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Accelerating Rural Growth and Empowering the Rural Poor

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THEME: Accelerating Rural Growth and Empowering the Rural Poor

TOPIC: The efficiency of the Samurdhi program in accelerating rural growth.

By
Fathima Shazana Magdon Ismail
(Department of Economics, University of Colombo, Colombo 3, Sri Lanka)

Background paper for the 5th South Asian Economics Students Meet, 28th January to 3rd February 2008, New Delhi, India
Accelerating Rural Growth and Empowering the Rural Poor

The efficiency of the Samurdhi program in accelerating rural growth in Sri Lanka

Shazana Ismail
Department of Economics, University of Colombo, Sri Lanka

Abstract Poverty reduction has been always a strategic consideration for all Sri Lankan governments since independence. As such, there have been many programs addressing the issue of poverty over the years. The poverty reduction framework is based on three strategies: Creating opportunities for the poor to participate in economic growth; strengthening the social protection system; Empowering people to participate fully in the development process. The Janasaviya and the Samurdhi (prosperity) program can be identified as two of the major income transfer programs conducted by the government of Sri Lanka. The purpose of this paper is to analyze the efficiency of the Samurdhi program to accelerate the rural growth and empower the rural poor in Sri Lanka. The finding shows that the Samurdhi program will empower the rural poor and accelerate rural growth in the country through the achievement of its objectives, creating employment opportunities and alleviating poverty if implemented in the proper manner. In contrary, it is also argued that the Samurdhi program by it self solely may not be sufficient to bring about rapid rural growth and poverty reduction through the trickle down effect. This analysis is undertaken based on data and information from secondary sources. The paper initially focuses on the theme of the paper there by the efficiency of the Samurdhi program to accelerate the rural growth and empower the rural poor in Sri Lanka will be analyzed in the preceding sections.

1. Introduction
Poverty is the lack of some fixed level of material goods necessary for survival and minimal well-being. In most cases, it is associated with numerous characteristics like lack of assets, landlessness, unemployment or underemployment, illiteracy, malnutrition, high infant mortality, large family size, low productivity, low position in the social hierarchy, less access to publicly provided goods and poor infrastructural facilities and extreme vulnerability to natural disasters, disease and social conflicts. In economic sense, poverty may be understood as a condition in which a person or community is deprived of the basic needs for a minimum standard of well-being and life, particularly as a result of a persistent lack of wealth and income, or wealth and income disparities. Though Sri Lanka is widely cited as country for achieving high levels of human development, the majority of rural people are living in a state of poverty. As a matter of fact, poverty is the major problem in the community development process in the country.

There by, there arises a need for the government to redirect its welfare policies and programs to assist the poor adequately. The Government has made an effort by imposing poverty alleviation programs to eradicate poverty accelerate the rural growth and to empower the rural poor. Since independence, successive governments have made an extraordinary effort to deepen its understanding of the nature and root causes of poverty in Sri Lanka, with a view to reassessing and reformulating its policy framework for reducing poverty. In order to alleviate poverty, they have implemented direct and indirect programs. The Janasaviya[1] and the Samurdhi program can be identified as two of the major income transfer – food subsidy programs conducted by the government of Sri Lanka since 1948, which have sought to directly tackle the symptoms or causes of poverty.

The purpose of this paper is to analyze the efficiency of the Samurdhi program to accelerate the rural growth and empower the rural poor in Sri Lanka.
The objective of this paper is to, • To examine the role of Samurdhi program to alleviate poverty and accelerating the rural poor. • To identify the inherent weaknesses in the Samurdhi program, • To propose remedies in order to overcome those weaknesses and to improve the quality of the program.

This paper will follow an analytical approach drawing on published literature and data relating to the central theme. Further it uses data from government documents and research reports prepared by various agencies.

The theme “Empowering the rural poor and accelerating rural growth” is a broad theme which should be analyzed from many aspects and involve the opinions of many experts. Thus, I had to limit its scope to an issue to test the efficiency of Samurdhi program in empowering the rural poor and accelerating rural growth. In this context the page limit of twelve pages imposes a severe limitation. The time constraint involved, with work on this paper competing with other academic commitments is another limitation. Due to the conflict in the North and East there have not been proper surveys conducted in order to collect the necessity data required. Thus the lack of documented data relevant to the North and East is another grave limitation encountered in this study. This has necessitated restricting the scope of the paper to the rural poor, other than the people living in the North and East which stands as a major obstacle in the future despite being an important area to be explored.

