This project was originally written for a class at American University in 2021.
Introduction
At the turn of the 21st century, the member nations of the United Nations established the Millennium Development Goals – a set of eight international development goals that aimed to focus on global development and eradicating barriers to better living standards. One of the organisations responsible for reducing these gaps in development was the World Bank, an international financial institution formed at Bretton Woods. The Bank is integral in the efforts of middle- and low-income countries to reduce poverty and improve quality of life.
However, there has been criticism of the World Bank’s efforts in these countries as their methods are often seen as ineffective and their policies are seen as harsh on borrowing countries. Additionally, cultural differences between the World Bank and the countries they serve are seen as significant barriers in their efforts globally as critics believe the Bank does not have the cultural competence to perform their actions in a sustainable, long-term way. These criticisms do hold weight when one evaluates the history of World Bank programs, particularly poverty reduction programs, in these low- and middle- income countries. Many World Bank programs have failed to make lasting change in rural areas, as reported by the Bank itself in an internal evaluation in 2006.
There are a number of World Bank programs that have shown great deals of promise and have led to improved conditions and lowered poverty rates in countries like China and Brazil. This begs the question that this paper intends to answer: why do some World Bank poverty reduction efforts fail where others succeed?
In order to explore this question, I will be studying two cases in India, a country that showed great development under the 2000 Millennium Development Goals. In India, there arguably exists a microcosm within a macrocosm with regards to the Bank. The World Bank has carried out many programs in India since 1949, when the newly independent country was just beginning to develop itself, and most of these programs are focused on rural development, education and public health. Some of these programs have had great success in the country, while others have failed on a large scale. I will be comparing a World Bank microcredit program in the South Indian state of Andhra Pradesh in the late 2000s that resulted in a microfinance crisis across the country, and the MSME Growth Innovation and Inclusive Finance Project, a rather successful program that provided a loan of $500 million USD to the Small Industries Development Bank of India in 2015.
I intend to argue that the World Bank’s failures in India can be chalked up to an inability to learn from their mistakes, and that the successes are due to the use of an internal evaluation system that is focused on both hindsight and foresight for the long-term to facilitate programs in the country.
Brief Background
Towards the end of the Second World War, at the United Nations Monetary and Financial Conference at Bretton Woods, the World Bank came into existence. Originally known as the International Bank for Reconstruction and Development, the Bank was formed with the intention to provide financial assistance and aid in the reconstruction of the infrastructure of European countries destroyed by the War[1]. 16 years after its conception, the Bank started to focus more on development projects in low- and middle- income countries in 1960, and shifted its priority to the eradication of poverty, an area it predominantly works in today.
The organisation states that the current poverty crisis is the largest the world has ever seen, and a lot of projects focus on “fighting poverty, supporting economic growth, and ensuring sustainable gains in the quality of people’s lives in developing countries” through “effective institutions, sound policies, continuous learning through evaluation and knowledge-sharing, and partnership, including with the private sector[2].”
A majority of these poverty reduction efforts are focused on developing countries, like Nigeria, Madagascar and India, and primarily in rural development and disparity reduction. The Bank’s focus areas, as per their official website, are reducing the percentage of people living in poverty to no more than 3% of the world’s population by 2030 and to “increase the incomes and welfare of the less well off[3]”. The Bank’s projects range in specificities, like types of financial assistance, areas of investment and partnerships, but for the most part, the World Bank adheres to the same project framework and works directly with the project from identification to completion.
The World Bank in India
The World Bank’s first project in India dates back to 1949, with the provision of a Bank loan to the Indian Railways. Since the early 1990s, the Bank has worked more directly with the development of India as a country stating that its goal is to ensure that “the country’s rapidly growing economy makes much more efficient use of resources; fosters inclusiveness by investing in human capital and generating more quality jobs; and develops strong public sector institutions that are capable of meeting the demands of a rising middle-class economy[4].” With over a billion US dollars committed to India’s development every year, the World Bank has a large presence in India’s development, and plays a large role in the abolition of poverty and creation of financial development programs in the country.
Overview of Existing Scholarly Conversation
Criticisms of the World Bank
As aforementioned, the World Bank’s projects span hundreds of countries and billions of dollars in assistance. Regardless, many are sceptical of the efficacy and efficiency of the World Bank’s efforts to reduce poverty, due to historical precedent[5]. Notable critics like the Bretton Woods Project have been vocal about the World Bank’s failure to learn from their mistakes, the structural problems of their development projects, the exclusion of developing countries from many important dialogues pertaining to the Global South and often, a lack of effective programs[6].
