human immunodeficiency virus/acquired
United Nations Development Programme
Poverty Reduction-the Overarching Objective
Poverty is an unacceptable
human condition. It is not immutable; public
policy and action can, and must, eliminate poverty.
This is what development is all about.
Close to 900 million of the
world's poor (i.e., those who survive on less
than $1 a day) live in the Asian and Pacific
region (Appendix1). Nearly one in three Asians
is poor. Although the proportion of people
below the poverty line had been declining, the
trends in poverty reduction have recently worsened.
Population growth is also adding to the absolute
number of poor. South Asia, one of the
poorest subregions in the world, now has more
than half a billion poor people, of whom 450
million are in India. The People's Republic
of China has 225 million poor, and about 55
million more are in Southeast Asia, (where in
the wake of the Asian crisis, over 10 million
have joined the ranks of the poor). Many
people in the Central Asian republics have slipped
into poverty with the economic disruptions of
transition. The small island countries of the
Pacific, despite their relatively higher per
capita income, remain vulnerable because they
are remote, prone to natural disasters, and
have limited ability to deal with external economic
Until recently, trends in
poverty reduction in the region had been positive,
especially in East and Southeast Asia. However,
since the Asian financial crisis in 1997, declines
in gross domestic product of the economies worst
affected, and carry-over effects in other countries,
have stalled progress. Absolute poverty
has increased in the crisis-affected countries,
and the poor (and particularly their children)
have suffered the most. More ominously,
the social consequences of the crisis are likely
to be felt long after these economies return
to solid growth.
As an institution whose purpose
is the economic development of the region, the
Asian Development Bank (ADB) has always been
concerned with poverty reduction. Beginning
with a focus on economic growth, ADB has progressively
expanded its approach to encompass a wide range
of social and environmental concerns.1/
The experience gained in this process by ADB
and its members has given rise to confidence
unthinkable even a decade ago: that absolute
poverty can be eradicated. This realization,
and the knowledge that development continues
to bypass so many people in the region, calls
for an even sharper focus of our efforts.
These considerations drive ADB to make elimination
of poverty its principal raison d'être.
As outlined in ADB's first Medium-Term Strategic
Framework (1992-1995), the five strategic
development objectives were promoting economic
growth, supporting human development, reducing
poverty, improving the status of women, and
managing natural resources and the environment
ADB supports the International
Development Targets established at a series
of world summit meetings in the 1990s (e.g.,
reducing by half the proportion of people in
extreme poverty). In November 1997, Asian
and Pacific ministers agreed to accelerate implementation
of the Agenda for Action on Social Development
in the regional members of the Economic and
Social Commission for Asia and the Pacific (ESCAP).
The agenda's targets (e.g., eradicating absolute
poverty in the region by 2010) set clear directions
for governments and the international community
(Appendix 1). However, these targets need
review in the light of the Asian crisis. ADB
will work with members to develop credible regional
targets for poverty reduction.
Because the vision is an Asian
and Pacific region free of poverty, ADB has
a clear and single-minded mission. Reduction
of poverty is no longer just one of five objectives,
it is ADB's overarching goal. To this end, the
other strategic objectives (i.e., economic growth,
human development, sound environmental management,
and improving the status of women) will be pursued
in ways that contribute most effectively to
poverty reduction. The fundamental shift
will affect every aspect and level of ADB's
operations. This strategy paper sets out the
ways in which these changes will be implemented.
Building on SuccessF
In attacking poverty, ADB
builds on the region's success over the last
three decades. While this success has varied
between and within individual countries, the
region overall has dramatically changed.
In the early 1970s, more than half the population
of the region was poor, average life expectancy
was 48 years, and only 40 percent of the adult
population was literate. Today, the percentage
of poor people has decreased to nearly one third
of the population, life expectancy has increased
to 65 years, and 70 percent of the adults are
literate. Despite an increase in total population
from 1.8 billion to 3.0 billion, the number
of poor people has fallen slightly from over
1 billion to under 900 million.
ADB has contributed to these
achievements. It has financed investments and
policy reforms aimed at promoting growth and
employment and, especially in the 1990s, focused
on human development, gender equity, and environmental
protection. In addition, ADB has supported projects
that directly target the poor (e.g., for basic
education, nutrition, health, and family planning
services) or establish mechanisms to protect
vulnerable groups (including the disabled).
It has promoted research on poverty issues,
led sector-focused policy dialogue on the causes
and impact of poverty, and strengthened institutional
capacity in government agencies.
Over the years, ADB has learned
much about how to address the various dimensions
of poverty. For example, in the health sector,
instead of merely funding equipment and civil
works, ADB now invests more in training and
And increasingly, emphasis is given to consulting
with beneficiaries. However, much more needs
to be done to involve stakeholders in project
design and implementation. When trying
to improve the status of women, ADB has found
its interventions to be insufficiently effective
because project design assumed institutional
capacity that did not, in fact, exist.3/
The paucity of female staff in project entities
was often overlooked; likewise, the difficulty
of recruiting or retaining women staff in rural
areas in the absence of women-friendly facilities
(e.g., housing, travel, security). Now, projects
pertaining to women are designed with these
problems in mind. In microfinance, which
is a powerful means of poverty reduction, ADB's
earlier reliance on subsidized credit has given
way to the realization that the poor were not
always the actual beneficiaries. The emphasis
now is on working with nongovernment organizations
(NGOs) and private sector institutions to improve
outreach and delivery of microfinance services.
This was accompanied by a dramatic increase
since 1991 in the share of health sector lending
devoted to primary health care and population
activities. (Policy for the Health Sector,
February 1999). 3/Policy
on Gender and Development, May 1998.>
In helping to reduce poverty
in the region, ADB draws on strengths that equip
it uniquely for the task. These include
the exclusive focus on Asia and the Pacific;
regional location; and majority shareholding
of regional members (and, hence, greater ownership
by them of ADB's strategic orientation).
At the same time, the participation of nonregional
members ensures that global perspectives are
brought to bear on regional development issues.
ADB undertakes grant-financed technical assistance,
public sector lending, and private sector operations
under a single roof, and can take advantage
of synergies that result. ADB's well-defined
policy on governance issues and its success
in promoting subregional cooperation are of
growing relevance in the fight against poverty.
ADB's response to the Asian crisis, in particular
measures to mitigate the impacts on the poor,
also demonstrated the institution's ability
to effectively address questions of social protection.
While the primary responsibility
for poverty reduction rests with countries themselves,
as the region's premier development institution,
ADB can be a powerful ally of borrowing members
in their war against poverty. ADB's intellectual
and financial contributions can play a crucial
catalytic role in reinforcing national efforts
to reduce poverty. ADB therefore rededicates
itself to the eradication of poverty in the
region. The Poverty Reduction Strategy embodies
ADB's commitment to this massive task.
THE CHALLENGE OF POVERTY REDUCTION
Nature of Poverty
In the past, ADB relied heavily
on income level as the basic measure of poverty.
However, there is now universal agreement that
dimensions of poverty far transcend this traditional
definition. In ADB's view, poverty is a deprivation
of essential assets and opportunities to which
every human is entitled. Everyone should
have access to basic education and primary health
services. Poor households have the right to
sustain themselves by their labor and be reasonably
rewarded, as well as having some protection
from external shocks. Beyond income and basic
services, individuals and societies are also
poor-and tend to remain so-if they are not empowered
to participate in making the decisions that
shape their lives. Poverty is thus
better measured in terms of basic education;
health care; nutrition; water and sanitation;
as well as income, employment, and wages.
Such measures must also serve as a proxy for
other important intangibles such as feelings
of powerlessness and lack of freedom to participate.
In practice, the most broadly
used standard for measuring poverty will continue
to be the adequate consumption of food and other
essentials. This yardstick (the poverty line)
varies from country to country, depending on
income and cultural values. While national measurements
are essential for measuring the impact of efforts
to reduce poverty, ADB's priority is on absolute
poverty, and international comparisons will
also be necessary.4/
Despite inherent weaknesses, measures such as
the "dollar-a-day" poverty line and the UNDP's
Human Development Index and Human Poverty Index
of the United Nations Development Programme
(UNDP) will continue to be used (Appendix 1).
