Market access for the poor

I wish I had a better intuition on the question of the social impact of large-scale agriculture on smallholder farmers.  I’m guessing the deciding factor is the strength of their existing market connections – whether they’re strong or weak, and central to livelihoods or a supplemental source of income – but I can’t seem to get at it on Google with specific regard to Rwanda.

This is probably analogous to any form of large-scale, cost-efficient production – the potential for socioeconomic displacement depends on the product you’re displacing.  And I suppose that’s also a commentary on the target market.  I’d guess that the vast majority of Rwandese agricultural production is by smallholder farmers for either hyperlocal (within a few miles) or local (say half a day’s walking distance) markets, and that only certain commodities are ever going to be linked to the Kigali low-income or high-income markets.  (There’s not really a hell of a lot of local stuff being sold to high-income people in Kigali anyway, except maybe the specialty vegetables at Simba. The wealthy mzungus & Rwandese have their own totally separate selection of imports, whose prices correspondingly reflect good information about international pricing and transport costs.  Which is to say, they cost an arm and a leg.)

So I’m wondering if perhaps there are many smallholder farmers who are producing the same types of commodities as might be produced commercially, but if they’re really not linked into the same markets that large-scale production would target.  It seems like this might be more of a threat to medium-scale enterprises that already serve perhaps a regional or national (Rwandese) market, but then that’s a difficult ethical issue from threatening the livelihoods of smallholders who have almost nothing to start with.  It’s a persistant challenge of doing business in poor countries – weighing the social benefits of increased food production & lower prices (marginal improvements to the well-being of many relatively poor consumers) vs. the possibility of undercutting the incomes of medium-scale farmers (major detriments to well-being of a few relatively poor producers).  As an aside, I think there’s also an interesting lesson about innovation in there – that its effects will go in different directions depending on whether it’s creating an improved version of an existing product or service, or whether it’s creating something so novel that new markets develop around it.  “Innovation” always seems to be referred to as a uniform category of activities, without regard for its differing impacts, at least in popular parlance.


The insight of pay-as-you-go schemes as a response to variable incomes is a great one.  Its applicability to things like mobile phone minutes is obvious, and I’m very curious as to how it could be applied to financial services for the poor.  The big stumbling blocks appear to be the questions of credibility and enforceability.  Or, rather, the fact that enforceability tends to engender credibility – banks believe their clients when they say they’ll pay, as they can easily check up on their payments and enforce them if they fall behind.  A pure pay-as-you-go plan in microcredit – say, a three-month loan that can be repaid in any amount at any time before the three-month period is up – would be unenforceable over the period of payment, as the bank couldn’t demand payment at any given time before the deadline.

Actually, that’s a separate (and interesting) question – how different types of enforcement may affect the repayment of loans.  Perhaps you could look at peer pressure in lending groups, vs. occasional visits from a loan officer, vs. frequent visits from a loan officer, vs. financial incentives for timely payment, or something like that.  That might shed some more light on designing systems of incentives for ultimate on-time payment of a pay-as-you-go loan.

Microcredit & entrepreneurship

passbookLoan repayment book, WomensTrust Microfinance, Pokuase, Ghana

I think I missed an important point in my last musings on microfinance – that ex-post savings does actually make sense if the loan is given for investment rather than consumption. So the salient factor in assessing the potential of microloans to help or harm their recipients is also connected to their intentions for the use of the loan, as well as their existing income level.

But this does come back to the broader point currently being raised by many people, about the apparent contradiction between views of the poor as necessarily innovative, and the fact that most people, rich or poor, aren’t good at being individual entrepreneurs.  I do wonder if the “poor as inherent innovators” view doesn’t suffer from some confirmation bias.  There certainly are many memorable examples of entrepreneurship born from poverty, but, as in the developed world, it seems that there’s a subset of people who are actually responsible for innovation.  The demands of living in poverty do include hard work and often creativity, but while those characteristics are also necessary for market-based entrepreneurs, they’re not by themselves sufficient.  Even investment-oriented microloans can turn into consumption-oriented ones, in practice, if their recipients don’t have adequate business strategies and market knowledge for their use.  Perhaps it’s not quite as bad at the level of larger microfinance banks with better data-gathering operations, but at the level of the small organizations at which I’ve worked, there seems to be a lot of fuzziness around the use of loans and their ultimate impacts.  I worry that this is one of the situations where a lack of data may actually end up harming people who really can’t afford to be harmed, in improperly distributing loans.

From Sen’s perspective of freedom, I suppose the ultimate question of entrepreneurship is whether self-determined employment (but perhaps a lower wage) or higher-waged corporate employment (but less career self-determination) is more conducive to personal freedom, in the end.  For the majority of people, I’m guessing it will be the latter, once you average the benefits of a higher wage over all the categories that it affects.

The limits of microcredit

I always thought the whole fuss over microcredit as the panacea of development, back in 2005, was a bit silly – there’s never a silver bullet for something as complex as economic development. It’s remarkable how much some people want to believe in such cure-all interventions anyway. We as a species are pretty clever, but we’re not very wise, nor are we particularly good at thinking in terms of complex systems and interactions over distance or between multiple parties. But I digress.