Some critics present that the World Bank’s programs are a product of empty rhetoric and an absence of a clear agenda to address the issues they intend to address[7]. There are some supporters of the World Bank that reject these criticisms and consider that the Bank’s failings are more a product of its vision that adherence to capitalist beliefs lead to poverty reduction in the first place[8]. Further, critics like scholar John Sender argue that the World Bank’s failures are a product of its commitment to neoliberal economic policies that hinder its ability to create a project framework that completely understands the culture and situation in developing areas, like Sub-Saharan Africa, and thus, hindering the recipient’s possibility for maintainable growth[9].
Measuring Poverty Outreach
In academic circles, there have been increasing conversations about the methods employed in measuring poverty outreach. It is imperative to have an effective and reliable way to analyse whether the large scale, expensive policies that governments and institutions implement to reduce poverty are truly reaching the poorest in society and impacting them on a serious level. There is a dearth in methods of analysis that do so because there is a fundamental inability to measure the effectiveness of poverty alleviation projects, especially in comparison to the ways available of measuring poverty itself.
Scholars have proposed a variety of methods of doing so, a popular one being the creation of an index that measures various indicators of poverty. One of the earliest forays into this kind of research was conducted by Zeller and Sharma in 2005 where they outline the need for and construct a “multi-dimensional poverty index through principal component analysis using a range of poverty-related indicators[10].” The reason for this multi-dimensional index is due to the nature of poverty itself – it is made up of numerous social, economic, cultural, political, environmental and institutional factors – and thus, requires a multi-fold look at development pre- and post- outreach efforts to see the extent and width of such programs. By identifying a range of poverty indicators, assessing them individually and then analysing them as a collective, it is more effective to understand how valuable poverty alleviation efforts have been to a particular region. This method is based on indices that measure phenomena on a large, often international scale like the Human Development Index, which measures global average levels of human development on four main indicators[11].
Similarly, in 2020, Zhou et al developed a similar indicator that was meant to act as a more dynamic method of measuring poverty alleviation in larger, fast developing countries like China, where poverty reduction efforts are widespread and focused on reducing the gap between urban and rural communities and regional development specifically. While the methodology itself is similar to that of Zeller and Sharma, the multi-dimensional index in this context does not aggregate their assessment of various indicators into one index but rather measures and analyses them individually to allow for different poverty characteristics across communities and indicators.
While many of these approaches have been quantitative, there are some scholars who see greater value in adopting a qualitative approach and reframe the way we understand poverty in order to measure alleviation and, as a result, construct more effective and sustainable methods of combating the problem. Scholar Edward Carr presents that by looking at poverty as a singular issue rather than as individual “poverties” that vary in cause and area, there is room to develop more effective poverty alleviation methods that do not overlook local causes of these situations and rather create solutions that are more in-tune with the specific problems in a specific area[12]. This is not to abandon existing, large-scale poverty reduction solutions but rather, adjust our development goals and analyse current methods to ensure that they are efficient and well-equipped to deal with a multitude of problems[13].
Methods
While qualitative methods as proposed by Carr hold great weight and value, they are difficult in measuring projects that have already been implemented. For the purposes of this research paper, it would be of value to utilise a modified version of the poverty index proposed by Zhou et al to analyse the effectiveness of World Bank efforts in India with regards to financial inclusivity as a method of poverty reduction. This is because of the distinction between static and dynamic poverty alleviation put forward. While the work of Zeller and Sharma is important in understanding the field of measuring poverty alleviation, it, like many of its contemporaries, intends to study a specific period of poverty outreach and cannot be easily modified to incorporate newer statistics or sudden changes. This limits opportunities moving forward to create more dynamic approaches to alleviate poverty, a phenomenon that itself exists dynamically.
The reason for this modification of their index is the availability of data and the type of projects being analysed. In their work, Zhou et al utilise the index to analyse poverty outreach across the entire country of China through large-scale government led policies that encompass multiple areas of life through multiple, congruent projects over multiple years. This paper looks only at two World Bank projects that last an average of 5 years in India, and often in smaller communities and on specific issues of financial inclusivity and growth.
While Zhou et al focus on global indicators of poverty reduction, for the purposes of this paper, this paper will be focusing solely on World Bank indicators of poverty. The Bank outlines these on their official website as World Development Indicators and divides them into different sections. However, due to the nature of the projects themselves, I will be relying specifically on the indicators put forward in the project appraisal reports and the completion projects, due to the scale of these projects.
Limitations and Tradeoffs
While World Bank project data is available, there is a severe lack of available data on individual regional and national projects – making it difficult to conduct a full quantitative analysis as proposed by Zhou et al. Even with the modifications aforementioned, there are limitations with using the data available. In late 2020, the World Bank released a statement stating that some of their published data contained a number of irregularities, which raises the question of reliability[14]. Further, by limiting the study to just two cases, there is very little room for generalisability.