However, the need to refine these measures in
the context of the Asian and Pacific region
will be examined.
The poor are not a homogenous
group. Just as the nature of poverty is
diverse, so too are its causes and victims.
The poor may not have acquired essential assets
because they live in a remote or resource-poor
area; or because they are vulnerable on account
of age, health, living environment, or occupation.
They may be denied access to assets because
they belong to an ethnic minority or a community
considered socially inferior, or simply because
they are female or disabled. At a broader level,
poverty may stem from situations where gross
inequality of assets persists because of vested
interests and entrenched power structures.
Finally, essential assets may not be available
to the poor because of the lack of political
will, inadequate governance, and inappropriate
public policies and programs.
The primary responsibility for finding
solutions to poverty lies with countries themselves
(para.11), but success will depend on the united
efforts of government and civil society, and on
strong and sustained support from the international
community. For all stakeholders, the strategies
chosen to reduce poverty must be comprehensive enough
to address all of its many causes. For this
reason, ADB sees the twin pillars of pro-poor,6/
sustainable economic growth and social development
as the key elements in any framework for reducing
poverty. Successful achievement of either
element requires sound macroeconomic management
and good governance,the third pillar. Together,
the three pillars result in socially inclusive
This framework takes into account the conclusions
of Reducing Poverty: Findings and Implications
- A Report of Consultations in Selected Developing
Member Countries of the Asian Development Bank
(ADB, 1999, Manila). 6/
Growth is pro-poor when it is labor absorbing,
and accompanied by policies and programs that
mitigate inequalities and facilitate income
and employment generation for the poor, particularly
women and other traditionally excluded groups.
However, for socially inclusive
development to be achieved, better understanding
is needed of the environmental implications
of policies to reduce poverty, and of the impacts
on the poor of environmental policies.
The poverty-environment nexus has, essentially,
two broad components. On one hand, are
the "brown issues" involving polluting industries
that locate in areas populated by the poor on
account of lax regulation and enforcement.
Also included in this category is the air and
water pollution that occurs in megacities, where
the poor live in the worst affected localities.
On the other hand, are the "green issues" of
deforestation, rapid depletion of natural resources,
and land degradation. Both sets of issues
have a direct bearing on the deepening of poverty.
Within this general framework,
poverty-reducing interventions can be short
term, such as those that sustain the supply
of basic services to the poor during emergencies
(as in the recent Asian crisis); medium term,
such as those that help address structural issues
affecting delivery of basic services and other
targeted poverty interventions; or long term,
such as those that stimulate pro-poor growth
and encourage expansion of the private sector.
ADB is mainly concerned with
interventions having medium- or long-term impact.
ADB's strength lies in financing relatively
large investments, as well as in conducting
policy dialogue with governments in support
of policy reform. While physical investments
contribute directly to poverty reduction, the
policy and institutional environment is also
of great importance for sustainable poverty
reduction. ADB will therefore adopt a
systematic approach to poverty reduction by
promoting policy reforms, assisting the development
of physical and institutional capacity, and
designing projects/programs to better target
Reducing poverty and inequality
is a humanitarian priority; it also promotes
economic growth. ADB's borrowers require
sound economic justification for the loans they
take. Experience clearly demonstrates,
though, that investments in areas such as education,
microfinance, and health not only have an impact
on poverty but also stimulate economic growth.
Developing human and social capital increases
political stability, raises productivity, and
enhances international competitiveness, leading
to faster growth.
Key Elements of the Framework
Sustainable Economic Growth
East Asia, where most countries
reduced their incidence of poverty by half or
more in just two decades, provides ample proof
of the importance of economic growth for poverty
reduction. Despite the Asian crisis, these
countries have shown how robust growth can reduce
poverty. Growth increased the demand for
labor, which in turn expanded economic opportunities
and raised worker productivity and wages.
It also expanded public revenues that could
be used for basic education, health care, and
infrastructure. Outward-oriented policies
in East Asia led to labor-absorbing growth,
and the resulting expansion in employment opportunities
brought large numbers of women into the labor
force, with important consequences for poverty
reduction and the status of women. The
rise in female participation in school and the
workforce slowed population growth through lower
fertility rates. The increase in national
income was used to expand investment in human
capital and improve access of the poor to basic
services. Further increases in productivity
and declines in population growth followed.
The lesson is clear: growth
can reduce poverty by generating employment
and incomes, and labor intensive growth can
reduce it even faster. Thus, policies
that encourage labor intensive growth are powerful
pro-poor measures. Such policies include, in
particular, the removal of market-distorting
interventions, such as overvalued exchange rates,
import and/or export restrictions, credit subsidies,
and reliance on state-owned enterprises.
Other policies that fall in this category are
development of a conducive environment for the
private sector, and programs (e.g., microfinance
aimed at increasing employment and income generating
opportunities for women and other groups that
may be outside the formal labor force.
Infrastructure development can also make a considerable
contribution to growth through job creation
and improvement of access to economic activities
and basic social services. Similarly, opportunities
for self-employment by the poor must be promoted.
Inflation and (as seen recently in the region)
economic crises also have a severe impact on
the poor. Consequently, sound macroeconomic
management is essential for sustained reduction
Workfare programs seek to reduce poverty by
providing low-wage work to those who need it.
Such programs have often been used in times
of crises, when large numbers of the able-bodied
poor become unemployed.
The private sector, the engine
of growth, can also play a direct role in poverty
reduction. It can participate in physical
and social infrastructure, including provision
of basic services that will benefit the poor
(thus freeing resources for the public sector).
For the private sector to contribute more effectively
to the delivery of such services, an enabling
environment must be established and the financial
sector developed. As the role of the private
sector expands, that of the government should
shift from owner and producer to facilitator
and regulator. Indeed, an effective regulatory
framework becomes critical to promote competition,
enforce fair practices and standards, and ensure
that essential services reach the poor. Governments
must also monitor the social impacts of privatization
to see that retrenchment, redeployment, or compensation
programs are appropriate. ADB's Private
Sector Development Strategy is thus timely and
directly relevant to poverty reduction.
Market-driven growth processes
typically benefit richer areas, where infrastructure
and human capital are already reasonably well
advanced. For poorer areas, public investment
is generally necessary, especially in rural
areas, which generally have excess labor.
Similarly, specific interventions are needed
to provide the rural poor or urban unemployed
with access to key services and opportunities
Another important way to accelerate
growth is regional and subregional cooperation,
which offers larger markets, economies of scale,
and division of labor. Such cooperation
is especially useful for small countries with
limited options. Cooperation may work
best at the subregional level, as in the Greater
Mekong Subregion, the "growth triangles"8/ pioneered by ADB, and in the Central Asian
republics. It is also useful in other
ways, such as in the fight against disease (e.g.,
tuberculosis, malaria, and HIV/AIDS), and in
the sharing of ideas.
Such as the Brunei Darussalam-Indonesia-Malaysia-Philippines-East
Asian Growth Area and the Indonesia-Malaysia-Thailand
including natural resource management, are key
elements in sustainable economic growth. Growth
will be short-lived if it does not conserve
the natural environment and resources.
Although much of the past damage has been caused
by powerful vested interests, the pressures
of poverty and population compound the threat
through deforestation, over-grazing, and over-fishing.
The rural poor are often forced to live on fragile
lands and waters that require sensitive resource
management in the face of increasing degradation.
The urban poor are exposed to disease and illness
resulting from overcrowding and polluted living
conditions. Poverty reduction strategies
need to be accompanied by policies and actions
that enhance the quality and productivity of
the environment and natural resources.
Economic growth can effectively
reduce poverty only when accompanied by a comprehensive
program for social development. Just as some
targeting of economic development is necessary
to reach bypassed areas, so social development
must be targeted. Therefore, every country
needs to have a comprehensive national poverty
reduction strategy that provides for (i) adequate
budgetary allocations for human capital, (ii)
targeting of basic social services to the poor,
(iii) removal of gender discrimination, (iv)
an effective population policy, and (v) social
protection. Beyond developing human capital,
the aim must be to strengthen social capital,
especially for people subjected to some form
of exclusion. Accordingly, targeted programs
will be required in five areas.
