Drawing comparisons on opportunities for the ultra-poor

Just before starting work at Centre for Microfinance, I spent close to a month with fellow students from Bucknell University to implement Bicycles Against Poverty (BAP), a microenterprise Community Based Organization in Northern Uganda, not very far from the Sudanese border. This area has continued to remain behind several other regions of Sub-Saharan Africa in terms of economic and social development, which can be largely attributed to a civil war that has devastated the region since the mid 1980s. A brief introduction to the Ugandan Civil War, which is unofficially and slowly coming to an end, can be found here and here.

BAP mainly targets the ultra-poor community either currently living in government sponsored internally displaced people (IDP) camps or those returning to their native villages after having lived in these camps for a few years. As the overwhelming majority was composed of farming communities, bicycles would play an important role in transporting goods back to the village and the market, as well as for carrying water and during emergency medical situations in this area comprising of very poor infrastructure.

Institutional funding from the United States was used to set up a combined donor-microfinance model to provide bicycles at subsidized costs because it was realized that asking families earning less than half a dollar a day to pay the full amount for a new bicycle is unreasonable. After conducting baseline surveys of over 250 households, 100 individuals were identified to receive bicycles in two villages in Amuru district based on a selection rubric optimizing the ability to pay (ATP) and the desirability to obtain and effectively utilize a bicycle. Both these indices were developed from baseline data. The bicycles were given to the beneficiaries after conducting two workshops: one on bicycle service and maintenance, and another on credit and savings management.

The terms of the loan comprise a monthly 4,000 Ugandan Shillings (1 USD = 2050 UGX) payment over an 18-month period to cover the subsidized cost of the bicycle. Following the completion of the payment, full ownership of the bicycle will be transferred to the beneficiary, although he/she is not allowed to re-sell the bicycle within ten years after the bicycle was disbursed. This clause in the contract was necessary to ensure that beneficiaries do not think of the bicycles as a good they can sell in the open market, but as a source of income generation and productivity improvements.

One of the goals of this program was to encourage regular saving habits for the people, many of whom are habituated to spending most of their income from the harvest season right away, instead of saving for the lean season. It should be mentioned though, that there do exist some self help groups in these villages which collect between 1000-1500 UGX from individual members throughout the course of the year, which can be borrowed for unforeseen emergency situations.

Within a couple of days of receiving bicycles, several beneficiaries asked the program manager if they could repay the entire loan amount in the next month’s installment or pay 6,000 – 8,000 shillings to complete loan obligations sooner. There are a variety of possible explanations for this behavior – some beneficiaries would be willing to borrow from friends and family so their debt obligations with external agencies are minimal. Additionally, the bicycles were given during the harvest season, and thus the beneficiaries would use their increased seasonal income to pay off current loans immediately instead of getting into a regular habit of personal saving. Could a greater minimum monthly payment > 4000 UGX have changed this scenario? The baseline data would have suggested otherwise.

The important issue to be considered after reading about this project is asking what context specific income generating goods or services can be provided to the ultra-poor which will serve to increase their capacity to generate income one way or another. Be it bicycles, solar-cookers, treated bed nets, or livestock, improper implementation of the program in these scenarios can ultimately change the outcome of such interventions. With BAP, however, the primary objectives of the program look to be getting fulfilled.

Article by Abhay Agarwal