainable Livelihoods Framework and the Benefits Process Approach go beyond the economic impact of microfinance to consider social impact. Both consider the root causes of poverty and food insecurity as well as the direct and indirect impacts of microfinance on clients. The chapter argues that, while practitioners and experts tend to be divided over microfinance performance or potential impact, they agree about the ultimate goal of microfinance intervention, which is reducing poverty and empowering people.

Chapter Five provides an analysis of the ongoing controversial debate about the commercialization of microfinance and mission drift, and considers paths taken to commercialization in Latin America, Asia and Africa. The future of commercialization is also discussed. Commercialization implies using a market or business approach to achieve both sustainability and outreach; and, in recent years, it has provoked an intense and emotional debate within the microfinance community. The debate revolves around the potential for this process to trigger ‘mission drift’. While the proponents of the commercialization thesis view it as the path to microfinance sustainability and outreach, opponents are primarily concerned about mission drift and the exploitation or abandonment of poor clients. Evidence indicates that the potential for mission drift is real, but at the moment it is not a threat to the commercialization thesis. The chapter also discusses claims by opponents of subsidies to MFIs who assert that subsidies reduce efficiency and prolong donor dependency, while proponents of subsidies argue that donor-supported large MFIs, like the Grameen Bank or BRAC in Bangladesh, have continued to increase outreach and achieve sustainability without commercialization. Hence, commercialization is seen as a necessary, but not a sufficient condition for sustainability and outreach.

Additionally, the chapter addresses two central questions concerning commercialization. The first question is whether it is a natural, even inevitable, process or whether it is is donor-driven. The second is whether or not MFIs are able to cover their costs while increasing outreach. The discussion of the first question draws on the experiences of commercialization in Latin America, Asia and Africa – experiences that show divergent trends. And the response to the second question uses the experiences of both commercial and non-commercial MFIs to indicate that both have achieved the twin goals of sustainability and outreach, but that this has taken several years.

Finally, the chapter argues that commercialization offers a rare opportunity to combine socially responsible investment with profitability (a combination experts in microfinance think of as the ‘holy grail’ of their discipline). However, private investors – unlike social investors – expect investments in commercial MFIs to generate high returns. As a result, some commercial MFIs, like Compartamos in Mexico, charge their poor clients high interest rates to fuel profitability for their investors. This is not only likely to blur the lines between usury and microfinance, as foreseen by Muhammad Yunus, but threatens the microfinance double ‘bottom line’.

After considering the failure of both states and markets in Africa to achieve sustainable development, Chapter Six proposes a triple partnership based on an Autonomous Development Fund model (ADF) that engages the state, the nongovernmental sectors, and supporting donor agencies in the development process. The proposed approach would initially start in selected African countries committed to genuine economic reform and would complement, rather than supplement, ongoing government, NGO and donor development programs and initiatives. Such a tripartite approach ensures that aid is neither controlled by donors nor falls into the hands of recipient governments. It seeks to achieve the twin goals of greater aid effectiveness and increased local control and accountability. The achievement of these goals would be possible as the model seeks to provide competent management and governance of the autonomous fund, develop strong internal controls and ensure accountability to a legitimate external entity (such as a country’s parliament). Above all, the autonomous fund would be insulated from politics and government interference.

Chapter Six goes on to discuss some of the most important criticisms raised against the proposed model. It also considers recent and ongoing reforms of public institutions in Africa, including the creation of executive agencies serving as a road map or providing the building blocks for a developmental state and the eventual establishment of autonomous development funds. Chapter Six advocates discontinuation of the use of existing public and private financial institutions in Africa as intermediaries for ADF funds, as these institutions tend to be vulnerable to patronage politics and corruption – two major challenges autonomous funds seek to avoid. However, it is envisaged in the model that such pre-existing institutions and the executive agencies could compete for ADF funds on an equal basis. Finally, it is expected of the African state that it will continue public sector reforms as well as pursue a broad, collaborative development strategy focusing on subsistence agriculture, infrastructural development and the non-farm economy. Above all, NGOs and MFIs, like donors and governments, are required to rethink their strategies and roles under the new development paradigm.

Chapter Seven – the final chapter – provides a comprehensive overview and synthesis of the study and gives a summary and conclusions.  Although development efforts in Africa have failed over the past three decades due to a variety of factors, the core of Africa’s crisis is seen as the failure of its political leadership to provide good, effective governance and sound economic management. This, combined with great disappointment in neoliberal policies, has contributed to a new appreciation of how urgent it is to find a third approach – beyond market and state-led strategies – for the development process. The proposed tripartite model calls for governments, NGOs and donors to work in tandem to maximize the impact of development assistance. As the chapter points out, the success of the new partnership will depend on all the three major actors redefining their roles and relationships in the development process. More importantly, it will require a smarter developmental state and strong public institutions that are insulated from politics but operate within the legal framework. The proposed Autonomous Development Fund model is expected to improve the three-way collaboration of the main actors in Uganda and other African countries on the basis of mutual interest or shared developmental goals and priorities. It is also expected to increase professionalism and efficiency and to reduce corruption and patronage. To conclude, Chapter Seven suggests that the ADF model has the potential to provide the retreating African state with another chance to rediscover its relevance and return to the core of the development process.

READ THE REVIEWS:

«[…] a thoughtful study sure to provoke debate.»

- Professor Gay Seidman, University of Wisconsin-Madison

«This is a book for everyone – academics and policy practitioners alike – who take an interest in […] the next generation of development strategies in Africa […]»

- Distinguished Professor Emeritus Goran Hyden, University of Florida