Human Capital Development.
Human capital is the primary asset of the poor,
and its development is of fundamental importance
in the war against poverty. Every person
must have access to basic education, primary
health care, and other essential services.
Without such access, the poor, and their children,
will have little opportunity to improve their
economic status or even to participate fully
in society. It is also necessary to ensure that
the relevance, quality, and quantity of education
provided is designed to effectively increase
participation, both in the workforce and in
society at large.
The correlation between family size and self-perpetuating
poverty is generally strong, especially in rural
Most countries see the need to reduce population
growth to a rate where all children can be assured
adequate investment in their future. To
do this, a major effort is needed to enhance
the quality of women's lives by giving highest
priority to (i) ensuring universal education
for girls, (ii) providing accessible reproductive
health services, and (iii) increasing economic
Population Policy Paper: Framework
for Bank Assistance to the Population Sector,
Social Capital Development.
Social capital defines the fabric of society
and strongly influences the rate of economic
progress and the manner in which its benefits
are distributed. In practice, strengthening
the social capital of the poor largely means
increasing their opportunities for participation
in the workings of society. For historical
reasons, social cohesion is often weak and many
communities suffer from systematic social exclusion.
In such cases, strong, proactive policies are
required to reverse feelings of social and psychological
inferiority, foster a sense of empowerment,
and create genuinely participatory institutions.
The promotion of community-based groups to undertake
microfinance, health, and natural resource management
is an important first step in this direction.
Social capital, and a more inclusive society,
can also be promoted through antidiscrimination
legislation, land reform, security of property
and tenure rights, legal recognition of user
groups, and accessible justice systems.
For ethnic minorities, special education curricula
and self-managed health and other services may
Gender and Development.
In many societies, women suffer disproportionately
from the burden of poverty and are systematically
excluded from access to essential assets.
Improving the status of women thus addresses
a priority area of poverty and provides important
socioeconomic returns through reduced health
and welfare costs and lower fertility and maternal
and infant mortality rates. Giving women voice
and promoting their full participation makes
an important contribution to the overall development
of society. Poverty reduction programs
involving microfinance (Appendix 2), water and
sanitation, and environmental restoration consistently
demonstrate the substantial benefits from ensuring
the full participation of women (Box 1).
Every society has people who are vulnerable
because of age, illness, disability, shocks
from natural disasters, economic crises, or
civil conflict. Social protection comprises
a family of programs designed to assist individuals,
households, and communities to better manage
risks and ensure economic security. Such programs
include old age pensions; unemployment and disability
insurance; and social safety nets to cushion
the adverse impacts of disasters, economic crises,
or civil strife. Also included are policies
to improve labor mobility and the enforcement
of labor standards.
Box 1: Gender and
While nearly two-thirds
of the world's poor are in the Asian and Pacific
region, two-thirds of the region's poor are
women. And poverty is particularly acute
for women living in rural areas.
In poor families, the
gender division of labor, and responsibilities
for household welfare, mean that the burden
of poverty falls most heavily on women.
Given gender disparities in education, health
care, economic participation, and incomes,
women are the most vulnerable category.
The number of women
living in poverty has increased disproportionately
over the past decade, compared to the number
of men. Male migration in search of work,
and consequent changes in household structures,
have placed additional burdens on women, especially
those with several dependents. In the
Asian and Pacific region, the proportion of
households headed by females ranges from 20
to 40 percent.
The increasing feminization
of poverty is now a well-recognized trend.
It has intensified with the recent Asian crisis,
where adjustment programs tend to exacerbate
women's hardships, and in the economies in
transition as a short-term consequence of
political, economic, and social transformation.
numbers of women among the poor pose serious
constraints to human and social development
because their children are more likely to
repeat cycles of poverty and disadvantage.
Improving the political, legal, cultural,
economic, and social status of women is thus
pivotal to escaping the poverty trap.
The quality of governance
is critical to poverty reduction. Good
governance facilitates participatory, pro-poor
policies as well as sound macroeconomic management.
It ensures the transparent use of public funds,
encourages growth of the private sector, promotes
effective delivery of public services, and helps
to establish the rule of law. A sound
macroeconomic framework is needed to encourage
efficient and productive domestic investment
and to keep inflation low to protect real incomes
of the poor. Likewise, it helps prevent
interest and exchange rate distortions that
artificially reduce the cost of capital and
discourage the use of labor. Good public
expenditure management is necessary for fiscal
discipline, economic growth, and equity. The
latter is achieved through an effective, progressive
tax system and adequate allocations for basic
education, primary health care, and other public
services. Effective regulation and supervision
of the financial sector is needed to protect
depositors, enhance competition, increase efficiency,
and expand availability of financial resources
for all members of society. As the Asian
crisis has shown, good governance is also essential
to avoid, or reduce the severity of, economic
crises in an era of increasing liberalization
Since effective and efficient
delivery of basic services by the public sector
matters most to the poor, weak governance hurts
them disproportionately. Public sector
inefficiency, corruption, and waste leave insufficient
resources to support the requisite level and
quality of public services and targeted antipoverty
programs. However, denial of basic services
to the poor is not just a matter of lack of
investment. Often, it is the result of (i) institutional
structures that lack accountability, (ii) domination
by local elites, (iii) widespread corruption,
(iv) culturally determined inequality, and (v)
lack of participation by the poor. Where
such problems exist, systemic changes are needed
to move from poor governance to government accountable
to the poor. Such changes are difficult
to bring about, since existing arrangements
that exclude the poor reflect prevailing economic
and power inequalities. Yet unless these
issues of inequality are tackled, it will be
difficult to raise living standards of the poor.
Action must proceed at two
levels. Public administration and expenditure
management at the national level must be strengthened
to promote pro-poor growth and social development.
At the same time, responsibility for provision
of public services should be devolved to the
lowest appropriate level of government.
Unfortunately, institutional capacity tends
to be weak in local governments and there is
danger of capture by local factions. Devolution
may therefore have to be pursued in a phased
manner, preferably starting with priorities
such as basic education and primary health care.
The long-term objective, however, should be
to empower the poor and develop institutional
arrangements that foster participation and accountability
at the local level (Box 2).
In achieving this objective,
as well as in poverty reduction efforts generally,
a diversified range of stakeholders is involved.
Apart from the government and the private sector,
civil society institutions have an important
role to play. Numerous vibrant and responsive
NGOs-both national and international-are engaged
in development work or championing the legal
rights of the poor. ADB will actively
seek cooperation with such NGOs to benefit from
their experience and perspectives, and take
advantage of their closeness to the poor and
Box 2: Linking Governance
and Poverty Reduction
Indonesia's recent financial
crisis caused a multitude of problems, especially
for the poor. In responding to this
emergency, ADB sought not only to help the
government mitigate hardships incurred by
the poor, but also to tackle some long-standing
issues of governance. The Local Government
and Community Support Sector Development Program
promotes important reforms in decentralization
and local government. A primary objective
is the creation of a genuinely participatory
system, with levels of transparency and accountability
notably absent in the past. Under new
electoral laws, villages will elect councils
to take responsibility for local development
planning and execution, and village nominees
will manage a district-level community development
To maximize impact on
poverty, the Program focuses on 35 districts
and 6,000 villages that have been worst hit
by the crisis. Funds provided allow
local community organizations to identify
high priority, small-scale infrastructure
projects that provide long-term community
assets and create immediate employment opportunities
for the poor. In developing and managing
these subprojects, local communities gain
a sense of empowerment and responsibility
in decision making, which will be institutionalized
under the new local government regulations.
