UNDP Poverty Report 2000

Channelling Resources through the Poverty Alleviation Fund

Mongolia's National Poverty Alleviation Programme, initiated in 1994 for six years, focuses on a set of targeted interventions in local communities. Guided by the objective of reducing the share of income-poor to 10% of the population, its main vehicle is a Poverty Alleviation Fund - accounting for most of the $18 million committed to the programme by the government, the World Bank, UNDP and bilateral donors. The strength of the fund is its emphasis on decentralized decision-making and community participation.

Until the 1990s poverty was unknown in Mongolia. The collapse of trading relations with the Soviet bloc and a wrenching transition to a more market-based economy plunged more than a quarter of the population into poverty by 1994. A World Bank - sponsored survey in 1998 estimated that 36% of the population was poor.

The bulk of funds from the poverty programme have gone to microloans for income generation and to repairing or rebuilding schools, health clinics and rural infrastructure. As part of this effort, UNDP has helped set up a Women's Development Fund - to provide microloans to women and female-headed households. In addition, donors also support a Targeted Assistance Fund to complement the government's ongoing Social Assistance Fund by providing food, fuel and clothing to the poorest.

Local poverty alleviation councils choose projects from community proposals, and the people involved in the projects decide how to implement them. Loans are provided to house-holds or to organizations representing vulnerable groups. The activities cover a wide range, including trading, carpentry, dressmaking, vegetable growing, some herd restocking and boot making and repair. One weakness of the programme is the lack of projects for herders. As herds have been privatized, many herders have moved into small urban centres, where poverty has risen most sharply.

The decentralized structure of the poverty programme has allowed it to reach poor people in every urban and rural district of the country. By some estimates, about a fifth of the poor have been able to increase their income. Better access to health care, basic education and preschool services has increased school enrolments and decreased infant and maternal mortality rates. Formerly dependent on the central government, people have become more proactive and self-reliant.

The microloan programme has raised the interest rate and shortened the duration of loans to one year. But the requirements still might not be strict enough to ensure financial sustainability. As loans are repaid at the local level, more accountability needs to be instituted in how the money is to be used. MicroStart Mongolia, supported by UNDP, has also entered the market for small loans. Despite higher interest rates and much shorter repayment periods, it is growing rapidly.

One of the strengths of the Poverty Alleviation Fund - its ability to bypass established government channels to direct resources to the local level - has caused some problems and confusion. The fund operates independent of the regular government structure and depends on external donors for most of its funding. Meanwhile, the Ministry of Health and Social Welfare is responsible for poverty programmes within the government but has little funding or authority over other ministries. Coordination of the entire poverty programme suffers: poverty has not become a cross-cutting issue for all government policy-making.

While relatively successful with targeted interventions, the poverty programme has been less so with promoting pro-poor macroeconomic policies - one of its original objectives. Growth has been slow, and inequality on the rise. The banking system remains weak and thus unable to help revive the economy in rural areas and small towns. While inflation is down, incomes are not increasing enough to counteract poverty - which has remained high but at least stable, thanks in large part to the government's poverty programme.