Business to Fight Poverty

-Samantha Morshed

After 38 years of international donors working with NGOs in Bangladesh and millions of dollars spent to try to alleviate poverty, 40 percent of the population still live on less than $1 per day with an annualised progress rate of about 1 percent. Surely after such a long experiment and such a slow progress, it is time to look for new methods to deal with this problem.

Microcredit has had limited successes where it has been implemented sensibly and prudently but it is now widely accepted that it is not a panacea and will not eradicate poverty alone. It relies on the assumption that everyone wants to be an entrepreneur and indeed has the skills to be an entrepreneur along with a feasible business idea. In the US about 11 percent of the adult population are entrepreneurs with a slightly smaller percentage in the UK and less again in Europe, so why would we assume that it would be a significantly higher percentage in Bangladesh?

Similarly, the interest payments on microcredit are so much higher than base rates in most cases that it is prohibitive to the start-up of business. In addition, microcredit has been used extensively for loans with no business base at all. There are many examples of very poor people borrowing very small amounts of money to buy a blanket in the winter for example, with no hope of ever repaying and ultimately sustaining by simply repackaging their loan into a new loan when they cannot make repayments.

An alternative social solution now very much in vogue is asset-giving where the ultra poor are given an asset, such as a cow or goats. They are given a weekly stipend to enable them to feed the animals and some training in animal husbandry. The jury is still out on the success of this method but at its root it is still an entry into entrepreneurship and leaves the recipient with all the vulnerability of very small-scale agriculture. Animals get sick and die, weather is unpredictable and market conditions change, all problems more easily managed with economies of scale. If you have fifty cows and one dies then you sustain but if you have one cow and it dies then you are out of business with no start-up capital to begin again.

It must therefore be time to turn problem of poverty on its head, look at it from another angle entirely.

What is needed to eradicate poverty in rural Bangladesh? Sustainable employment. The vast majority of people want a job. Jobs are what people want and jobs will eradicate poverty.

Bangladesh is not a 'charity case' full of people waiting for a hand out, rather it is a huge source of manpower waiting for the opportunity to work; a people with dignity. So now the problem we need to solve is not one of poverty eradication, but of employment creation.

Employment creation is a very different challenge from the problem of poverty eradication. We have turned a problem into a challenge and the challenge of employment creation quite clearly belongs in the sphere of business.

Readymade garments (RMG) have been the most successful industry in the history of Bangladesh employing around 5 million people and responsible for more than 70 percent of GDP, but the benefit that RMG brings to the people is small by comparison. The biggest problem is one of location. Factories are located in areas convenient to factory owners or in specified export zones, and are staffed largely by economic migrants from the villages. A workforce located in their own villages, workers living in their own homes, would likely bring much greater benefit in poverty reduction to a larger number of people.

There are however, specific issues associated with getting rural Bangladesh to work. Firstly the population is largely illiterate or semi-literate, secondly there is seasonal work available mainly in the agricultural sector and thirdly, it is a population with little or no previous experience of the specific disciplines of paid employment. In addition, since we would all aim to find a utopian solution, we must therefore aspire to creating employment that is fairly paid, good quality, flexible and local.

Employment is therefore required that will enhance rural life and dissuade economic migrants from moving to the city.

Bangladesh is a small country, some 400 miles from North to South and the roads are functional and adequate making transportation of goods entirely feasible. So with no overwhelmingly negative reasons against relocation and the possibility of a more productive workforce, why is business not relocating in droves to the countryside?

Without a doubt, employment creation in rural Bangladesh is possible. SMEs would likely lead the way, since they are the backbone of employment creation, but there is currently a lack of understanding of SME business and a lack of availability of business products for SMEs.

The handicraft sector has long been seen as an opportunity for rural employment for women but it is an opportunity that has not, anywhere near, reached its potential.

Similarly there is a need to make the handicraft sector in Bangladesh much more professional as an industry in order for it to achieve potential.

Increasingly there are compliance requirements imposed by those sourcing handmade products and a need to demonstrate basic health and safety measures for all workers -- requirements not even fully met by fair trade commitments. If these issues can be addressed by the handmade sector in Bangladesh then it will be ideally placed to monopolise on opportunities and maximise growth thereby achieving sustainable rural employment.

Work is required that is labour intensive, low-tech and not reliant on electricity and rural handmade is an ideal fit. However, I strongly believe that it is unreasonable to expect small cooperatives of artisans or small NGOs in rural Bangladesh will be able to penetrate export markets. Indeed finding a customer is only the first step.

Cooperatives and small NGOs with groups skilled in the craft but semi-literate and with no exposure to overseas trends are likely to find maintaining customers a challenge too far. The skills these cooperatives are missing are marketing, design, research and centralised finishing and packing, and these can all be more successfully supplied by SMEs. There is a clear need to combine the craft skills of the handicraft sector with the business skills of the SMEs in order to maximise opportunities in this field.

With a huge manpower source waiting for employment opportunities, labour-intensive work is the ideal. This is the basis of the business model of the sweater industry here today. The knitting machines used in the sweater industry are known in much of the rest of the world as 'handloom' knitting machines. Large fully automated knitting machines are available and used in parts of the world where the labour cost is much higher but do not make economic sense in Bangladesh where the labour cost is not prohibitive to labour-intensive work.

The basics of success are already with us. An acceptance that Bangladesh is a rich source of manpower, that a rural workforce is likely to be more productive than an urban one and that labour-intensive work makes economic sense in this country.

Since employment creation will ultimately lead to poverty eradication, and SMEs are likely to lead the field in rural employment creation maybe the donors could do worse than looking to partnerships with SMEs rather than NGOs to achieve the long sought-after aim of us all.