Recognizing that social transitions are complex
and potentially threatening, facilitators
will help villagers gain confidence in dealing
with the new opportunities. The Program also
specifies minimum participation rates for
women in facilitation, decision-making, and
To ensure that
all aspects of ADB operations are driven by
poverty considerations, ADB must translate the
framework described in the previous chapter
into a comprehensive strategy. The following
sections describe how the three pillars of this
framework (para.15) will underpin programs of
policy reform, investment projects, and capacity
building in individual countries. In keeping
with its overarching goal, the Poverty Reduction
Strategy will also be the driving force for
ADB's Long-Term Strategic Framework.
Since poverty causes and characteristics differ
from country to country, the starting point must
be a comprehensive examination of the constraints
and opportunities for poverty reduction in each
country. An initial task in poverty analysis will
be a review of the sector poverty targets agreed
under the Strategy 21 (Appendix 1) and the Agenda
for Action on Social Development (para.5) and the
principal sector strategies being followed.
This will require understanding the nature, intensity,
and spread of poverty; the distributional effects
of macroeconomic policies; the focus and efficiency
of public expenditures; and the effectiveness of
government programs and institutions. ADB
will involve other stakeholders in the analysis
and build on the extensive data already developed
by the government and the donor community.
In addition to such analysis
at the macro level, field studies will be undertaken
to help disaggregate the poor into those in
the mainstream and those excluded by geographic
or social factors. For each of these groups,
the factors underlying their poverty will be
identified, as will their varying needs, demands,
and likely response patterns. Assessments
of the quality of governance at the grassroots
level will also be required. Here, participatory
assessments and consultations with civil society
leaders will be used to provide a picture of
the quality and accessibility of basic services,
poverty reduction programs, and the legal system.
Through this analytical process,
ADB resources will be used to support the efforts
of the government to develop policies and institutions
that will more rapidly reduce poverty.
In view of the growing importance of civil society
and the private sector, their full involvement
in this analysis is essential. ADB country teams
with cross-cutting expertise will ensure that
an integrated view is taken. Senior ADB staff
will be directly involved in the process and
will be accountable for its quality.
ADB recognizes that a large
body of work is ongoing in the region and that
many borrowing countries have well-developed
strategies for poverty reduction and monitoring.
In some cases, the strategies have been developed
with support from other external agencies.10/
In most countries, civil society is also active
and has a wealth of accumulated knowledge and
understanding of poverty issues at the grassroots
level. In its analysis, ADB will use this body
of knowledge and proven approaches. ADB
will also support strengthening of data collection
and management, poverty monitoring, participatory
research, and poverty analysis. With Pacific
island members, ADB will take the lead in capacity
building for poverty analysis. Insofar as its
own store of knowledge is concerned, ADB is
accelerating its program to build a poverty
database on each of its borrowing countries.
This exercise will identify the gaps in data
currently available and steps will be taken
to fill these, to the extent possible, in cooperation
with countries concerned and other agencies.
In many countries, the World Bank and UNDP have
pioneered comprehensive living standards measurement
surveys and other studies.
Poverty reduction will also
increasingly be a major focus of the work program
of the ADB Institute. In particular, the
Institute will provide the analytical basis
for long-term strategies for economic and social
development and poverty reduction in the region.
A High Level Forum
to be organized and led by the Government -
the key stakeholder - will be held to discuss
the findings of the poverty analysis.
NGOs and community-based organizations, the
private sector, ADB and other donors will also
participate. The purpose of the forum
will be to discuss the causes and effects of
poverty, and the activities that will have the
greatest impact on poverty. The outcome
will be a common understanding of what is required
to achieve poverty reduction targets.
ADB's Country Operational
Strategy will then be formulated on the
basis of the priorities emerging from the poverty
analysis and the high level forum. The
Strategy will provide the analysis and set out
the areas of focus, including policy reforms
and sectoral emphases. It will also take
into account the comparative advantage of ADB
and the programs of other agencies.11/
ADB's country operational strategies are prepared
every four years. Beginning 2000, all new country
strategies will be prepared in the manner indicated.
For borrowing countries for which operational
strategies have been completed recently, appropriate
adjustments will be made to reflect ADB's overarching
goal of poverty reduction. To this end, detailed
poverty profiles will be prepared and will guide
revisions to the country strategy as well as
modifications to the country assistance program.
A Partnership Agreement
between the Government and ADB will be finalized
to endorse the analysis and focus of the country
operational strategy. Based on the inputs
of government, civil society and funding agencies,
the agreement will formalize a sustainable partnership
setting out a long-term vision and agreed targets
for poverty reduction. The agreement will
also incorporate mechanisms to review performance,
highlighting key indicators and institutional
milestones necessary to monitor progress.12/
The Partnership Agreement will be allied to
an arrangement for linking performance to the
allocation of ADB resources.
The targets for poverty reduction will be broken
down into the specific improvements that will
be needed in the corresponding poverty indicators.
ADB's Country Assistance
Plans will translate the underlying thrusts
of the partnership agreements into specific
activities. The Plans, prepared annually,
identify, on a three-year rolling basis, the
program of loans and assistance for each borrowing
country. Figure 1 shows how ADB's operational
cycle will work.
ADB's Resident Missions will
play a key role in the monitoring of the indicators
and milestones set out in the partnership agreement.
The resident missions will also be responsible
for regular interaction with stakeholders and
civil society organizations on progress in meeting
the agreed poverty reduction targets.
All ADB loans and technical
assistance will be expected to contribute to
the reduction of poverty. Accordingly, all proposals
will contain a specific assessment of their
poverty impact, and the logical framework that
accompanies each proposal will commence with
poverty reduction as its ultimate objective.
Projects or programs may (i) be designed to
accelerate pro-poor growth, or (ii) focus on
Pro-Poor Growth Interventions
will seek to address impediments to broad-based
economic growth. Policy-based lending
will be used to correct policy and institutional
weaknesses. I n the case of infrastructure investments,
ADB will give priority to projects that have
greater impact on poverty. This may include
locating projects in poor areas or incorporating
specific components to ensure increased access
for the poor to project facilities or services.
will be designed to disproportionately benefit
the poor. Many will be in the social sectors
but some may also involve agriculture and infrastructure
projects in rural areas, as well as environmental
protection. These projects will address
underlying weaknesses in policy and institutions
while supporting the poor through (i) education,
health, or other essential services; (ii) creation
of income and employment opportunities in locations
or among communities where poverty is disproportionately
high; and/or (iii) mitigating risks for the
poor or vulnerable. The defining characteristic
of such projects is their concern for beneficiaries:
the proportion of poor people among project
beneficiaries will be significantly larger than
their proportion in the overall population of
the country, and in no case less than 20 percent.
For purposes of classifying poverty interventions,
national and rural poverty lines will be set
out in the Partnership Agreement.
Core Poverty Interventions
will be a subcategory of poverty interventions
specifically designed to tackle extreme poverty.
These will be tightly focused to ensure that
a majority of the beneficiaries are below the
poverty line. Such projects will frequently
be smaller, slower, more expensive in preparation
and supervision, and involve greater risks than
other projects; however, the additional effort
is worthwhile, as solutions have to be found
to the more intractable poverty problems.13/
Typical examples of intractable poverty are
communities suffering simultaneously from physical
and social exclusion, e.g., low caste or ethnic
minorities living in remote, resource-poor regions.
Program and Lending Targets
The partnership agreement
with the borrowing country will bring together
ADB's program of assistance. It will embody
lending and nonlending instruments, including
policy dialogue, technical assistance, and special
studies. These constitute the program
of activities ADB will undertake to help the
country achieve its poverty reduction targets.
Taken collectively, the partnership agreements
with individual countries will provide the total
picture of ADB's program goals and lending plans.
Within this overall program, ADB's desired lending
mix will include not less than 40 percent of
all public sector lending for poverty interventions.
This target of 40 percent is based on the assumption
that an adequate level of concessionary funds
will continue to be available to ADB.
Until now, ADB has committed
itself to ensuring that at least 50 percent
of its projects and 40 percent of lending volume
are devoted to projects with goals other than
pure economic growth. To monitor implementation
of these targets, projects are classified according
to primary and secondary goals of human development,
poverty reduction, women in development, and
environment. With poverty reduction now
the overarching goal, the hierarchy of ADB's
development objectives has changed and the classification
scheme will be revised.