The five sections of the paper comprises of an introduction in section one. Section two presents the role of the Samurdhi program in Sri Lanka as an empirical case study. The impact of the Samurdhi program in accelerating rural growth will be also discussed in section two. Section three presents the problems and the weaknesses of the Samurdhi program. Section four presents remedial measure and suggestion to accelerate rural growth and to improve the efficiency of the Samurdhi program, and finally the concluding remarks are presented in section five.
2. The role of the Samurdhi program in Sri Lanka
The Samurdhi (prosperity) program was initiated by the SLFP Government in 1995 for the reduction of poverty on a sustainable basis through the broadening of horizons and the creation of opportunities for income enhancement and employment. The main thrust of the poverty reduction strategy, as embodied in the Samurdhi program, is to ensure the participation of the poor in the production process. That is achieved through increased access by the poor to resources for self-employment, enhancing their health and nutritional status, and improved rural infrastructure. Around 2 million households, most of these in rural areas, are beneficiaries of the Samurdhi welfare program. This program covers one-third of the entire population of Sri Lanka. By the end of 1990s’ the Samurdhi program was fully functioning in twenty one districts in Sri Lanka[2]. Samurdhi expenditures amount to nearly 1 percent of GDP[3].

The Samurdhi program consists of three components. The first component which is the largest claiming 80 percent of the programs budget which provides consumption grant transfer to eligible households. The second is a savings and credit program operated through Samurdhi banks, and loans meant for entrepreneurial and business development[4]. The third component is rehabilitation and development of community infrastructure through workfare and social or human development programs. The Samurdhi program also operates social insurance, funded through compulsory contributions of beneficiaries of the highest consumption grants. It was originally administered by the Ministry of Samurdhi and Youth Affairs and Sports. However at present it is administered by the Ministry of Samurdhi and Rural Development and Parliamentary Affairs[5].

The program is totally funded by the government intending to alleviate poverty and unemployment among the youth. Its characteristic feature is entrusting leadership to youth and encouraging them to have direct participation of the poor in the production process by increasing access to resources for self employment, enhancing their health, nutritional status and improving the rural infrastructure. There by it attempts to enhance the capacity of the poor to take initiatives to improve their quality of life. Thus if this program is practiced and imposed properly it will empower the rural poor and accelerate the rural growth in the economy. However it should be noted that the success of the Samurdhi program in accelerating rural growth and empowering the rural poor primarily depends on the achievement of the following stated objectives.

▪ Expand opportunities for income enhancement and self-employment; ▪ Organize youth, women and other disadvantaged persons into small groups, and encourage them to participate in decision making activities and the development process at the grass-roots level; ▪ Assist persons to develop their talents and strengthen their asset bases through productive employment; ▪ Establish and maintain productive assets to create additional wage employment opportunities at the rural level; ▪ Support the really needy by providing social welfare assistance. ▪ Encouraging group savings, intra-group and revolving fund-based lending, maintenance of simple accounts and generation of report savings and credit at the group level.

Samurdhi has also established a social insurance program, where the beneficiaries of highest consumption grants pay premium to finance a social insurance program available to all eligible households. Further, the same beneficiaries contribute 20 percent of the value of their stamps in lieu of “forced savings.” These “savings” are unavailable for withdrawal for five years. One of the program’s specific goals is to create youth employment. These young men and women are hired as program administrators and development officers and considered among the beneficiaries of the program. Eight percent of the Samurdhi budget is allocated to their salaries.

The Samurdhi program attempts to enhance the capacity of the poor to effectively take initiatives to improve the quality of life of the family by implementing economic development projects identified on the basis of family needs, skills and assets, together with the financial, technical and management support provided by the government. The program has a separate initiative for enhancing human capital development among the poor through investments in health, nutrition, education, extension services and vocational training. Thus the program strives to alleviate poverty on a sustainable basis.

The Samurdhi program is implemented by the Samurdhi Balakaya, which comprises Samurdhi Niyamakas and other members elected at the village level. The members of the executive committee of the Samurdhi program are youths aged between 18-35 years and permanent residents of the village. The Samurdhi Balakaya is the development task force at the village level.

