Career Assessment Test

 Proposal Writing for:

 

STOCK MARKET DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM UNDERDEVELOPED NATION (Nepal)

 

 

By

Jyoti Koirala (get2jyoti@gmail.com)

 

 

 

A Research Proposal Submitted to:

Faculty Members

Business or Economics Departmen

 

  

August, 2009

 

 

 

Chapter 1: Introduction

 

1.1. General Background

 

Stock market development has an important role to play in economic development. Shahbaz and his friends (2008) argue that stock market development is an important wheel for economic growth as there is a long-run relationship between stock market development and economic growth. Stock market development has the direct impact in corporate finance and economic development.

 

Gerald (2006) states that stock market development is important because financial intermediation supports the investment process by mobilizing household and foreign savings for investment by firms. It ensures that these funds are allocated to the most productive use and spreading risk and providing liquidity so that firms can operate the new capacity efficiently. A growing body of literature has affirmed the importance of financial system to economic growth.

 

Financial markets, especially stock markets, have grown considerably in developed and developing countries over the last two decades. Claessens, et al (2004) states that several factors have aided in their growth, importantly improved macroeconomic fundamentals, such as more monetary stability and higher economic growth. General economic and specific capital markets reforms, including privatization of state-owned enterprises, financial liberalization, and an improved institutional framework for investors, have further encouraged capital markets development.

 

Similarly Mishkin (2001) states that a well-developed financial system promotes investment by identifying and financing lucrative business opportunities, mobilizing savings, allocating resources efficiently, helping diversify risks and facilitating the exchange of goods and services

 

From the view point of Sharpe, et al (1999), stock market is a mechanism through which the transaction of financial assets with life span of greater than one year takes place. Financial assets may take different forms ranging from the long-term government bonds to ordinary shares of various companies. Stock market is a very important constituent of capital market where the shares of various firms are traded Trading of the shares may take place in two different forms of stock market. When the issuing firm sells its shares to the investors, the transaction is said to have taken place in the primary market but when already issued shares of firms are traded among investors the transaction is said to have taken place in the secondary market.

 

Stock markets are very important because they play a significant role in the economy by channeling investment where it is needed and can be put to best (Liberman and Fergusson, 1998). The stock market is working as the channel through which the public savings are channelized to industrial and business enterprises. Mobilization of such resources for investment is certainly a necessary condition for economic take off, but quality of their allocation to various investment projects is an important factor for growth. This is precisely what an efficient stock market does to the economy (Berthelemy and Varoudakis, 1996).

 

Earlier research emphasized on the role of the banking sector in the economic growth of nation. In the past decade, the world stock markets surged, and emerging markets accounted for a large amount of this boom (Demirguc-Kunt and Levine (1996a).  Recent research has begun to focus on the linkages between the stock markets and economic development. New theoretical work shows how stock market development might boost long-run economic growth and new empirical evidence supports this view. Demirguc-Kunt and Levine (1996a), Singh (1997), and Levine and Zervos (1998) find that stock market development is playing an important role in predicting future economic growth.

 

In underdeveloped like Nepal the development and growth of stock markets have been widespread in recent times. Despite the size and illiquid nature of stock market, its continued existence and development could have important implications for economic activity. For instance, Pardy (1992) has noted that even in less developed countries capital markets are able to mobilize domestic savings and able to allocate funds more efficiently. Thus stock markets can play a role in inducing economic growth in less developed country like Nepal by channeling investment where it needed from public.  Mobilization of such resources to various sectors certainly helps in economic development and growth. Stock market development has assumed a developmental role in global economics and finance because of their impact they have exerted in corporate finance and economic activity. The role of financial system is considered to be the key to economic growth (Neupane, et. al. 2006).

 

Paudel (2005) states that stock markets, due to their liquidity, enable firms to acquire much needed capital quickly, hence facilitating capital allocation, investment and growth. Stock market activity is thus rapidly playing an important role in helping to determine the level of economic activities in most economies.

 

Tuladhar (1996) states that financial markets are catalyst in the development of economy. The study further added that developed economies have highly sophisticated financial institutions. Over the past decade, many developing economies have established capital markets as they moved towards more liberal economic policies. These emerging markets have shown extraordinary growth with very high volatility, which have attracted many investors into these markets.

 

This study will attempt to dig out the empirical evidence in the context of underdeveloped nations regarding the role of stock market development on economic growth.
1.2. Statement of the Problem:

 

In the last two decades, the link between financial intermediation and economic growth is a subject of high interest among academics, policy makers and economists around the world. There have been attempts to empirically assess the role of stock market and economic growth. The link between stock market and growth has varied in methods and results. There exists two controversies in the predictions.

 

Adjasi and Biekpe (2005) found a significant positive impact of stock market development on economic growth in countries classified as upper middle-income economies. In the same way, Chen et al (2004) elaborated that the nexus between stock returns and output growth and the rate of stock returns is a leading indicator of output growth Arestic et al. (2001) using time-series on five industrialized countries also indicate that stock markets play a role in growth. Various studies such as Spears, (1991); Levine and Zervos, (1998); Atje and Jovanovic, (1993); Comincioli, (1996); Levine and Zervos, (1998); Filer et al, (1999); Tuncer and Alovsat, (2001). Levine and Zervos (1995) and, Demirguc-Kunt (1994) has supported the view .stock markets promote economic growth..With well-functional financial sector or banking sector, stock markets can give a big boost to economic development (Rousseau & Wachtel, 2000; Beck & Levine, 2003). Bahadur and Neupane (2006) concluded that stock markets fluctuations predicted the future growth of an economy and causality is found in real variables.

 

There are also alternate views about the role stock markets play in economic growth. Apart from the view that stock markets may be having no real effect on growth, there are theoretical constructs that show that stock market development may actually hurt economic growth. For instance, Stiglitz (1985, 1994), Shleifer and Vishny (1986), Bencivenga and Smith (1991) and Bhide (1993) note that stock markets can actually harm economic growth. They argue that due to their liquidity, stock markets may hurt growth since savings rates may reduce due to externalities in capital accumulation. Diffuse ownership may also negatively affect corporate governance and invariably the performance of listed firms, thus impeding the growth of stock markets.