ADB's pursuit of poverty reduction
is constrained at present because some countries
do not have access to concessional funds (Box
3). Efforts may be required to ease this constraint
and expand lending for poverty reduction in
Box 3: Poverty Reduction
in People's Republic of China and India
Almost 80 percent of
the region's poor live in just two countries-the
People's Republic of China (PRC) and India.
Helping to reduce Asian poverty includes tackling
poverty in these two countries. But
relating the relatively small size of ADB
assistance to these countries (less than one
half of one percent of public investment in
the case of the PRC) to the enormous scale
of their poverty situations is not easy.
A further problem is their reluctance to borrow
nonconcessional funds for projects yielding
low financial rates of return (even though
social returns may be high).
Despite these challenges,
ADB's portfolio in the PRC and India does
not neglect social and poverty dimensions.
In the PRC, the location of ADB-supported
infrastructure projects is shifting increasingly
from the coastal belt to poor counties in
inland areas. As restructuring of state-owned
enterprises proceeds in the PRC, urban poverty
is expected to increase. An ADB-financed
study will evaluate urban poverty in the country,
help the government determine appropriate
responses, and suggest ways in which ADB could
In India, ADB-supported
projects that address poverty or environmental
objectives tend to be in the urban development
subsector, including housing finance.
But the trend toward lending to state governments
(e.g., Gujarat and Madhya Pradesh) may offer
the greatest potential for sharpening the
poverty focus of ADB's India portfolio.
ADB's present level of contribution to poverty
reduction in the PRC and India (and in other
countries borrowing nonconcessional funds
from ADB) is a challenge and may call for
new lending instruments (para. 89).
Selection of Projects
In selecting projects, ADB
will favor those that promise the biggest return
in terms of poverty reduction. To this
end, all three pillars of the strategic framework
will be part of the mix of assistance offered
to each country. Figure 2 depicts the
way in which the pillars will influence the
ADB recognizes that it is
often difficult in the case of individual countries
to decide how much emphasis to place on poverty
interventions and how much on more growth-oriented
investments. Where past performance in poverty
reduction has been weak and/or inequality is
rising, the emphasis will be on governance and
social development. In countries where
essential reforms have been undertaken or are
under way, growth-oriented investments will
reduce poverty. In choosing between projects
ADB will use specific assessment techniques,14/
while giving attention to the likely impact
on poverty of investments in different sectors
(Box 4). To increase understanding in
this critical area, ADB will intensify its analytical
work so as to more confidently offer optimum
support for poverty reduction.
The techniques will include beneficiary incidence
and distribution assessments. These techniques
are used to relate the frequency of use of a
subsidized service (e.g., health clinics) to
the income level of the user.
In each country, the mix and
nature of projects will be shaped by the poverty
analysis. This will help ensure that ADB
tackles actual constraints and not merely symptoms.
For example, widespread malnutrition or illiteracy
may be caused by inadequate investment in public
health or education, but (equally) may be the
result of social exclusion, gender discrimination,
or poor local governance. Finally, when
designing interventions, consultations with
the poor are essential to ensure their priorities
and preferences are truly being addressed.
Box 4: Prioritizing
Poverty Reduction Efforts in Bangladesh
ADB recently commissioned
a study to review the outcome of development
efforts and rank their potential impact on
poverty. The findings: expanding human
capital has the largest impact on poverty,
next come investments in physical infrastructure
such as roads and electricity, and then efforts
to spread high-yielding agro-technology.
The study highlighted the synergies to be
gained from human development and infrastructure,
and from infrastructure and microfinance.
Area development programs centered around
agriculture, infrastructure, and microfinance
also demonstrated high potential.
After reviewing ADB's
portfolio in Bangladesh, the study suggested
that many traditional projects offered scope
for increasing the involvement of women.
It also suggested that basic health and nutrition
should feature more prominently in future
ADB programs. The study cautioned against
involvement in sectors that lacked strong
internal leadership, whether from government
or civil society. The fear of unsatisfactory
performance in individual projects led to
a strong endorsement of ADB's increasing focus
on policy-based lending and its emphasis on
being a knowledge-based institution.
ADB will promote good governance
through the way in which it processes projects,
as well as through specific governance-related
initiatives. Procedures for identifying
and designing projects will help empower the
poor and civil organizations that represent
them. All dealings with public sector entities
will be through transparent procedures that
ensure full disclosure of information.
This will also require effective stakeholder
participation to establish the priorities and
targets for poverty reduction and to help direct
project identification and design. Specific
projects will seek to improve public expenditure
management at central and local levels, increase
government accountability through fiscal decentralization
and local empowerment, and develop effective
regulation of financial markets and public utilities.
The contribution of the private
sector to poverty reduction will be enhanced
through enterprise development, expansion of
infrastructure and other public services, and
improvement of corporate governance and responsibility.
Enterprise development will likely be handled
through intermediary institutions, themselves
usually in the private sector. ADB will explore
innovative approaches, including "challenge
to encourage the private sector to extend financial
services and marketing support to groups currently
excluded. Private operators could be enabled
to increase their participation in providing
infrastructure and public services and in projects
targeting the poor. Regulatory reform
will, however, need to precede sector-specific
approaches such as privatization, contracting-out,
and private-public partnerships. ADB will
also seek to influence the quality and terms
of employment by promoting better corporate
governance and responsibility.
Challenge funds, as pioneered by the UK government,
are designed to offer encouragement and incentives
to private sector organizations so that they
might better accept the risks and uncertainty
of tackling new and seemingly unattractive activities.
The majority of the poor in
the region are women. This necessitates
policy changes and investments in women across
all sectors. Investments that provide women
with access to education, health care, employment,
and financial services will constitute a substantial
part of ADB's interventions for poverty reduction.
Stand-alone projects or project components targeting
women will be designed and implemented.
Such interventions will be required as long
as structural constraints and barriers restrict
women's access and participation. This
is especially true where cultural traditions
dictate the segregation of sexes or in situations
where women require special assistance to enable
their full participation in economic and social
activities. Improving the status of women is
central to any strategy to reduce poverty in
is, likewise, critical for poverty reduction
and is intertwined in development strategies
that promote economic growth, enhance human
capital (including clean water and sanitation),
increase agricultural productivity, and improve
the overall quality of life for the poor.
As in the case of women, environmental interventions
must encompass virtually all sectors of the
economy. In addition to stand-alone interventions
with specific environmental objectives, many
important environmental issues are addressed
through projects with other development aims.
and Rural Development
Most of the region's poor
live in rural areas and their quality of life
lags far behind that in urban areas. Despite
increasing urbanization and a wide range of
poverty reduction programs, the number of rural
poor in most countries continues to grow.
However, sustained economic growth in rural
areas is likely to have a much higher impact
on job creation than equivalent urban growth.
This fact, along with the generally low levels
of investment in rural development, provides
a compelling reason for ADB to reverse its recent
drift away from the rural sector.16/
In particular, ADB will give greater emphasis
to development of agroclimatic areas that have
been bypassed by green revolution technology.
ADB will also give greater attention to the
social, environmental, and institutional factors
necessary to enhance efficiency and productivity
in all areas of agricultural production, and
associated nonfarm activities. Likewise,
ADB will vigorously seek new ways to promote
private sector activity in rural areas.
Asia: Beyond the Green Revolution, ADB, 1999.
For the rural poor, governance
must be especially effective and responsive,
since the support of government institutions
is vital in poverty reduction programs.
Unfortunately, rural government institutions
are frequently the weakest in capacity, commitment,
and accountability. Accordingly, ADB's
emphasis on NGOs and user groups will be strengthened
to institutionalize and expand the social capital
of the poor (especially of poor women) and ensure
accountability of public institutions.
At the same time, ADB will strive to increase
the capacity of local governments to take a
more effective role in rural poverty reduction.
In the past, institutional capacity building
has been focused on government institutions;
in future, the emphasis will increasingly be
on the client, i.e., community-based organizations,
peoples' organizations, and cooperatives.
