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COLOMBO, April 4, 2003—Poor people are more vulnerable than others to risks, and lack ways to cope with them, according to a new World Bank report, Poverty and Vulnerability in South Asia. The report maintains that the high degree of vulnerability of poor people perpetuates poverty in a vicious cycle, and says government, nongovernmental organizations (NGOs), and development agencies, like the World Bank, can work together to improve poverty reduction efforts by decreasing these risks. This can be done through a range of innovative policies and programs, some already in place in some South Asian countries.
“It is not enough to just give poor people opportunities to move up,” says South Asia Vice President Mieko Nishimizu. “They also need help insulating themselves against the everyday shocks to which they are particularly vulnerable. We have to understand that poverty and vulnerability are mutually reinforcing and that the World Bank needs to assist South Asia’s governments in developing policies to stop this devastating cycle.”
South Asia is home to the largest number of the world’s poor. According to the report, because poor people are primarily located in rural areas where social protection programs like insurance rarely exist, they are more vulnerable to poverty and are exposed to a variety of risks, like crippling illness and death, economic downturn, conflict, natural disasters, unemployment, harvest failures, floods, drought, and plagues. Among the very poor, the hardest hit include children, the elderly, widows—and women in general because of their persistent lack of decision-making power—the chronically ill, and the disabled, says the report. In Pakistan, for example, a vulnerable population of 45 million makes up 25 percent of those in poverty, and they on the edge of falling deeper into poverty in large numbers as a result of such shocks.
“Because they lack the ability to insure against risks, poor people often shape their behavior and decision making to minimize exposure to risks, even at the cost of economic efficiency and long-term interest,” writes Tara Vishwanath, one of the authors of the report. “Poverty and vulnerability are thus mutually reinforcing, each likely to aggravate the other.”
The report shows that policies and programs instituted by governments and NGOs can help. Short-term employment or public works schemes, such as the Food for Work program in Bangladesh, can be designed to cut down the vulnerability following seasonal downturns and community-wide shocks, according to the report. The Employment Guarantee Scheme (EGS) in Maharashtra, India, has been shown to provide significant stabilization benefits by guaranteeing employment, mainly unskilled manual labor, to all adults above the age of 18.
Directly transferring cash or food to poor people by the government or an NGO is another type of assistance can help poor people at times of heightened vulnerability. The report illustrates various social assistance programs, which are based on need, providing old-age payments, child allowances, subsidies and waivers for basic services, such as education and health care, as other examples. Sri Lanka’s, Samurdhi Program introduced in 1995, is the largest welfare program in the country. It offers food stamps to means-tested eligible households. These can be critical in cushioning the effect of a shock experienced by a poor household. An explicit study on the impact it has on vulnerability would be helpful to determine the overall success of this program.
The report also shows how microfinance, especially group-lending schemes, can be effective in offering opportunities to cope with shocks to poor people, by providing credit at reasonable interest rates. The Grameen Bank and the Sri Lanka National Savings Bank (SLNSB) account for approximately 89 percent of the value of all micro-lending in the region.
The report states that savings can be a useful means for risk reduction. It points to recent evidence which shows that even poor households are eager to save as long as they are provided with safe, flexible, and accessible accounts. Community-based efforts – such as Safe Save in Bangladesh, among others – have been effective in mobilizing savings of poor people in some areas of South Asia.
Insurance has been largely absent or ineffective for poor people in South Asia, but some innovative community-based initiatives, such as the program run by Grameen Kalyan in Bangladesh, and SEWA in India, have provided coverage for health, life, and assets.
“It will be necessary to make sure that poverty reduction strategies keep in mind how the risks of poor people are managed,” said Ms. Vishwanath. “Investing in education, for example, may not have the desired effect on human development of the poorest if those people are highly vulnerable to shocks and interrupt their children’s education to cope with these shocks.”
The report gives examples of elements for a social protection strategy that could be relevant to the region as a whole. Recognizing that opportunities to expand coverage of formal insurance are limited at present in South Asia, the report says informal efforts, that build on community participation and local knowledge, offer more realistic hopes for effective management of the risks faced by poor people in the short run. Nurturing such efforts and finding ways to replicate their success on a wider scale remain significant policy challenges. Social protection programs can also be enhanced through better targeting of the vulnerable and better alignment of the programs to specific risks.
The report suggests incorporating a social protection strategy into every country’s poverty reduction plan. Programs which reduce risks can also be built into World Bank-supported projects in health and rural services in the forms of catastrophic health insurance and crop insurance. Finally, the report proposes that innovative ways of providing social protection need to be piloted, and says the World Bank needs to be prepared to provide financial and technical support.