 

Despite of alternative views empirical works continue to show largely some degree of positive relationship between stock markets and growth. These studies largely based on developed countries only. Only few studies have been conducted in context of Nepalese stock market, and those conducted studies do not show clear conclusion regarding its impact on economy. Yadhav (2002) finds that firms with higher investment have higher saving and higher capital formation. Though his study may be significant in other cases it is of less significance here. Similarly Wagle (2002) also carried out the study on trends of saving, investment, and capital formation in Nepal, but his study fails to provide any specific link between saving, investment and capital formation with stock market development. Similarly Sindhurakar (2004) has carried out the study on relationship between the stock market and economic growth without analyzing the econometric models.

 

The study specifically deals with the following issues:

1. What is the relationship between the Gross Domestic Product (GDP) and government investment, government expenses, foreign aid, savings, and foreign direct investment

2. Is there any relationship between the market capitalization and Gross Domestic Product (GDP)?

3. What is the impact of concentration ratio on economic growth of a nation?

4. What is the significance of liquidity on economic growth? What is its impact in capital market?

5. Is there any co-integration between the stock development index and economic growth?

6. Is there any Granger causality between the stock development and economic growth?

7. Is the Levine and Zerovos model valid in underdeveloped nation like Nepal?

8. Can the small group of investors manipulate a Nepalese capital market easily?

9. How can the government able to develop the stock market in coming days?

 

One group of study argues that stock market does not help in economic development of a nation while the other group argues that it helps in economic development. However, empirical investigations of the link between financial development in general and stock markets and growth in particular have been relatively limited. Various empirical researches have suggested a possible connection between stock market development and economic growth, but are far from definitive.

 

1.3. Objective of the Study

 

The main objective of this study is to examine the impact of stock market development in the economic development and growth of the nation in context to Nepal. The specific objectives of the study are as follows.

 

1. To conduct the empirical analysis of stock market by investigating the link between stock markets and economic growth.

 

2. To further analyze the link based on set of different variables of economic indicators and stock market indicators.

 

3. To examine the importance of liquidity for the economic growth.

 

4. To analyze the impact of firm concentration ratio on economic growth.

 

5. To examine the validity of model of Levine and Zervo’s study on stock market in developing nation like Nepal.

 

6. To determine and analyze the co-integration and causality between the stock market development index and economic growth.

 

 

 

Chapter: 2 Review of Literature

 

2.1 Review of Empirical Works

 

This section concerns with review of important empirical works, concerning stock market development and economic growth starting from 1873 to 2008. Some important studies and their finding are presented in tabular form in chorological order. The review of literature is undertaken in three sections. The first section focuses on the review of empirical works carried out before 1990s with their major findings. Similarly, the second section deals with the review of studies carried out during 1990s and finally third section deal with the review of studies during 2000.

 

2.1.1 Review of Empirical Works before 1990s

 

During nineteenth and twentieth century, Bagehot (1873) and Schumpeter (1912) had focused on the constructive assistance of financial sector to economic growth. In the study the direction of causality between the higher growth in financial sector and country’s economic growth rate was not clear (Robinson, 1952 and Locus, 1988). In the wake of a large body of empirical evidence, considerable studies have made on modeling and understanding the strong positive linkages between real and financial development. Much of this research has followed the “functional” approach in the analysis of such linkages.

 

 

 

Table: 2.1

Review of Empirical Works from 1873 to 1986

 

Study

Area

Major Findings

Bagehot (1873)

A description of money market with currency monopoly.

Constructive assistance of financial sector to economic growth.

Schumpeter (1912)

The theory of economic development.

Technological innovation is the force underlying long-run economic growth.

Robinson (1952)

 

The Generalization of the General Theory, in The Rate of Interest and Other Essays.

 

There is a two-way causal relationship between financial development and economic performance.

Goldsmith (1969)

Association between levels of financial development with economic growth.

A significant association between the level of financial development and economic growth.

 

The “finance-led growth” hypothesis postulates the “supply-leading” relationship between financial and economic developments. It is argued that the existence of financial sector and financial intermediations in channeling the limited resources from surplus units to deficit units would provide efficient allocation resources by leading the other economic sectors in their growth process. Indeed, a number of studies argued that the development of financial sector has significantly promoted economic development (Schumpeter, 1912). The study argued that the technological innovation is the force underlying long-run economic growth.

 

Robinson (1952), on the other hand, concluded that the economic growth creates a demand for various types of financial services to which the financial system responds. Goldsmith (1969) reported a significant association between the level of financial development (defined as financial intermediary assets divided by GDP) and economic growth. The study however recognized that there is no possibility of establishing the confidence for the direction of the causal mechanisms.

 

The earlier studies on international stock market linkages focused on the identification of short-term benefits of international portfolio diversification. The study of Levy and Sarnat (1970) and Solnik (1974), examined the short-term correlations of returns across national markets and pointed out the existence of substantial markets have high possibilities to diversify the risk internationally.

 

McKinnon  (1973) provided the evidences that liberalization of financial markets allows financial deepening which reflects an increasing use of financial intermediation by savers and investors and the monetization of the economy, which allows efficient flow of resources among people, and institutions over time. This encourages savings and reduces constraint on capital accumulation and improves in allocating efficiency of investment by transferring capital from less productive to more productive sectors.

 

Another group of studies concentrated on examining financial links among stock markets by using either bivariate or multivariate co-integration methodology. Taylor and Tonks (1989) were the first to apply bivariate co-integration on the UK and U.S. markets to test the importance of the abolition of foreign exchange controls in 1979. Furthermore, the empirical evidence was not conclusive, while a strong empirical causal relationship among the banking system, stock market development and economic performance was hardly established. Financial development is considered as a means to economic growth through various channels. An important role of financial intermediaries is to provide liquidity to individual investors (Diamond and Dybvig 1983). Similarly study of Stiglitz and Weiss, (1981); and Cho, (1986) concluded that the returns does not increase as the interest rate to borrowers rises.

 

 

 

 

 

Table: 2.2

Review of Empirical Works from 1881 to 1986

 

Study

Area

Major Findings

Shiller (1981)

 

Do stock prices move too much to Be Justified by Subsequent Changes in Dividends?

Price movements cannot be simply justified by changes in fundamentals.

Stiglitz and Weiss (1981)

Credit rationing in markets with imperfect information

Due to stagnant bank returns, increase in interest rate does not increase its return.

Diamond and Dybvig (1983)

A simple example, Federal Reserve Bank of Richmond.