Results
Microcredit in India
Following India’s microcredit crisis in 2010, the microfinance crisis in Andhra Pradesh is considered one of the largest failures of the idea of microcredit ever and it played an instrumental role in the disintegration and unpopularity of the practice in India. Following the creation of the system by Muhammad Yunus at Bangladesh’s Grameen Bank in the 1980s, the World Bank played a large role in popularizing the program through the creation of the Consultative Group to Assist the Poorest (CGAP) in the 1990s. The purpose of the CGAP was to act as “a service provider to the microfinance industry by catering to the needs of three stakeholders, namely the MFIs, donor agencies, and the microfinance industry[15]” and improve the work of microfinance institutions (MFIs) across the Global South.
The work of the CGAP was to incentivize microcredit programs in developing countries, an idea that led to the rise in private microcredit programs particularly in India that focused on serving already served populations. The World Bank was in great support of these programs and funded some in part. Andhra Pradesh was the largest recipient of microfinance in India but in 2010, the World Bank announced plans to provide loans of up to a billion US dollars to the Indian government’s “self-help group support program”, partially to ensure that objectives of the CGAP were carried out. The latter led to a huge crackdown of private MFIs, pulling the rug out from under recipients, leading to a debt crisis and into a significant increase in suicide rates in the region.
The failures in Andhra Pradesh can largely be chalked up to the World Bank’s hurry to expedite growth in India and a fundamental lack of understanding of the situation on the ground. Providing support for both private MFIs and government-led MFIs, while perhaps nobly intentioned, resulted in a crisis that severely impacted the people the World Bank claims to carry out development measures for.
MSME Growth Innovation and Inclusive Financial Project
In 2015, the Micro, Small and Medium Enterprises (MSME) Growth Innovation and Inclusive Financial Project began as a way of providing financial assistance to the Small Industries Development Bank of India (SIDBI) to expand and support smaller sectors within India’s burgeoning manufacturing and service sectors. While the implementation of the MSME project was incredibly different from the microfinance programs and the CGAP in general, the purpose remained the same: to provide financial opportunities to peoples typically excluded from these sectors and encourage further economic growth in India.
The project officially ended in 2020, after achieving most of their objectives either fully or partially. While not a perfectly efficient project, the program showed a marked improvement in comparison to many other World Bank financial projects in India, especially like the microcredit program. This is partly due to the fact that the World Bank, in their implementation completion report of the project, stated that there were clear evaluations of the MSME sector, the Bank’s relationship with SIDBI and consideration for the long-term impact of a project of this kind.
Following the end of the project, the World Bank continued their relationship with the MSME sector and provided around $750 million USD amid the crisis of the coronavirus pandemic. Further, the Bank has shown commitments to continuing this relationship and developing the sector further. This shows a significant departure from past practices where the Bank failed to consider longevity and external impacts of their policies and actions, rather choosing to focus on fulfilling internal objectives through any means possible.
Analysis
In an article from 1996, scholar Bryan Johnson wrote for the Heritage Foundation: “clearly, the World Bank’s approach to economic development is a failure.[16]” While a bleak evaluation of the Bank and its programs, it is valuable to ask the question: why does the World Bank rarely learn from their mistakes? And in cases where it does, why is retrospect only warranted by a large-scale crisis and worldwide criticism?
As evidenced by the results above, the successes of the World Bank are greatly a product of learning from their failures and paying strict attention to their systemic problems. By listening to criticism and using their failures to move forward, the World Bank has shown that it can succeed and has the potential to implement programs that are valuable and long-lasting.
However, the World Bank, more often than not, does not learn from criticism, and it is fair to say that many critics of the Bank and its practices do have some valid concerns about the organisation and its future. John Sender, as previously discussed, believes that the World Bank’s biggest failing comes from its fundamental commitment to neoclassical economic policies above any other commitment. The situation in Andhra Pradesh is a product of the World Bank prioritizing their role as a neoliberal international financial institution over their role as a “the world’s largest development institution.[17]” Academics have also criticized the World Bank’s approach in India. V Ranganathan, in his discussion of the World Bank’s contribution to India’s growth and poverty alleviation, states that the “Bank concentrated on the growth objective in the first phase, subscribing to the theory that development would automatically trickle down out of growth…. And results are yet to show up.[18]” Further, the World Bank’s consistent focus on incentivizing private sector participation over promoting government-led policies reflects this issue of priorities. In an investigation carried out by the International Consortium of Investigative Journalists for the Huffington Post into the World Bank’s failures to enforce “safeguard” policies in protecting vulnerable populations, Barry Yeoman writes that the World Bank’s collaboration with the Tata Group of India has “repeatedly failed to make sure people harmed by big projects get counted.[19]” By consistently favoring private sector companies and working to incentivize them to invest, the World Bank has ignored the populations they intend to serve and led to evictions, increased debt and often death.