Such refocusing promotes development through
(i) more efficient information and technology
transfer, (ii) reduced transaction costs in
microfinance and extension operations, (iii)
identification of and resource mobilization
for local development initiatives, (iv) increased
capacity to identify and articulate the more
ambitious development priorities requiring external
support, and (v) increased power and capacity
to demand accountability from public institutions.
At the policy level, ADB will
continue to address inefficiencies resulting
from inappropriate subsidies, market distortions,
and the conflicting signals often given to farmers
and rural enterprises. In rural finance,
ADB will encourage institutional reform and
policies that support the emergence of sustainable
and accessible financial institutions.
Because nonfarm enterprises are of increasing
importance in the survival of the rural poor,
particularly women, priority will be given to
expanding the very limited coverage and accessibility
The natural environment is
of crucial importance to the poor because so
many of them depend for their survival on a
fragile, and usually dwindling, resource base.
ADB support will increasingly address the critical
issue of sustainable resource management.
This will entail special emphasis on the rights
(and responsibilities) of indigenous peoples
and traditional users. In turn, this may
require support for tenurial rights and traditions
and for moving from government control to comanagement
by government and the people who depend on the
resources. At the policy level, ADB will
continue to support governments in developing,
in a participatory manner, master plans for
effective management of critical water, forest,
and marine resources.
ADB will increase its support
for human capital development since such investments
are frequently the most effective way of breaking
the cycle of intergenerational poverty.
By supporting efforts to improve policy and
institutional arrangements, ADB will help ensure
that the poor, especially women, have access
to essential social services. Through
access to quality basic education and primary
health care, the poor will progressively increase
their chances of successfully employing their
main asset-labor. Improving social protection
will reduce risks and indebtedness that otherwise
entrap the poor in a vicious circle of poverty.
will provide strong and innovative support to
expand access to and quality in basic and nonformal
education and skills development, particularly
for women, girls, and others excluded for social
or geographic reasons. Special emphasis
will be given to promoting gender equity in
schooling. ADB will expand its support
for equitable, cost-efficient, and relevant
education by promoting better performance monitoring,
decentralized management, relevant curricula,
and stronger linkages to civil society.
Health and Population.
ADB will increase its investments in primary
health care, including preventative and promotive
services targeted towards the poor. Efforts
will focus on health issues that disproportionately
affect the poor and on population programs.
Particular attention will be given to reproductive
health care and malnutrition because of its
pervasiveness and significance in perpetuating
poverty. ADB will continue to promote
early child development (Box 5) because of its
strong links to poverty reduction. At the policy
level, the performance of the overall health
system in reaching the poor, especially women,
will be closely monitored. Special attention
will also be given to involving the private
sector and NGOs, to increase efficiency and
Box 5: Poverty Reduction
through Early Childhood Development
Poverty reduction is
best sustained when the lives of young children
are transformed. Early childhood development
(ECD) programs, such as ADB's project in the
Philippines (jointly financed with the World
Bank), target preschool children of the poor
and address the health, nutrition, psychosocial,
and cognitive development needs of vulnerable
children. Reversing life-long risks to a healthy
and productive life is most critical and cost-effective
in the pre-school years. ECD programs
create life-long benefit streams for families,
lower the cost per child of public health
and education programs (through reduced illness
and higher schooling attainment), and raise
the real rate of economic growth and family
incomes over generations.
The Philippine ECD project
(1998-2003) is a model of poverty and performance
targeting. Indicators of under-nutrition,
mortality, and primary school dropouts were
used to rank about 1,500 municipalities and
chartered cities according to the number of
children at developmental risk. One hundred
and seventy local governments were selected
in Visayan and Mindanao provinces, and a target
of 5 million children. Under the project,
cost-sharing is negotiated between the national
and local government, reflecting the municipality's
ability to pay. The municipality must
meet minimum standards of health, nutrition,
and early education services to all children
in need or national subsidies are withdrawn.
ADB's assistance finances essential services
and support to local governments for community
mobilization, information systems, and project
Social Protection. This recent
area of ADB involvement is an essential component
of a comprehensive social policy. To address
the social protection need, ADB will support
programs to cushion the adverse effects of shocks
(especially those affecting women), a critical
element in breaking the cycle of poverty.
Support will be designed to bolster economic
security for the poor through the development
of social assistance for the vulnerable; social
insurance against risks of unemployment, disability,
work-related injury and old age; and labor market
Urban Development. Because
of the continuous migration of rural poor to
urban-based economies, urban poverty is rising.
Millions of poor families now reside in "squatter"
settlements. Access to municipal services,
such as safe drinking water and sanitation,
is notoriously poor. Many urban poor find
their livelihood in the informal sector where
poorly developed microfinance markets limit
access to affordable credit for working capital,
housing, or other purposes. When rapid
and uncontrolled growth damages the urban environment,
the poor are most affected.
To address this situation,
ADB will support the development of accountable
local governments and improved urban management.
Sector agencies will also be supported to ensure
sound environmental management. Greater
private sector and community participation,
the creation of a conducive policy environment,
and the use of market-based approaches will
be essential elements of this strategy.
Finally, ADB will support equitable, cost-effective,
and sustainable investments in microfinance,
water supply and sanitation, upgrading of informal
settlements, and innovative schemes for the
provision of low-income shelter and basic services.
Because poverty in the region
is concentrated in rural areas, ADB will give
priority to projects impacting directly on the
poor. These include rural roads and electrification,
promotion of small and medium enterprises, and
water supply and sanitation programs (wherever
the absence of basic services jeopardizes the
health of the poor). Special attention
will be paid to job creation in the design,
implementation, and operation of projects.
Transport and Communications.
The focus in transport and communications will
be on reducing costs of transport to and from
rural areas and between growth centers, and
increasing access of the poor to markets, education,
health care, and employment. Preference
will be given to locating projects in poorer
parts of countries or those that connect poor
or isolated areas to the economic mainstream.
Concerted efforts will be made to find innovative
ways of harnessing the potential of information
technology so that it enhances, rather than
militates against, the human capital and market
access of the poor.
Energy. Increased emphasis
will be given to rural electrification and renewable
energy. Where feasible, this will be promoted
in conjunction with microfinance access to provide
affordable energy to isolated communities.
The introduction of competitive markets through
restructuring of public utilities and private
sector participation will also be necessary
to ensure energy supply to industry and households
at the most economic cost. Where traditional
power projects continue to be unattractive to
the private sector, governments and ADB may
have to maintain their investment role to ensure
an adequate supply of electricity.
Finance. Policy reforms
and market infrastructure will be promoted to
encourage the emergence of sustainable financial
institutions geared to better serving the needs
of medium-, small-, and micro-enterprises. Sound
and efficient banking systems and capital markets
will also be promoted, since these remain indispensable
for macroeconomic stability, mobilizing savings,
and ensuring availability of long-term financing,
an essential requirement for pro-poor growth.
Using New Tools
To make antipoverty operations
more effective, ADB must choose the right modality
of assistance. In some situations, new instruments
or new ways of using existing ones may be required.
Investments in the social sectors work best
when preceded by policy and institutional reforms;
this suggests increased use of longer term,
sector development programs, where front-end
support for policy change and capacity building
pave the way for productive investment.
Slow disbursing policy-based lending in support
of national poverty reduction programs could
be considered, with a view to ensuring that
such programs are correctly targeted and effective.
Since poverty solutions are not always obvious,
careful note will be taken of pilot projects
by bilateral agencies or NGOs. Where no
such efforts have been undertaken, ADB may initiate
pilot loans to test innovative approaches. As
such loans are necessarily small and flexible
and have learning objectives, they will warrant
simplified approval procedures.
ADB will take initiatives
to bring its operations closer to the poor.
Such measures could include lending directly
to local governments, promoting social investment
funds, and supporting NGOs that have proven
track records in working with the poor (Box
6). Exploring new approaches for expanding
social capital and participation (e.g., to strengthen
participation of previously excluded groups
and communities in local government) may call
for innovative mechanisms. Strengthening
capacity in civil society may require a regional
program involving apex NGO bodies.