An important role of intermediaries is to provide liquidity to individual investors.

Lucas (1988)

 

On the mechanics of economic development.

Not clear findings about the causality between financial sector and economic growth.

Taylor and Tonks (1989)

 

The internationalization of stock markets and the abolition of U.K. exchange control

There is multivariate co-integration on UK and US market.

Romer (1986)

Increasing returns and long run growth

 

Increase in productivity will cause economic growth.

Cho (1986)

Inefficiencies from financial liberalization in the absence of well-functioning equity markets.

Returns do not increase as interest rate rises.

 

At the theoretical level, the study of stock markets and growth gave new impetus with analyses of the design of optimal financial contracts under asymmetric information in dynamic general equilibrium models. The study of Bernanke and Gertler, 1989 concluded that the evolution of the financial system led to financial contract which emerged to solve the problems of moral hazard. The study concluded that when the firms are in need of external finance face a cost minimization problem, which they must solve by issuing different forms of financial contracts under different circumstances.

 

2.1.2 Review of Empirical Works during 1990s

 

Stock exchanges are expected to increase the amount of savings channeled to corporate sector. Some evidence can be found in the work of Greenwood and Jovanovich (1990). Furthermore, the study concluded that the stock markets play an important role in allocation of capital to corporate sector that in turn stimulates real economic activity. Many countries are facing financial constraints particularly developing countries, where bank loans are restricted to some favorable groups of companies and personage investors. This limitation can also reflect constraints in credit markets (Mirakhor and Villanueva, 1990).

 

Table: 2.3

Review of empirical work from 1990 to 1991

 

Study

Area

Major Findings

Mirakhor and Villanueva (1990)

Market integration and investment barriers in emerging equity markets.

There are high constraints in credit markets.

Greenwood and Jovanovich (1990)

 

Financial development, growth, and the distribution of income.

Financial markets and financial institutions can affect capital accumulation.

Vishny (1990)

 

The stock market and investment.

Stock market on an aggregate level does not predict the future investment.

Levine (1991)

 

Stock markets, growth, and tax policy.

Strong positive relationship between stock market liquidity, productivity improvements and capital accumulations.

Bencivenga and Smith (1991)

 

Financial intermediation and endogenous growth.

Financial agents can affect savings decisions by reducing liquidity costs.

 

The ability of financial intermediaries to offer profitable investments enhances savers’ confidence and attracts additional savings. The efficient operation of financial intermediaries leads to output growth and generates additional demand for deposits and financial services (Greenwood and Jovanovic, 1990). Financial institutions can affect agents’ savings decisions by reducing liquidity costs and offering greater opportunities for diversifying risks (Bencivenga and Smith, 1991). Portfolio diversification, through the stock market, may have an additional growth effect by encouraging specialization of production (Saint-Paul, 1992).

 

In addition, some studies concluded that stock markets could improve corporate governance by alleviating the principal-agent problem between the owners and managers (Jensen and Murphy, 1990). By contrast, other studies pointed out that stock market development could have negative effects by facilitating hostile counter-productive takeovers (Vishny, 1990). Moreover, some argue that takeover threats could hassle managers that discourage long-term investment, and therefore lead to inefficient allocation of resources (Singh and Weiss, 1998). Furthermore, some assert that stock markets, by providing profit incentives, are more effective than banks in information acquisition and dissemination and therefore could enhance quality of investment and thus stimulate growth (Holmstrom and Tirole, 1994). On the contrary, some others believe that banks are superior to stock markets in that they could monitor firms’ investment and management at a lower cost. They contend that in reality, due to dispersed stock ownership, individual investors are relatively small and they neither have the ability nor the incentives to acquire the costly yet necessary information for achieving efficient resource allocation (Bhide, 1993; Singh, 1993).

 

Contrary to traditional view, there are evidences that support the hypothesis that there exist long-run correlation between stock market development and economic growth. But in literature the testing of this hypothesis is rare for developing countries. However, Pardy (1992) in his seminal work has argued that in less developed countries capital markets are able to mobilize domestic savings and allocate funds more efficiently. Spears (1991) reported that in the early stages of development, financial intermediation induced economic growth. Demirguc-Kunt (1994) has supported the view that stock markets promote economic growth.

 

A number of subsequent studies adopted the growth regression framework in which the average growth rate in per capita output across countries is regressed on a set of variables controlling for initial conditions and country characteristics as well as measures of financial market development (King and Levine, 1993a). The study further analyzes the relationship between financial development and real GDP per capita growth, the rate of physical capital accumulation, and increases in efficiency over the period from 1960-89. The study measured the financial development by using the financial depth ratio (ratio of liquid liabilities to GDP), the level of banking, the ratio of credit issued to non-financial private firms to total credit and the ratio of credit issued to private firms to GDP. The study revealed that higher levels of financial development are positively associated with faster rates of economic growth and that the level of financial development is a good indicator of future growth prospects.

 

Robert Barro (1990) reported that in the case of US, stock market variables and stock returns, can largely explain the subsequent aggregate investments. On the contrary, Morck et al (1990) suggested that in the US, the stock market on an aggregate level is not much of a predictor of future investment. Meanwhile, a study by Galeotti and Schiantarelli (1994), based on quarterly aggregate data from the non-financial corporate sector in the US, revealed that investment decisions are significantly affected by stock price fluctuations, regardless whether the variation is due to fads or due to changes in fundamentals. On the other hand, firm- level studies typically showed that there is a very limited effect of the stock market on investment (Abel and Blanchard, 1986; Morck, Shleifer, and Vishny, 1990; Blanchard, Rhee, and Summers, 1993).

 

Table: 2.4

Review of Empirical Works from 1992 to 1993

 

Study

Area

Major Findings

Saint-Paul (1992)

Financial markets and economic development.

Stock markets have additional growth effect.

Pardy (1992)

Institutional reform in emerging securities markets.

 

In less develops countries the capial maket are able to mobilize domestic savings.

King and Levene (1993)

Finance and growth

Rate of physical capital accumulation has increased in efficiency over the period from 1960 to 1989.

Atje, and Jovanovic, (1993)

Stock market and development

Significant correlation between the stock markets and economic growth.

Pagano (1993)

 

Financial market and growth.

Financial growth can affect the rate of economic growth by altering productivity growth and the efficiency of capital.

Bhide (1993)

The hidden cost of stock market liquidity.