Sometimes I also think that people who wish to design economic empowerment programs for the poor have a poor track record of picking historical or cross-cultural examples to learn from. So many programs are erroneously predicated on fundamentally Western beliefs about social structures – say, the persistent thought in community development programs a few years that a local mayor or group of elders could accurately represent the rest of the people in a town, which seems to draw on traditions of democratic representation in local government that exist in the West, but don’t always hold true in developing countries. (Of course it does in some places, but there are plenty of counterfactual examples as well.) And yet, when it came to microfinance, so many providers seem to have made exactly the opposite mistake, and ignored the fact that in Western systems of credit, some people are outright judged too “vulnerable” (i.e. uncreditworthy) to take out a loan, for fear that they won’t be able to repay. I certainly understand that it’s hard to judge someone’s creditworthiness in a low-income situation, and microfinance does indeed benefit many people who may have been unfairly excluded from traditional credit on the basis of their existing poverty. But that’s the point: just because microfinance is “for the poor,” doesn’t mean that it’s for everyone who’s poor.

Indeed, it’s been shown that the benefits of microcredit tend to accrue to borrowers who live right around the $1-a-day poverty line – not to the poorest of the poor, such as those who are too sick or old to work, or who are somehow kept outside of the cash economy for other reasons. This may seem like a rather cruel paradox – that people who may be most in need of additional capital are least likely to benefit from a microfinance intervention – but instead I think it speaks to the fact that it’s unusual to use market-based solutions, such as microcredit, for social protection. Hence the kerfuffle about Bush’s social security investment accounts around the same time. This seems like a broader and more accurate analogy than any belief that local government must inherently be representative, and it’s interesting that the dialogue around microfinance as the best economic solution for the poor (as a unified body) seemed to miss the nuances of credit’s function in more developed economies.  (Of course this is also a generalization, as there are surely some microfinance institutions who take these things into account, but the number of academic accounts that I’ve seen of microfinance’s shortcomings suggest that there are plenty which don’t.)

Occupational categories

basketsBaskets woven by co-op members, Mayange, Rwanda

I was struck recently by the New Times‘ “good news” that the rate of non-agricultural employment in Rwanda has doubled in the last 10 years!  That is, it’s apparently gone from 5% of the population to 10%.  Kigali is such a bubble; it’s easy to forget that there are many Rwandese people who will live out their days without ever seeing a multiple-story building or a paved road.

That said, this official stat about 10% non-ag employment/90% subsistence ag seems like at best a crude measure of people’s actual livelihood strategies.  I haven’t seen a specification of how much non-ag employment is formal or informal (or even what you’d consider to be “informal” around here), and in a similar sense, I’m sure that many rural residents participate in at least some non-ag activities as part of their income-smoothing plans.  I’d love to see a better measure of this data – to get a sense of how many people are exclusively dependent on agriculture (though perhaps with different types of income-generating activities within the sector), and how many are principally dependent on ag, with a significant amount of income still coming from other activities (carpentry, say, or teaching, or day labor on other farms…).  I also know a small subset of co-op members in Nyamata who grow most of their own food, even though they make a majority of their income from basket-weaving – I wonder how they’d be classified.

Transportation infrastructure

Walking a bicycle taxi up the newly paved road

I’ve been trying diligently to imagine Nyamata as it must have been in the peri-genocidal period, and it’s an interesting thought.  I keep coming back to Hatzfeld’s research, and one of the genocidaires’ statement that the looting that was so common during the genocide allowed the impoverished farmers to go into shops in Nyamata “where farmers had never been before.”  I also keep thinking of the night when the 6 mzungus apparently bought all of the beer in Mbyo.  If the economic situation along the Kigali-Bugesera-Burundi road has picked up since it was paved last year, its baseline must have been awfully low, which offers further commentary on the poverty of the farmer-genocidaires.

Improved transportation infrastructure is obviously going to be more beneficial to people who already have the wherewithall to use it – the wealthier shopkeepers in Nyamata, I’m guessing.  The picture of pre-genocide Bugesera that Hatzfeld develops seems predicated on local production to a much greater degree than it is today, where you can find Primus & packaged foods way the hell off the main road, like in Ngeruka.  (I’m pretty sure Ngeruka is still waiting for the water pipeline to come its way.)  So transport of heavy & imported items, like bottled beer and maize flour, would be privileged.   It extends the reach of existing markets.

I suppose what I’m wondering about is its effect on the incomes of people inside and outside of Nyamata, then.  It seems reasonable that their incomes must have gone up to some degree in order to be able to afford such things; was this because of trade with Kigali, or because new markets developed with truckers and construction workers passing through town?  I’d also love to know how this affected the market access of rural Bugesera residents.  The weekly market at Nyamata strikes me as decently large; did a paved road make it easier for outlying farmers to come to town?  Or does pavement only really make a difference for people who can afford wheeled transport?  The rain here rarely makes roads totally unwalkable after it’s finished, so perhaps pavement would only be a marginal improvement for people who were just walking anyway.  Institutional memory in Rwanda seems remarkably short sometimes, in large part because of the enormous upheaval and movement in the several years following the genocide; I’m not sure that anyone in Nyamata, literally, has been there long enough to know.