The welfare component of the Samurdhi program covers one-third of the entire population of the country, consisting of about 1.2 million families estimated to be at the bottom of the income scale. The beneficiaries of the Samurdhi program receive a monthly welfare payment of between SL Rs 100-1,000, depending on household income, which is intended to raise the income of a household to about SL Rs 1,500 per month. The beneficiaries are also expected to use the payment to increase the household income from SL Rs 1,500 to SL Rs 2,000 per month through the self-employment activities. The beneficiaries of the Samurdhi welfare program will exit from it when their income exceeds Rs 2,000 per month for a continuous period of six months, or when at least one member of the family finds employment[6].

All Samurdhi beneficiaries are encouraged to save a part of the income supplement in order to develop a culture of thrift and savings among them. The accumulated savings can be used to finance new income generating projects among the beneficiaries, either on an individual or group basis. The ultimate objective of the Samurdhi program is not to perpetuate poverty and dependency, but to promote self-reliance on the basis of nurturing the saving habit and the development of income-generating self-employment.
2.1 Strengths of the Samurdhi program • Eighty percent of the program’s cost is incurred on grants on food stamps. The scheme guarantees the ultra poor at least 10 percent of their food requirements. Thus this ensures the satisfaction of their basic needs. • Targeted families are encouraged to engage in productive activities based on a careful assessment of their capabilities and access to locally available resources. There by this facilitates and supports one of the main objectives of the Samurdhi program, reducing the level of unemployment thereby, reducing rural poverty. • Strong established linkages with training institutions providing skills training. Program ownership by the government as demonstrated by its full funding support to bear all the costs of training, provision of incentives to Samurdhi workers, seed capital for loans, infrastructure development and other social welfare components of the program. • Community ownership facilitated through the compulsory and voluntary savings scheme. • Strong involvement of community leaders, workers and targeted families in decision-making, particularly in project identification, targeting and monitoring. This facilitates and supports in empowering the rural poor to certain extend. • Initiatives taken by communities are matched with government schemes through provision of technical, managerial and financial resources by various government sectors. • Indigenous workers are employed as Samurdhi Program functionaries.
2.2 Opportunities to the rural poor
The Samurdhi Authority has made arrangements in improving the entry criteria and establishes exit criteria. Further it has better coordination with various government sectors towards an authentic multi-sectoral, integrated and holistic strategy; linkages with other successful government programs such as the Participatory Nutrition Improvement Program (implemented by the Ministry of Plan Implementation and Parliamentary Affairs with technical and financial support from UNICEF); The Samurdhi Authority is also making an effort in recognizing the need to adopt a multidisciplinary approach to address poverty. The central bank report states that the Samurdhi program was further strengthened in 2006. Further, the direct benefits were increased in 2006. This indicates the increased commitment of the present government in sustaining and strengthening the implementation of Samurdhi. Thereby the government facilitates and supports the program in achieving its stated objectives. Thus it is clear that, if the Samurdhi program is implemented and practiced in the proper manner, it creates opportunities for its beneficiaries in enhancing their income levels, reducing their relative poverty, increasing opportunities for employment thereby accelerating rural growth and alleviating poverty.
The program has already demonstrated its sustainability with funding support provided solely by the Sri Lankan government. It is a well-established program with strong support structures from national to village levels, foremost of which is the Samurdhi Bank, which on a continuous basis, extends loans to individuals or groups. Communities have been empowered to seek whatever technical assistance they may need. The macro policy environment is also supportive of Samurdhi.
3. Weakness of the Samurdhi program
Social assistance programs can play an important role in reducing poverty. Sri Lanka has a long history of social programs and of food subsidies in particular. Among which the most recent poverty alleviation program, Samurdhi, was introduced in 1995 which is the largest safety net program. Sri Lanka has carried out consistently a series of costly social welfare programs and yet the Central Bank of Sri Lanka states that a fifth of all house holds do not consume the minimum required caloric food energy (Gunaratne 1987). However, rural poverty is a great phenomenon in Sri Lanka at present. Majority of the poor lives in rural areas where 80 percent of the population lives in. Section four presents the weakness of the Samurdhi program and the causes for its weakness.