Highly liquid market may reduce the shareholders incentives to monitor managers.

 

Atje and Jovanovic (1993) concluded that there is a large effect of stock markets on economic growth but no relationship for bank lending on economic growth. Alternatively, Harris (1997) argued that the Atje and Jovanovic results are not supported by empirical results. Harris analyzed data for forty-nine countries over the period from 1980-91 for the growth in GDP per unit of effective labor, investment as a percent of GDP, the growth of total employed labor and the total value of shares traded on the stock market as a percent of GDP. The study reported that the level of stock market activity has little explanatory power in the sample of developing countries and weak explanatory power for the sample of developed countries. The study of Stiglitz (1994) provided the evidence that when the stock prices is determined by publicly available information then it help investors make better investment decisions. Better investment decisions by investors means better allocation of funds among corporations and, as a result, a higher rate of economic growth. In efficient capital markets prices already reflect all available information, and this reduces the need for expensive and painstaking efforts to obtain additional information.

Table: 2.5

Review of Empirical Work for 1995 AD

 

Study

Area

Major Findings

Bencivenga, Smith,and Starr (1995)

Transactions costs, technological choice and endogenous growth.

Theoretical predications on strong connections between stock market liquidity and fast growth.

Bencivenga et al. (1995)

Transactions costs, technological choice and endogenous growth

Enhanced stock market liquidity reduces the disincentives for investing in long duration and higher return projects since investors can easily sell their stake in the project.

Longin and Solnik (1995)

 

Is the correlation in international equity returns constant: 1960-1990?

By applying sophisticated techniques they found evidence of significant linkages between the stock markets around the world.

 

Hamao et al. (1990), Koch and Koch (1991), Roll (1992), Longin and Solnik (1995), used more sophisticated econometric techniques to measure cross-country correlations, and found evidence of significant linkages between stock markets around the world. Some other studies focused on the evolution of linkages of emerging capital markets. Studies such as Harvey (1995), but particularly Bekaert and Harvey (1995), examined one period returns and the conditional means and variances of one period returns by examining a one factor asset pricing model. The study concluded that the expected returns in a country are affected by their covariance with country’ returns. The study further concluded that if the market was perfectly integrated then only covariance counted, while if the market was completely segmented then the variance was the relevant measure of market risk. Bekaert and Harvey (1995) used a conditional regime-switching model to account for periods when national markets were segmented from world capital markets and when they became integrated later in the sample.

 

 

Table: 2.6

Review of Empirical Work for 1996 AD

 

Study

Area

Major Findings

Demetriades and Hussein (1996)

Does financial development cause economic growth?

There is bi-directionality and reverse causality between financial development and economic development.

 

Diamond (1996)

Financial intermediation as delegated monitoring: A simple example, federal reserve bank of Richmond

Financial intermediaries encourage highly productivity firms reducing informational asymmetries and costs.

 

Levine and Zervos (1996)

 

Stock market development and long-run growth.

Equity market activity is positively correlated measures of real economic activity.

Benchivenga, Smith and Starr (1996)

 

Equity markets, transaction costs and capital accumulation.

Positive role of liquidity provided by stock exchanges on real asset investments.

 

There are not much empirical research investigating causal relationships between stock exchanges and economic growth. One study worth mentioning here belongs to Levine and Zervos (1996). The study applied regression analysis to the data compiled from 41 countries for the years 1976 through 1993 to see the relationships between financial deepening and economic growth. One of the financial deepening indicators used in the analysis was the level of development of stock exchange measured by a composite index, liquidity and diversification indicators. Economic growth indicator selected, on the other hand, was the real growth rate in per capita GDP. Levine and Zervos reported a very strong positive correlation between stock market development and economic growth. The most interesting aspect of this study was the decrease in the statistical significance of other financial deepening variables after stock market development index was included in regression equation. The study concluded with the proof that stock market development is more influential than other financial deepening indicators on the growth of the economy.

 

Traditional growth theorists believed that there is no correlation between stock market development and economic growth because of the presence of level effect not the rate effect. Singh (1997) contended that stock markets are not necessary institutions for achieving high levels of economic development. The study focused on the rapid growth of stock markets in the liberalization process in developing countries over the 1980s and 1990s and argued that financial liberalization (making the financial system more fragile) is not likely to enhance long-term growth. Singh and Weis (1999) viewed stock market as a agent that harm economic development due to their susceptibility to market failure, which is often manifest in the volatile nature of stock markets in many developing countries. The traditional assessment model of stock prices and the wealth effect provided hypothetical explanation for stock prices to be proceeded as an indicator of output (Comincioli, 1996). According to wealth effect, however, changes in stock prices cause the variation in the real economy.

 

Although empirical tests of the relationship between financial development and economic development are not consistent, the bulk of the evidence supports a relationship between financial development and economic development. Demetriades and Hussein (1996) found the evidence of both bi-directionality and reverse causality by using unit root tests, co-integration tests and vector auto-regression tests of causality. The study concluded that financial development causes economic growth, economic growth causes financial system development, and in some cases, the causality is in both directions. As independent variables, the study has used the ratio of bank deposit liabilities to nominal GDP and the ratio of bank claims on the private sector to nominal GDP. The dependent variable is real GDP per capita in local currency terms. Rajan and Zingales (1998) predicted the average annual real growth of value added in an industry in the United Stated over the period from 1980-90. As predictor variables the study used the proportion of investments funded with external financing and the ratio of capital spending to net property, plant, and equipment. Industries were further divided into young and old companies. This process helped them to differentiate industries that were more or less dependent on external financing. The study wanted to test if financially dependent industries perform better in countries that have more developed financial sectors. As measures of financial development in each of forty-one countries. The study used the ratio of domestic credit plus stock market capitalization to GDP, the ratio of domestic credit to the private sector relative to GDP, and an index of accounting transparency. They study revealed that the financial development facilitates economic development by providing cheaper funds to growing industries.

 

 

 

Table: 2.7

Review of Empirical Works from 1997 to 1999 AD

 

Study

Area

Major Findings

Harris (1997)

Stock markets and development

Level of stock market activity has little explanatory power in the developing country sample and weak explanatory power for the developed country sample.

Singh (1997) and Weis (1999)

Financial liberalization, stock markets and economic development.

Stock market is a agent that harm economic development due to their susceptibility to market failure.