Box 6: Working with
NGOs and the Private Sector to Reach the Poor
For the millions of
poor in the hilly areas of Nepal, access to
government services has long posed problems.
For almost two decades, ADB attempted to bolster
the outreach of traditional government banking
facilities. However, sustainability
remained low and coverage disappointing.
After extensive review and piloting of more
innovative approaches, it was clear that much
more responsive and flexible financial intermediaries
were needed. In 1998, ADB negotiated an innovative
agreement with the government, commercial
banks, and NGOs to establish the Rural Microfinance
Development Centre with the majority of the
paid-up capital held by commercial banks.
The microfinance fund will link the commercial
orientation of private sector banks to the
local presence, knowledge, and commitment
of NGOs, Grameen Bank replicators, and cooperatives
to provide sustainable access to microfinance.
The fund expects to support up to 50 qualified
intermediaries and cover more than 250,000
borrowers, most of them female.
Strategies are more effective
if outcomes are monitored and the results fed
back to improve performance. However,
outcomes such as declines in the proportion
of people below the poverty line, illiteracy
rates and gender gaps take time to achieve.
Hence, there is need to develop poverty indicators
that provide early information on progress in
approaching the desired outcomes. Under
the partnership agreement with governments,
such indicators will be identified for each
critical area of poverty. Since poverty
measurement is a complex matter, ADB will help
borrowing countries improve their capacity to
generate timely and reliable data, as well as
indicators that are comprehensible and easily
used. In monitoring progress toward the
agreed targets, ADB will assist borrowing governments
to refine policies and programs for poverty
reduction. In the process, ADB will also
become more accountable for its own work.
To better gauge the impact of specific projects
and strategies, evaluation will focus increasingly
on impact assessment. To complement more
rigorous evaluation processes, greater use will
be made of faster, more qualitative measures,
especially those in which the poor are direct
participants. ADB's resident missions will increasingly
play an important role in monitoring activities.
Coordination Among Funding Agencies
Development institutions have
an obligation to use scarce resources with maximum
efficiency and impact. While recognizing
that the recipient country should be directing
coordination of external funding, ADB will,
in all its analysis and programming activities,
integrate its efforts closely with those of
governments as well as other development agencies.
By coordinating with other agencies and, where
appropriate, NGOs, ADB will enhance its effectiveness,
avoid duplication, and accelerate its learning.
In this context, ADB will, in cooperation with
other agencies, examine the effectiveness of
the Comprehensive Development Framework proposed
by the World Bank. To this end, the concept
is being pilot-tested in two borrowing countries,
Kyrgyz Republic and Viet Nam.
As an integral part of its
strategy, ADB will also pursue innovative forms
of cofinancing to increase synergy and efficiency
in poverty reduction efforts. For example,
where bilateral agencies are active in developing
the software necessary for poverty reduction
(local organizations, extension systems, etc.),
ADB may collaborate in financing the associated
requirements for physical infrastructure.
A PROGRAM FOR ACTION
A strategy is only as good
as its implementation. ADB's commitment
to strive for an Asian and Pacific region free
of poverty must therefore be reflected in the
way it goes about its work. ADB will accordingly
bring to bear the full weight of its resources,
instruments, and business processes in the pursuit
of poverty reduction. This Chapter sets
out important actions and activities that will
be carried out in this endeavor.
Retooling for Poverty Reduction
Beginning in 2000, ADB will
prepare an annual action plan for poverty reduction.
The plan will identify all poverty-focused activities
to be undertaken during the year. The
activities will include the country operational
strategies to be initiated, and poverty and
core poverty interventions and poverty-related
technical assistance to be processed or implemented.
By the end of 1999, ADB will assign, to all
operational departments, staff whose functions
will be to
prepare and monitor the
implementation of departmental action plans
for poverty reduction;
provide technical support
to staff undertaking poverty operations;
exercise quality control
over the department's poverty reduction
activities (such as poverty analysis, poverty
and core poverty interventions).
To signal commitment to the strategy, and
help drive its implementation across the institution,
ADB will establish, by the end of 1999, a
poverty reduction unit directly responsible
to top management. The unit will provide
the analytical and operational framework to
guide all departments and offices concerned
with implementing the Poverty Reduction Strategy,
and monitor progress. To this end, the
prepare and monitor implementation
of the annual ADB-wide action plan for poverty
reduction, and ensure quality standards;
help define the data requirements
for poverty statistics and develop the poverty
prepare operational guidelines
and a staff handbook on design of poprepare
progress reports, organize conferences and
forums, and promote dialogue on poverty
reduction in the region.verty interventions;
The need to continue the unit
will be kept under review, in light of progress
achieved in mainstreaming poverty reduction
Greater efforts will be made
to encourage a multidisciplinary and country-focused
approach to poverty reduction. It will be critical
for ADB staff to "think poverty" at all times.
By 2002, ADB will ensure that all departments
concerned acquire the skills needed for antipoverty
activities (e.g., gender assessment, public
expenditure review, institutional analysis,
and facilitation of stakeholder consultations
and participation). To this end, staff
positions will be redeployed to ensure that
operational departments will be able to obtain
the requisite expertise and experience. However,
since this by itself is unlikely to be sufficient,
a significant number of new staff positions
will also be required.
ADB will provide for all operational
and new staff, including heads of departments
and managers, training in poverty reduction
methodologies and techniques.
ADB will strengthen its resident
missions to facilitate effective implementation
of the Poverty Reduction Strategy. The
resident missions will monitor the poverty indicators
and milestones set out in the partnership agreements
and assist in gathering and disseminating up-to-date
information and data on poverty. Wherever
possible, ADB will engage local professionals
to assist in these activities.17/
Where possible, cofinancing will be explored
for this purpose, as in the case of the gender
specialists financed through trust funds made
available to ADB.
Beginning in 2000, ADB will
implement an accelerated program to strengthen
its statistical database on poverty. In addition,
the ADB Institute will enhance its work program
and activities on poverty issues facing the
ADB will be creative in the way it finances
poverty operations. This will include
considering special terms
for poverty reduction projects financed
from ADB's (nonconcessional) ordinary capital
resources, to enable ADB to sharpen its
focus on poverty in countries that have
access only to this lending window (such
as the People's Republic of China and India);18/
exploring the need for
special purpose funds (e.g., to support
the contribution of civil society to development,
or promote private sector involvement in
poverty reduction); and
making greater use of
existing instruments, such as pilot projects,
sector development programs, and social
investment funds that are especially suited
to poverty reduction operations.
Review of OCR Loan Changes, Issues Paper,
ADB, 1999. Options that could be considered
include lengthening the final maturity and/or
the amortization schedule of the loan.
Program and Lending Targets
beginning in 2000, develop
partnership agreements that set comprehensive
program targets for lending and nonlending
activities in each of its borrowing countries;
devote not less than 40
percent of its public sector lending to
poverty interventions by 2001; and
its lending for core poverty interventions
Working with Partners
offer support to strengthen
capacity in borrowing countries to measure,
analyze, and monitor trends in poverty,
involve stakeholders in
the process of poverty analysis, and encourage
their participation in the high-level poverty
forums (that precede the country operational
strategies and partnership agreements);
build on the work of other
multilateral and bilateral agencies, and
NGOs, expand coordination with them, and
make best use of their comparative strengths
through innovative cofinancing arrangements.
Monitoring Progress in Poverty Reduction
report annually to the
Board of Directors on its poverty reduction
efforts and the progress being made toward
meeting national and regional poverty reduction
convene, every three years,
beginning in 2000, an Asian and Pacific
poverty forum, comprising representatives
from governments, civil society, and the
funding community, to review progress of
efforts by ADB and borrowing countries to
Counting the number of poor
people in the Asian and Pacific region is not
easy. Compounding the usual technical problems
of estimation is the difficulty that countries
employ different (income-based) poverty lines.