A large number of non random targeting errors have been identified in the implementation of the Samurdhi program. In 1998, the Central Bank reported that 50 percent of the population of Sri Lanka is covered by the program while the poverty rate was only around 20 percent. This outcome indicates that many non poor house holds receive Samurdhi grants making the impact of the program progressive. Thus a thorough investigation of the design, operations, and outcomes of the program is therefore warranted. There still exist substantial and significant differences in the probability of being a Samurdhi recipient by ethnic status.
The unstable political economy prevailing in the country has been another reason for the large number of targeting errors which is not random. At present politicians targets the beneficiaries of the Samurdhi in order to influence voting and obtaining political power. Government officials and politicians are reluctant to adopt approaches other than a welfare approach for fear of political repercussions. Qualitative results suggest that other characteristics of households such as party affiliation or voting preferences also influence allocation of Samurdhi consumption grants. There by this clearly indicates the targeting errors are not random. Further although the program is modestly successful in reaching the intended beneficiaries, a large portion of its resources are being transferred to the non poor than the needed. Thus it indicates that the Samurdhi does not emerge as an efficient program and would require extensive redesign to improve its efficiency.
When speaking of the efficiency of a transfer program, the term ‘EFFICIENCY’ constitutes reaching the objectives of the Samurdhi incurring the least cost. There by it should be transferred to the intended beneficiaries minimizing the leakage to the unintended beneficiaries and the administrative cost. This requires proper targeting. Thus it should be envisioned as a targeted system which should not prevent fair identification of intended beneficiaries. However the cost of targeting increases with the accuracy of targeting, and targeting involves trade-offs between under coverage and leakage. It is well understood that administrative cost is an increasing function of the accuracy of targeting.

The Samurdhi incurs a targeting cost of 8 percent which is a financial burden which must be covered by tax or debt. Thus the inferior targeting outcomes of Samurdhi cannot be explained on the basis of saving administrative cost. Further they can affect people’s economic behavior by distorting their incentives. In addition, it is important that the Samurdhi program must compete with other government social spending and other government programs that alleviate poverty.

A household with an income above Rs.2000 lose benefits. Further a household looses its eligibility upon employment of any household member. Thus Sahn and Alderman (1996) demonstrated that participation in the food stamp program in Sri Lanka reduced labor supply. The longstanding welfare approach adopted by the government has led to a chronic dependency of the people on the State.

The accountability of the Samurdhi program is considered as weak. Samurdhi officers are accountable to two authorities, one of which is a local politician (Gunitalaka et al. 1997). As a result the people are of political influence and no external checks and balances are present to prevent them from acting on the demands of politicians. Politicization is embedded in the design and influences both the selection of Samurdhi administrators and authorities and beneficiaries. Thus the program lacks transparency and external mechanisms for monitoring and evaluation which is required for the Samurdhi to be an efficient program.

Armed conflict with the Tamil Tigers restricts the implementation of the program in certain areas. In addition to the above identified efficiency issues the following weaknesses have also been identified. • The welfare approach destroys the capacity of families to explore other indigenous coping mechanisms. • The difficulty of linking the program with other developmental activities, particularly those implemented by non-governmental organizations. • In some areas there is compartmentalization of services rather than convergence. • Lack of marketing facilities for products of income generating enterprises. • For the ultra poor, financial support provided by the government is barely sufficient to meet subsistence requirements and thus cannot be used for productive purposes.

4. Remedial measure and suggestions
Sri Lanka has carried out consistently a series of costly social welfare programs and yet the Central Bank of Sri Lanka states that a fifth of all house holds do not consume the minimum required caloric food energy (Gunaratne 1987). However it is certain that the poor in Sri Lanka would have been worse off without such program providing welfare is not the same as ‘solving the poverty problem’. Section five presents a few remedial measures to enhance the improvement of the Samurdhi program in making it an efficient program.
Large number of targeting errors was identified as a weakness in the Samurdhi program. All potential beneficiaries are required to show up to a public meeting for community screening in order to improve targeting.
Political interference in selection of beneficiaries and the increase in corruption indicate that the targeting errors are not random. Thus the government should improve the transparency of the program and reduce corruption to ensure accurate targeting of beneficiaries.
Income and consumption poverty still prevails in Sri Lanka. Armed conflict with the Tamil Tigers restricts the implementation of the Samurdhi program in certain areas in the North and East. Thus extreme poor exist in the North and East due the large number of internally displaced people. Further the high cost incurred for the war is around at least 7.8 percent of GDP. This has constrained the investment of economic infrastructure in the rural areas. There by finding a lasting solution to war is a major priority in accelerating rural poor and eliminating poverty. A path to peace is difficult and complex. Thus a political solution is the only prospect for a long term resolution to the conflict. This will ensure the ability to practice the Samurdhi program for the internally displaced people in the North and the East.