Raguraman and Zingales (1998)

Financial dependence and growth.

Financial developmet facilitates economic development  by providing cheaper funds to growing industries.

Levine and Zervos (1998)

Stock markets, banks and economic growth.

Strong and statistically significant relationship between the stock and GDP.

Luitel and Khan (1999)

A quantitative reassessment of the finance-growth nexus.

Financial development is very supportive to economic development.

 

The development of endogenous growth theory in recent years has offered the opportunity to define and explain the link between financial development and economic growth. The study of Pagano (1993) and Levine (1997) concluded that the financial development could affect the rate of economic growth by altering productivity growth and the efficiency of capital. It also affects the accumulation of capital through its impact on the saving rate or by altering the proportion of saving.

 

Benchivenga et al (1996) emphasized that there is positive role of liquidity provided by stock exchanges on the size of new real asset investments through common stock financing. Investors are more easily persuaded to invest in common stocks, when there is little doubt on their marketability in stock exchanges. Some contrary opinions do exist regarding the impact of liquidity on the volume of savings, arguing that the desire for a higher level of liquidity works against propensity to save (Benchivenga and Smith, 1991), (Japelli and Pagano 1994), such arguments were not well supported by empirical evidence. The second important contribution of stock exchanges to economic growth is through global risk diversification opportunities. Saint-Paul (1992), Deveraux and Smith (1994) and Obstfeld (1994) argue quite reasonably that opportunities for risk reduction through global diversification make high-risk high-return domestic and international projects viable and consequently, allocate savings between investment opportunities more efficiently. Whether global diversification might reduce the rate of domestic savings (Deveraux & Smith 1994) seemed to be a weak argument, as it is not convincingly evidenced.

 

Levine and Zervos (1998) analyzed by using stock market liquidity (turnover of shares and value), size (market capitalization), volatility (twelve month rolling standard deviation), integration with world markets (CAPM and APT intercept terms), and bank credit for the private (bank credit to the private sector to GDP) as predictors of economic growth, capital accumulation, improvement in productivity, and savings growth rates for forty-seven countries from 1976-93. The study reveals a positive relationship between stock market and bank development and economic growth, capital accumulation, and productivity growth. The authors conclude that stock markets provide an easy means to trade the ownership of productive assets, which facilitates resource allocation, which, in turn, facilitates capital formation, which leads to faster economic growth.

           

In the framework of the new growth theory, surprisingly few empirical studies of the relation between stock market and economic growth are available. The one important study mentioned earlier is one by Levine and Zervos (1998) who are among the first to ask whether stock markets are merely burgeoning casinos or a key to economic growth and to examine this issue empirically, finding a positive and significant correlation between stock market development and long run growth. The work of Luintel and Khan (1999), among others, is supportive of this view.

 

2.1.3 Review of Literature during 2000

 

Empirical work done in the past two decades mostly focused on the role of financial development in stimulating economic growth, without taking into account of the stock market development. Evolution of stock market has impact on the operation of banking institutions and hence, on economic promotion. This means that stock market is becoming more crucial, especially in a number of emerging markets and their role should not be ignored (Khan and Senhadji, 2000).

 

Beck et al (2000) analyzed the relationship between financial development and economic growth, total factor productivity growth, physical capital accumulation rates

and private savings rates. The study reported that there is a large positive effect of financial intermediaries and total factor productivity growth and economic growth but a lesser effect for long-term economic growth and total factor productivity growth.

 

Wurgler (2000) analyzed the relationship between financial markets and capital allocation in sixty-five countries from 1963-95. The study revealed that countries with more developed financial markets shift capital to growing industries and away from declining industries. The efficiency of the financial system is inversely related to government ownership in the economy and directly related to information availability for firms and legal protections for minority stockholders.

 

Table: 2.8

Review of Empirical Work from 2000 to 2004 AD

Study

Area

Major Findings

Beck, Levene and Loayza (2000)

Finance and sources of growth.

There is a large positive effect of financial intermediaries and total factor productivity growth.

Wurgler (2000)

Financial market and allocation of capital.

The efficiency of financial system is inversely related to information availability for firms and legal protections for minority stockholder.

Arestis et al. (2001)

Financial development and economic growth.

Both stock market and bank may be able to help in economic development.

Bell and Rausseau (2001)

A case of finance lend industrialization

Financial development in India has instrumental role for promoting economic performance.

 

Mishkin (2001) and Caporale et al (2004)

Financing, savings, capital and risk.

Financing productive projects mobilize domestic savings, allocate capital and diversify the risk, facilitate exchange of goods and services.

 

 

Tuncer and Alovsat (2001) examined stock market-growth nexus and exhibited positive casual correlation between stock market development and economic activities. Chen et al (2004) elaborated that the nexus between stock returns and output growth and the rate of stock returns is a leading indicator of output growth.
The study of Phylaktis and Ravazzolo (2001) measured financial linkages by analyzing the covariance of excess returns on national stock markets of emerging economies. A major advantage of this framework is that by examining the co-movement of future returns aggregated over a long horizon instead of the co-movement of one period expected returns one can detect small but persistent movements in expected returns and more accurately measure the degree of financial integration than one period stock return regression models.

 

The study of (Arestis, Demetriades and Luintel, 2001) found that in countries like Germany, stock market volatility has a significant and negative impact on growth. Another point worthy of note is that studies based on a cross-country framework in general have omitted China due to lack of data. Needless to say that given the increasing role of China in the world economy, understanding China is important in its own right. The study used a vector autoregressive model to study the relationship between stock market development measures and economic growth for developed economies, controlling for the banking sector development. The study finds that the stock market and economic growth both may be able to promote growth, with the impact of the banking system being stronger. With well-functional financial sector or banking sector, stock markets can give a big boost to economic development (Rousseau and Wachtel, 2000; Beck and Levine, 2003).

 

Mishkin (2001) and Caporale et al (2004) provided the evidence that an organized and managed stock market stimulate investment opportunities by recognizing and financing productive projects that lead to economic activity, mobilize domestic savings, allocate capital proficiency, help to diversify risks, and facilitate exchange of goods and services. Undoubtedly, stock markets are expected to increase economic growth by increasing the liquidity of financial assets, make global and domestic risk diversification possible, promote wiser investment decisions, and influence corporate governance, that is, solving institutional problems by increasing shareholders’ interest value (Vector, 2005).