Some are set low, to focus attention on the
poorest people, while other poverty lines are
more generous. A further complication is that
poverty data are not available for a number
of countries, and data that are available, are
not readily comparable between countries. Aggregating
the number of poor for the region and drawing
comparisons therefore presents intractable problems.
Partly for these reasons, the World Bank uses
an international poverty line of $1 per person
per day (at 1985 purchasing power parity prices).(1)/
However, this measure differs from the poverty
lines used by individual countries, most notably
in the case the People's Republic of China (PRC)
and India, where national poverty lines are
The figures cited in the main
text are based on World Bank data.(2)/
The figures differ significantly from national
poverty estimates. For example, PRC and India
estimate the number of their poor as 75 million
and 350 million, respectively, whereas the World
Bank estimates 225 million in the PRC and 450
million in India.
Table A1.1 defines some key
Given the multiple dimensions
and relativity of poverty, definitions and concepts
of poverty continue to evolve. Nevertheless,
due to the efforts of governments and the support
of United Nations Development Programme, World
Bank, and other agencies, major progress has
been achieved over the last few years. A driving
force behind this progress has been the recent
international consensus on targets for poverty
reduction and how they should be monitored.
International Targets for Poverty Reduction
Through a series of United
Nations conferences, principally the World Summit
on Social Development in 1995, the international
community agreed to a common set of targets
for reducing poverty. In 1996, the Development
Assistance Committee of the Organization for
Economic Cooperation and Development (OECD)
endorsed seven of these as the Strategy 21 goals.
These are international, not regional, goals
and, to some extent, are biased by the African
situation. The Asian Development Bank supported
the Fifth Asian and Pacific Ministerial Conference
in 1997, which resulted in a comprehensive set
of targets outlined in the Manila Declaration.(3)/
The salient features of both sets of targets
are indicated in Table A1.2.
The accuracy of estimates based on the $1 per
person per day measure depends on the regular
conduct of living standards measurement surveys
in all developing countries and on regular updating
of the International Comparison Program. For
these and other reasons, much work remains to
be done before reliable cross-country comparisons
can be made. (2)/
Developing and Transitional Economies: Population
living below US$1 per day in 1987-1998, PREM
Advisory Service, World Bank, 1999. (3)/
Manila Declaration on "Accelerated
Implementation of the Agenda for Action on Social
Development in the ESCAP region". Note that
the targets listed in the table represent only
a portion of the strategies and objectives agreed
A1.1: Key Terms and Definitions
lack of essential human capabilities, notably
literacy and nutrition.
lack of sufficient income to meet minimum consumption
degree of poverty below which the minimal requirements
for survival are not being met. This is a fixed
measure in terms of a minimum calorific requirement
plus essential nonfood components. While absolute
poverty is often used interchangeably with extreme
poverty, the meaning of the latter may vary,
depending on local interpretations or calculations.
defined in relation to some ratio of the absolute
poverty line or, as in developed countries,
as a proportion of average income per capita.
As a relative measure, it can differ across
countries or over time.
Nations Development Programme (UNDP) composite
of three factors (i) life expectancy at birth,
(ii) adult literacy, and (iii) income per capita
(adjusted for purchasing power parity).
measure of deprivation in basic human development.
The variables used to determine the index are
(i) the percentage of people expected to die
before age 40; (ii) the percentage of adults
who are illiterate; and (iii) overall economic
provisioning, in terms of the percentage of
people without access to health services and
safe water, and the percentage of underweight
children below age five.
assessment of the level of gender inequality
in key areas of economic and political participation
and decision making.
Microfinance provides financial
services to low-income clients, usually landless
or marginal farmers or poor urban dwellers working
in the informal sector. Microfinance services
may include savings facilities, credit, and
other services such as insurance. Providers
of microfinance may include formal-sector institutions
(e.g., commercial and development banks); semiformal
bodies such as nongovernment organizations,
cooperatives; and other informal and savings
and credit organizations. All provide services
either on an individual or group-lending basis.
As described in Chapter II
of the main text, poverty reduction involves
the transfer to and building up of essential
human, social, and physical capital for the
poor. Finding efficient and sustainable mechanisms
to achieve this transformation is, however,
a major challenge. In recent years, microfinance
has attracted considerable attention because
of its potential to increase the physical capital
of the poor while simultaneously building human
and social capital.
The role of physical and social
exclusion as important causes of poverty is
described in the main text. However, exclusion
also extends into the institutional field. For
reasons of costs,
technology, and institutional bias, about 95
percent of poor households in the region are
effectively excluded from access to institutional
financial services. The consequences of this
are significant. Lack of access means that poor
families cannot use investment opportunities
to escape from poverty. Because of their irregular
and unpredictable income, the poor need access
to affordable credit and savings for consumption
smoothing and insurance against the debt traps
that frequently accompany sickness, ill-health,
and other emergencies. The poor also find it
difficult to accumulate savings because they
lack access to safe institutions with an interest
in small deposits. Despite its limitations,
microfinance is, for all of the above reasons,
a strategy that must be employed to its maximum
Costs in this context also include risk premia.
The emergence of microfinance
reflects the progressive development of techniques
to address the traditional barriers of cost,
technology, and institutional bias. On the cost
side, the greatest impact has been through the
introduction of market-based interest rates
for all lending, as well as reduction of transaction
costs through group-based operations. In terms
of technology, the major change has been the
substitution of social for physical collateral.
Through group-based processes, pioneered by
the Grameen Bank and nongovernment organizations,
lack of assets to guarantee loans is no longer
an obstacle to lending to the poor. The greater
financial discipline of women is also used in
microfinance since they comprise the majority
of clients. The bias of formal lending institutions
against the poor at times reflects legitimate
concerns out transaction costs of small unit
operations. However, in many situations this
bias is also interwoven with strong class and
caste traditions and misguided perceptions of
the poor. One solution has been the emergence
of a wider range of institutions to bring financial
services closer to poor clients
Social and Human Capital Links
Microfinance operations frequently
depend for their success on mobilizing and organizing
the poor so that they can develop sufficient
confidence to save, borrow, and invest. Because
an acute lack of confidence is a common corollary
of poverty, sensitive and trusted agencies must
be used for this task; in a few situations this
can be tackled by staff from government agencies
or banks. On the positive side, investment in
social preparation yields long-term benefits
in terms of social and human capacity building.
Organizing women and then involving them in
microfinance are effective ways to assist and
empower poor women. The formation and operation
of savings and borrowers groups likewise builds
confidence, trust, and social capital. Similarly,
involving borrowers in entrepreneurial activities
directly builds their skills and indirectly
contributes to improved health and reduced risks
The New Paradigm
Major changes have occurred
in recent years in the paradigm for microfinance
operations. Schemes based on subsidized credit
and directed lending in contexts of controlled
interest rates are now recognized as misguided.
The Asian Development Bank (ADB) endorses the
new consensus that emphasizes full cost recovery
and creating sufficient profitability in the
longer term to encourage further outreach. The
guiding principles involve (i) supporting service
providers to become sustainable institutions
that, after initial assistance, can support
their own growth; (ii) providing support for
investments in social intermediation; and (iii)
recognizing that microfinance institutions must
charge interest rates high enough to cover the
higher transactions costs and risks associated
with unsecured small loans.
ADB has long supported the development of
the financial sector in borrowing countries.
In the past, attention has been focused primarily
on the role of major financial institutions
and their capacity to support investment and
growth. While the ADB will continue its interest
in this area, ADB will greatly increase attention
to microfinance because of its relevance to
the poor and to poverty reduction. The major
challenge confronting microfinance is the urgent
need to build the capacity of service providers
while maintaining the necessary financial standards
and discipline. Where banks and formal institutions
are already pro-poor, this will mean devising
and supporting appropriate outreach mechanisms.
More challenging will be the situation where
there are no institutions appropriate for the
poor. The lack of financial technology and a
sustainable institutional mechanism to reach
those in resource-poor areas and the poorest
of the poor also presents a significant challenge.
ADB will have to promote a wide range of institutions
and adopt a multipronged approach to meet these