The World Bank’s failures ultimately can be attributed to their misguided priorities and unwillingness to learn from their mistakes and adapt accordingly. Parallelly, their successes are a result of a strong focus and dedication to the program and utilising their insight into and historical knowledge of the countries they operate within.
Conclusion
The answer to the question of why the World Bank’s history of programs is littered with few successes and many failures lies within the Bank itself. Since its conception in 1944, the global economic and development landscape has shifted in its focus and has multiplied tenfold. The World Bank’s original purpose was reconstruction of the world for a better tomorrow, and now its purpose is to further development and continue to work towards a better tomorrow.
However, it is important that there is no moving forward without learning from the past. The Bank’s insistence to not learn from its mistakes and rely on private corporations to adjust quality of life across the world is holding back global development to a great extent. Further, by continuing to implement projects without looking at past projects, the Bank is doing a great disservice to the millions of people that rely on it for better living conditions.
While this paper only represents a small portion of the role of the World Bank globally, it is important for the Bank to note that its successes are only due to its learning from its failures. To facilitate sustainable, efficient and equitable change, it is necessary for the World Bank to slow down and take stock of the institution as a whole and how it functions.
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[1] “History”. 2021. World Bank. https://www.worldbank.org/en/about/history.
[2] “History”. 2021. World Bank. https://www.worldbank.org/en/about/history.
[3] “Poverty”. 2020. World Bank. https://www.worldbank.org/en/topic/poverty.
[4] “India – Overview”. 2021. World Bank. https://www.worldbank.org/en/country/india/overview.
[5] Goodman, Peter. 2006. “The Persistently Poor”. Washington Post. https://www.washingtonpost.com/wp-dyn/content/article/2006/12/07/AR2006120700427.html.
[6] “What Are The Main Criticisms Of The World Bank And The IMF?”. 2019. Bretton Woods Project. https://www.brettonwoodsproject.org/2019/06/what-are-the-main-criticisms-of-the-world-bank-and-the-imf/#_Toc10127386.
[7] Klees, Steven J. 2002. “World Bank Education Policy: New Rhetoric, Old Ideology”. International Journal Of Educational Development 22 (5): 451-474. doi:10.1016/s0738-0593(02)00006-8.
[8] Cammack, Paul. 2004. “What The World Bank Means By Poverty Reduction, And Why It Matters”. New Political Economy 9 (2): 189-211. doi:10.1080/1356346042000218069.
[9] Sender, J. (2000) ‘Reassessing the role of the World Bank in Sub-Saharan Africa’, in J. Pincus
and J. Winters (eds) Reinventing the World Bank, pp. 185-202. Ithaca: Cornell University
Press.
[10] Zeller, Manfred, Manohar Sharma, Carla Henry, and Cécile Lapenu. 2006. “An Operational Method For Assessing The Poverty Outreach Performance Of Development Policies And Projects: Results Of Case Studies In Africa, Asia, And Latin America”. World Development 34 (3): 448. doi:10.1016/j.worlddev.2005.07.020
[11] “Human Development Index (HDI)”. 2021. Human Development Reports. http://hdr.undp.org/en/content/human-development-index-hdi.
[12] Carr, Edward R. 2008. “Rethinking Poverty Alleviation: A ‘Poverties’ Approach”. Development In Practice 18 (6): 726. doi:10.1080/09614520802386363.
[13] ibid 728
[14] “Doing Business – Data Irregularities Statement”. 2020. World Bank. https://www.worldbank.org/en/news/statement/2020/08/27/doing-business—data-irregularities-statement.
[15]“Empowerment Case Studies: Consultative Group To Assist The Poorest (CGAP)”. 2003. http://documents1.worldbank.org/curated/en/433421468153290801/pdf/514460WP0GLB0C10Box342028B01PUBLIC1.pdf.
[16] Johnson, Bryan. 1996. “The World Bank And Economic Growth: 50 Years Of Failure”. The Heritage Foundation. https://www.heritage.org/trade/report/the-world-bank-and-economic-growth-50-years-failure.
[17] “History”. 2021. World Bank. https://www.worldbank.org/en/about/history.
[18] Ranganathan, V. “World Bank and India’s Economic Development.” Economic and Political Weekly 38, no. 3 (2003): 236. Accessed April 11, 2021. http://www.jstor.org/stable/4413102.
[19] “The World Bank Group’s Uncounted”. 2015. The Huffington Post. https://projects.huffingtonpost.com/projects/worldbank-evicted-abandoned/india-uncounted.