 

Bell and Rousseau (2001) evaluated the relationship between individual macroeconomic indicators and measures of financial development in India and revealed that the financial sector has been instrumental in promoting economic performance. Nourzad (2002) analyzed the effect of financial development on productive efficiency using eight measures of financial development for countries at different stages of economic development. The study analyzed three sets of panels of data: annual data for twenty-nine countries from 1966-90, annual data for eighteen countries from 1970-90, and five year average data for twenty-eight countries from 1970-90. The author finds that productive efficiency is greater in countries that have more developed financial sectors.

 

Table: 2.9

Review of Empirical Works from 2005 to 2007 AD

 

Study

Area

Major Findings

Shrestha (2005)

Stock Market and Economic Development.

Gross Domestic Product influence stock market.

Vinhas de Souza (2005)

 

Financial liberalization and business cycles: The experience of the new EU member states.

Capital market reform programs, government approved new laws are regulatory framework for capital market flourish.

Siliver and Duong (2006)

Role of stock market for real economic activity: evidence for Europe.

Stock market has certain predictive content for real economic growth.

Yartey and Adjasi (2007)

 

Stock market development in Sub-Saharan Africa: Critical issues and challenges

African stock market facing challenge of integration and need better technical and institutional development to address the problem of low liquidity.

 

Efficient stock markets provided guidelines to keep appropriate monetary policy through the issuance and repurchase of government securities in the liquid market, which is an important step towards financial liberalization. Similarly, well-organized and active stock markets could modify the pattern of demand for money, and would help create liquidity that eventually enhances economic growth (Caporale et al, 2004). Similarly, Siliverstovs and Duong (2006) revealed that the accounting for expectations has represented by the economic sentiment indicator in which stock market has certain predictive content for the real economic activity.

 

Paudel (2005) acknowledged that stock markets, due to their liquidity, enable firms to attain much needed capital quickly, hence facilitating capital allocation, investment and growth. Adjasi and Biekpe (2005) found a significant positive impact of stock market development on economic growth in countries classified as upper middle-income economies. Bahadur and Neupane (2006) concluded that stock markets fluctuations helps in the prediction of the future growth of an economy.

 

 

2.1.4 Concluding Remarks

 

From the above, it may be seen that the effect of capital markets on economic growth has been a controversial subject. Some studies indicated the statistically significant effect of stock market development on economic growth while others did not. Similarly, some reported positive impact of stock liquidity on economic growth while some did not. In order to validate one view or the other in Nepalese context, no study has been so far conducted by using the recent data by considering Deminigue-Kunt and Levene’s stock market development index. This study therefore tests the above hypothesis concerning stock market development and economic growth in undeveloped country, Nepal.

 

 

 

Chapter 3: Research Methodology

 

3.1 Research Design

 

For the analysis of relationship between the stock market development and economic growth descriptive, co-relational and time series research design will be employed. For the purpose of conceptualization and description, the descriptive research design is going to be used. For the analysis purpose the study covers the time period of ten years. This study will be made on a macro level so it consists of all the sectors including commercial banks, manufacturing and processing organization, hotel sectors, trading, insurance, finance companies and, development banks and so on.

 

3.2 Nature and Sources of Data

 

This study will base on both primary and secondary data. Most of the data related to economic growth and stock market development will be collected from annual report and official reports of concerned organization. The required information will  be  supplemented by Ministry of Finance, Department of Industries, Commerce and Supplies, economic survey published by Nepal Government, quarterly economic bulletin published by Nepal Rastra Bank (NRB), National Planning Commission and Security Board of Nepal (SEBON), World Bank Report will be considered.

 

A field survey based on questionnaire and interview will also be conducted to collect opinions of different respondents in three groups. The respondents selected for the survey will be stock investors, general student and public who have not invested in shares to obtain the information in respect of economic performance and stock market development.

 

3.3 Selection of Enterprises

 

The study is related to aggregate values so aggregate values of economy that is determinants of macroeconomic indicators and aggregate value of market activities that is determinants of stock market developments are going to be selected.

 

3.4 Methods of Analysis

 

Analysis is the systematic and careful examination of available facts so that certain conclusions can be drawn from it. The major part of the study is based on the testing of association of stock market and economic growth.

 

3.4.1 Econometric Model

 

This study is heavily based on Levine and Zervos’s study on stock market development and long run growth. However, their study is based on cross-country regression, but this study considers time series analysis and single equation regression applied to the collected data.

 

Study will determine the casual relation between stock market development and economic growth then determine how they evolve over time and finally seek the relationship between the stock market development and its economic performance. Levine and Zervos (1996) suggested the following equation to evaluate whether there is any relationship between the stock market development and long run economic growth.

 

GDPt = aXt + bSTOCKt + µt                                                                                    (1)

 

Where GDP Growtht is the Gross Domestic Product growth rate and Xt is a set of control variables that is associated with GDP. These variables include government expenditure (EXPN), Public Investment (INV), public development aid (AID), foreign direct investment (FDI). In the same way STOCKt represents stock market development index. It includes market capitalization ratio (Mcap), liquidity ratio (Liquidt) and concentration ratio (Conct). A and B are unknown parameters to be estimated and Mt is an error term. We can consider the following equations in details.

 

GDPt = a1 Xt + b1 Mcapt + b2 Liquidt + b3 Conct + µt                                                               (2)

 

Government expenditure is selected as control variables because in underdeveloped country, government plays key role in economic growth for driving the different productive activities. Thus it can impact positively as well as negatively on economic growth. Public investment is selected as a control variable because if the public investment policy is directed correctly (for instance towards infrastructures development), it can impact significantly on economic growth, since public investment can target health, education, etc., which all contribute to increase total factor productivity. Public development aid is selected because in developing countries savings is inadequate so development aid is an ‘oxygen pipe’ for nation’s development. Foreign direct investment is taken because it measures the private investment as domestic investment is very low as compared to it so it is ignored here.