Another reason which limits rural development is the economic growth benefits are not equally distributed. Growth in Sri Lanka is pre dominantly in the Western province where 85 percent of the industry is located. Thus the proportion of the rural poor families directly benefiting from employment in new garment industries is very small. Thus the government should ensure growth benefits are distributed to the rural areas. Further effective education systems should be implemented along with the facilities required in the rural areas in such a way that the education system is geared toward public sector employment is matched by the job market. This will increase their higher education opportunities. As a result it will reduce the level of unemployment and alleviate the poverty problem.
5. Conclusion
Sri Lanka enjoys the most extensive social protection coverage in the South Asian region among which the Samurdhi program is the main safety net program implemented by the government to support the poor to maintain their living standards, while also helping them to emerge from poverty. The Samurdhi program was further strengthened in 2006 where the biggest capital allocation for the poverty alleviation program was utilized in 2006. However the Samurdhi program need to be further streamlined aiming at empowering the rural poor to extend their contribution to the development of the economy.

Various studies show that Samurdhi benefits are enjoyed by around 46 percent of the population though the poverty level was 23 percent. This highlights the need for improving the targeting of Samurdhi benefits. There by based on empirical evidence, the paper reaches the conclusion that the targeting outcomes of Samurdhi are inadequate and the targeting errors are non random. Thus the patterns of targeting errors suggest that the program would need extensive redesign in order to improve these outcomes. It should be redesigned in such away increasing the transparency and accountability of the program, reducing the impact of politicization and accurately targeting the beneficiaries of the program.

The Samurdhi social assistance program was established to alleviate poverty and create opportunities for youth and the disadvantaged. However it does not appear to fulfill this contract. The impact of Samurdhi transfers on poverty alleviation is limited. There by we can finally conclude that the Samurdhi program is not inefficient solely within it self, but its inefficient in the way in which it has been implemented. Thus the program requires sufficient redesign to improve its weaknesses.

Appendix 1
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Appendix 2

Source : Central Bank Report 2006.
Appendix 3

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References:
Central Bank of Sri Lanka, (1998) “Economic Progress of Independent Sri Lanka”.

Central Bank of Sri Lanka, (2006), “Central Bank Report”

Center for poverty Analysis, (2003), “Improving Capacities for Poverty Research Programme”, Sri Lanka association of Advancement of Sciences, Poverty Issues in Sri Lanka, Toward New Empirical and Evidence.

Elena Glinskaya (2000), “An Empirical Evaluation of Samurdhi Program”, World Bank Research paper.

Jonathan Goodhand, (2001) “Violent conflict, poverty and chronic poverty” CPRC Working Paper 6.

Lakshman, W.D,(1997), “Dilemmas of Development”, Sri Lanka Association of Economists, Sri Lanka.

http://www.unescap.org/rural/doc/beijing_march97/sri_lanka.PDF

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[1] Janasaviya program a major poverty alleviation program under the income transfer food subsidy scheme, was launched in 1989 by the UNP. The dual objective of this program envisaged short term income supplementation and long term employment creation to enhance the welfare of the economy. The program promoted human capital development, income generation activity and infrastructure development with a view to lift the household above poverty line. However, an evaluation showed that the program was unable to create sustained self-employment for most participating households, (Gunatilleke et al 1997). This program was virtually withdrawn with the appointment of a new government in 1994, led by the SLFP.

[2] The program is still not in full operation in Jaffna,Mannar,and Killinochi districts.
[3] Refer appendix two.
[4] Loan and credit programs are listed in “Samurdhi, National Programme for Poverty Alleviation” (1999). These include “Credit animators programme”, “Samurdhi Development Loans (SASANA)”, “Samurdhi Entrepreneurial Loans (SAVANA)” and Samurdhi leasing program. SASANA and SAVANA disbursed 75 of all credit program funds between 1996 and 1999 (page 28.)

[5] Refer Appendix three for structure and administration of Samurdhi.
[6] Refer Appendix1 to see the Samurdhi eligibility criteria chart.

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References: Central Bank of Sri Lanka, (1998) “Economic Progress of Independent Sri Lanka”. Elena Glinskaya (2000), “An Empirical Evaluation of Samurdhi Program”, World Bank Research paper. Jonathan Goodhand, (2001) “Violent conflict, poverty and chronic poverty” CPRC Working Paper 6. Lakshman, W.D,(1997), “Dilemmas of Development”, Sri Lanka Association of Economists, Sri Lanka. [4] Loan and credit programs are listed in “Samurdhi, National Programme for Poverty Alleviation” (1999). These include “Credit animators programme”, “Samurdhi Development Loans (SASANA)”, “Samurdhi Entrepreneurial Loans

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