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Incentives in Institutional Arrangements
One of the most important elements determining the effectiveness of project implementation are the institutional arrangements; within these arrangements there must be adequate incentives, included in the organisation, for each part to perform its expected functions. At the level of the Implementing Agency (IA), there are four lessons which have emerged, as follows:
- Firstly, it is important that the incentive system created for the implementing agency be such as to achieve all the project's objectives. If not then the possibility exists that the project as implemented will not conform to the agreed design. (Example 166-NE, where much more credit was distributed than originally planned, but with inadequate controls, so the credit was not used for its intended purposes.)
- Secondly, the IA needs to realise that there are actually two different functions to be performed; (i) group mobilization and training, which can best be performed by an agency capable of, and used to working with, the poor at the grassroots level, and (ii) providing credit to the beneficiaries (i.e. a banking function), which can best be performed by a banking/lending agency.
- Thirdly, it is unwise for the IA to give these two functions to the same organisation, both because of a possible conflict of interest, and because of the comparative advantage of different agencies in performing these diverse functions.
- The fourth lesson is that the implementing agency should be chosen with care. It is especially important that it should have the sensitivity and institutional capability for dealing with the poor, and of liaising with the other needed services for the poor at field level. (For example, in Sri Lanka (219-SR) the Central Bank of Sri Lanka was obviously a bad choice, being unable by its very nature of satisfying either of the above criteria.)
The IA must also recognise the requirements for the establishment of the project management office and be required to delegate adequate authority to a carefully selected and experienced Project Manager, plus the staff necessary for implementation. The IA must then provide full backing for their appointee, including sponsoring the coordination functions with other line agencies. Staff should also be given clear guidelines for the period of their appointment and should not be subject to frequent change.
At the level of the Lending Agency, an appropriate incentive structure means an appropriate spread in the interest rate (see LLE027) In addition great care is required to reorient the banking system and its staff (through training) for banking with the poor. (For example, in Sri Lanka, the new Rural Development Banks' mandate was to lend for rural development to the poorer segments of the society - thus meeting the needed institutional orientation. In this project, as well, bank officers were provided with orientation and other training for working with the poor.)
There are many incentives for groups, depending on local circumstances, but motivation is exceptionally important in order that full participation of the groups can be ensured: by this process the project interventions, ownership etc, become sustainable. Small, homogeneous groups have been found to be essential for purveying credit to the poor without collateral. The incentives for Group Organizers (when they are government employees) are the provision of adequate allowances, usually in terms of housing or accommodation, travel etc. If NGOs are appointed for this role then the incentives are more likely to be in the form of payments for reaching agreed targets in terms of numbers of groups; however the project may also be acting as the vehicle for the NGO to achieve some of its own objectives as well, which can be an effective incentive for the NGO.
References:
1. Bangladesh - Grameen Bank, 161-BA,1985.
2. Bangladesh - Grameen Bank Phase III, 239-BA, 1989.
3. Bangladesh Country Portfolio Evaluation, CPE94 CESBA94E, IFAD 1994.
4. India - Tamil Nadu Women's Development Project, 240-IN R240INAE, Mid-Term Evaluation, 1995.
5. Indonesia - Income-generating Project for Marginal Farmers and Landless, 215-ID R215IDAE, Mid-Term Evaluation, 1994.
6. Nepal - Second Small Farmer Development Project, 166-NE R166NPCE, Completion Evaluation, 1993.
7. Pakistan Country Portfolio Evaluation, CPE95 CESPA95E, IFAD 1995.
8. Sri Lanka - Kegalle Rural Development Project, 179-SR, Mid-Term Evaluation, 1992.
9. Sri Lanka - Small Farmers and Landless Credit Project, 219-SR, Mid-Term Evaluation, 1994.