 

The Liquidity ratio variable represents the turnover ratio measured as the value of total shares traded divided by market capitalization (high turnover then high liquidity). Liquidity allows investors to easily buy and sell securities. As Levine and Zervos (1996) put it, stock markets may affect economic activity through their liquidity since investors are reluctant to relinquish control of their saving for long periods. Market capitalization ratio, which equals the value of listed shares divided by GDP, is taken as the indicator for stock market development. This ratio measures the stock market size, ability to mobilize the capital and helps to diversity the risk. Concentration ratio is the four firm concentration ratios, which is measured by dividing market capitalization of four largest stocks by total market capitalization. If few companies dominate the market, they can manipulate the price formation process. Thus a high concentration ratio is not desirable. Countries with highly concentrated markets have markets that are underdeveloped. So market concentration is hypothesized to be negatively correlated with market size and market liquidity.

 

3.4.2 Correlation Analysis

 

Correlation analysis is necessary in order to find out whether the selected variables in time series have any relation or not. If there is no correlation there would be no causality so this test is necessary.

 

A mathematical formula for measuring the correlation developed by Pearson is as follows.

 

                  (3)

 

Where r is a correlation coefficient, Xt and Yt are two variables whose correlation is to be calculated. Correlation is a measure of the relation between two or more variables. The measurement scales range from -1.00 to +1.00. The value of -1.00 represents a perfect negative correlation, while a value of +1.00 represents a perfect positive correlation. A value of 0.00 or close to zero represents a lack of correlation.

 

3.4.3 Time Series Analysis of the Data

           

For the data analysis purpose the following time series analysis is made. They are as follows.

 

3.4.3.1 Unit Root Tests:

 

According to Nelson and Plosser (1982), Chowdhury (1994) there exists unit roots in most macroeconomic time series.  While dealings with time series, it is necessary to analyze whether the series are stationary or not. Since regression of non-stationary series on other non-stationary series leads to what is known is spurious regression causing inconsistency of parameter estimate (Engle and Yoo, 1987). The hypothesis behind is that random shocks in economy have long lasting effects (Engle & Granger, 1987). The most popular of these tests are the Augmented Dickey-Fuller (ADF) test and the Phillips-Perron (PP) tests. ADF test will be considered for this study because ADF tests use a parametric autoregressive structure to capture serial correlation.

 

3.4.3.2 Co-integration Test

 

The finding that many macro time series may contain a unit root has spurred the development of the theory of non-stationary time series analysis. Engle and Granger (1987) pointed out that a linear combination of two or more non-stationary series may be stationary. If such a stationary linear combination exists, the non-stationary time series are said to be co-integrated. The stationary linear combination is called the co-integrating equation and may be interpreted as a long-run equilibrium relationship among the variables. The purpose of the co-integration test is to determine whether a group of non-stationary series is co-integrated or not. Eviews5 statistical software implements VAR-based co-integration tests using the methodology developed in Johansen (1991, 1995a).

 

There are two different methods for testing for co-integration, Engle & Granger (1987) and Johansen (1988). Jung and Seldon (1995) state that the Johansen co-integration test is more valid as there is no need of prior knowledge of the co-integration vectors, in cases when they are unknown. As this study does not have the co-integration vectors it is better to use the Johansen (1988) test. The Johansen methodology utilizes Vector Auto Regression (VAR) to test the co-integration. The Johansen (1988) method of testing for the existence of co-integrating relationships has become standard in the econometrics literature because of its superiority over other alternatives.

 

3.4.3.3 Granger Causality between Economic Growth and Stock Market Development

 

Measuring the correlation (similarities in strength and direction between two graphs) between variables such as GDP and STOCK would according to Granger (1969) not be enough to construct a complete understanding about the relationship between two time series. The reason is that some correlations may be spurious and not useful, as there might be a third variable that cannot be accounted for. For example there is a correlation between teacher’s salaries in the UK and the consumption of alcohol in the UK. Another example is that ice cream sales are correlated to shark attacks on swimmers (Lethen, 1996). In both examples it would be highly unlikely that one causes the other but that there exists other hidden variables affecting both. There is a correlation but no causal connection.

 

By using the Granger causality approach with the question if variable X (in a time series), causes variable Y (in another time series), a researcher wants to see how the value of the existing Y can be explained by past values of Y. And then by adding lagged values of X add to explanation of the relationship (Eviews 5.0 statistical software)

 

This does in practice imply that if you find a variable that is Granger causing another variable in a certain direction or both, manipulation of one would affect the other.  To reduce spurious results the process of finding Granger causality also involves finding out other relations between the time series and such relations include looking at correlation and co-integration (Sahlin and Sjogren, 2008). So this study is not only looking at the correlation, co-integration and causality but also looking at a further developed relationship between the time series. This is combined to produce an answer to if there is a relationship between the variables. Hence, in this study the word relationship stated by statistical software is used as a generic term for the combined correlation, co-integration and causality time series. For the calculation purpose the following equations have to be estimated.

 

3.4.4.4 Other Statistical Tools Considered

 

For our data presentation and analysis other statistical tools will be. They are mean, median, standard deviation, maximum and minimum, T-test, F-test and Standard Error of Estimate (SEE).

 

 

 

Chapter 4: Concluding the research proposal

 

There are many studies that have examined the relationship between growth and stock markets using either cross country or panel methods. However their empirical approach typically suffers from serious econometric weakness. Traditional growth theorists believed that there is no correlation between stock market development and economic growth. Singh (1997) argues that stock markets are not necessary institutions for achieving high levels of economic development. Some recent studies have stated that stock markets play an important role in allocation of capital to corporate sector that in turn stimulate real economic activity. Studies of Caporale (2004), Vector (2005), Mishkin (2001) and few other studies too state that an organized and managed stock market stimulates economic activities. Most of these studies have reported positive effects of stock on economic growth. One group of study argues that stock markets do not help in economic development of a nation while the other group argues that it help in economic development.

 

With this contrast view, this study attempts to find possible connection between stock market development and economic growth with reference to Nepal. The variables selected for the study are Gross Domestic Product (GDP), Government Investment (INV), Government Expenditure (EXPN), Foreign Aid (AID), Foreign Direct Investment (FDI), Market Capitalization Ratio (MCAP), Concentration Ratio (CONC) and Liquidity (LIQDT).

 

 

 

Bibliography

 

Abel, Andrew B. and Blanchard, Olivier J. (March 1986), “The Present Value of Profits and Cyclical Movements in Investment.” Econometrica, Vol. 54, No. 2, pp. 249-273.

 

Adjasi, Charles K.D. and Nicholas B. Biekpe (2005), “Stock Market Development and Economic Growth: The Case of Selected African Countries.”  Working Paper, African Development Bank.

 

Arestis, Philip; Demetriades, Panicos O; and Luintel, Kul B. (2001), “Financial Development and Economics Growth: The Role of Stock Markets.” Journal of Money, Credit, and Banking, Vol. 33, No. 1, pp. 16-41.

 

Atje, Raymond and Jovanovic, Boyan (April 1993), “Stock Markets and Development.” European Economic Review, Vol. 37 No. 2/3, pp. 632-40.

 

Bagehot, Walter (1873), A Description of Money Market with Currency Monopoly, Homewood, Lombard Street, 1962 Edition.

 

Barro, Robert (1990), “The Stock Market and Investment.” Review of Financial Studies, Vol.3, No. 1, pp. 115-131.

 

Bastola, P. (2003), Impact of Stock Market in Development, unpublished Masters Dissertation, Faculty of Management, Tribhuvan University.

 

Beck, Thorsten, Ross Levine and Norman Loayza (2000), “Finance and the Sources of Growth.” Journal of Financial Economics, Vol. 58, pp. 261-300.

 

Beck, T. and R. Levine (2003), “Stock Markets, Banks, and Growth: Panel Evidence.” Journal of Banking and Finance.

 

Bekaert, G. and C.R. Harvey (1995), “Time-Varying world market integration.” Journal of Finance, Vol. 50, pp. 403-444.

 

Bell C. and P. L. Rousseau (2001), “Post-Independence in India: A Case of Finance Lend Industrialization.” Journal of Development Economics Vol. 65, pp. 153-175.

 

Bencivenga, V.R. and Smith B. (1991), “Financial Intermediation and Endogenous Growth.” Review of Economic Studies, Vol. 58, pp. 195-209.

 

Bencivenga, V.R.; Smith, B. and Starr, R. M. (1996), “Equity Markets, Transaction Costs, and Capital Accumulation: An Illustration.” The World Bank Economic Review, Vol. 10 No. 2, pp. 241-265.

 

Bernanke, B. and M. Gertler (1989), “Agency Costs, Net Worth, and Business Fluctuation.” American Economic Review, Vol. 79, pp. 14-31.

 

Bhide, Amar (August 1993), “The Hidden Costs of Stock Market Liquidity,” Journal of Financial Economics, Vol. 34, No. 2, pp. 31-51.

 

Blanchard, Olivier, Rhee, Changyong, and Summers, Lawrence (1993), “The Stock Market, Profit, and Investment.” Quarterly Journal of Economics, Vol. 108, pp. 115-36.

 

Capora

Staying out of Trouble

Whether as a buyer or seller of software services, if you have been in the software development industry for any stretch of time you will be well aware that contracts can go wrong for both commercial and legal reasons. Today’s technology services cast a wide net. They not only incorporate software license agreements but also embrace security systems, supply chain management, billing, customer relationship management, communications software and a host of others. Basic principles of contract law apply to all contracts. When products and services vary, so should the contract to deal with them properly. There are a number of areas that should be taken into consideration in each and every contract to avoid problems arising and make the most of the relationship – for both the supplier and customer. But too often these issues are not dealt with adequately or worse, ignored, which leads to uncertainty, disputes and potentially the ultimate failure of an otherwise profitable relationship. Some of the most important, yet often neglected areas come under the following headings.

Defining the Services

Behind price, the most important part of a technology contract will be the services to be performed. System specifications and performance capabilities should be stated clearly and precisely. Ambiguously worded requirements are an open invitation to ‘scope-creep’ and a permit for other uncertainties to be imported, so absolute clarity is needed in defining:

• What services are to be performed?

• When they are to be performed?

• By what means can it be unequivocally stated that the particular contract works should be and are complete?

• When does the supplier become entitled to payment?

Time frames for design, implementation, installation, integration, candidate testing and debugging cycles, beta (“bugs expected to appear”) testing, technical documentation, and user documentation should be catered for, preferably on a timeline. It makes sense to plan the implementation over time, rather than expect an instantaneous and flawless performance at go-live. And to add a context and background to the performance-to-contract, it will assist to name the operating environment, any existing or new hardware, network infrastructure and database management systems involved.

Updating the Services

In outsourcing and procurement contracts, updating technology and service performance on a periodic basis usually makes sense for the introduction of new technologies over the life of the contract. Benchmarking service performance provides an objective basis to assess industry standards over time and sets a reference point for improvements to services. Catering for service improvements helps preserve the relationship, as the customer receives increasing productivity and return on investment. Services provided under a contract otherwise typically deteriorate over time, leading to customer dissatisfaction. In most cases, the customer should be entitled to receive the benefit of improvements to technology over time. Flexibility should be built into the agreement to vary services where hidden costs arise. Tied in with this concept is the ability for the parties to change the services delivered over time, and setting out a change-control procedure in the contract assists for this purpose.

Poorly Drafted Contracts

The contract should be in plain English, readily understood by commercial people and mindful that verbosity and complexity are usually the enemies of clarity. Properly drawn contracts facilitate commercial negotiation and dramatically reduce legal costs. Standard contracts dealing with technology products and services should match the nature of the services to be performed. For instance, a software development contract is not suited for delivery of packaged software, and outsourcing agreements are not suited for delivery of special purpose database management systems because the nature of these transactions is completely different. Though it seems obvious that it does not serve the interests of either party to introduce ambiguity in the contract by using a document inappropriate for the purpose, it happens. Savvy in-house technical staff may be well placed to decide whether the document is suited to the nature of the product or service, if advisors are not competent to make a sound assessment.

If you cannot understand the language in the contract, you need to send your lawyer off for counselling.

Some of the danger with technology contracts arises due to the way contracts are interpreted. Once signed, the actual intentions of the parties in the agreement are largely discarded – the law imputes an objective intention to the parties with the result that the document will be interpreted in law differently from what the parties intended. The paramount need at all times is for clarity, clarity, clarity, in that order.

Intellectual Property

The fact that intellectual property rights are intangible does not prevent them from being dealt with like any other property and so, just as any other asset, they may be traded, sold, licensed, assigned or used as security. Copyrights, database rights and know-how created during the course of a technology contract should be dealt with explicitly to ensure that the party who should own the intellectual property does actually own it, rather than leaving the matter to chance. Getting it wrong may mean that using data requires payment of fees. And remember, consultants and freelancers are the first owner of intellectual property unless an exception applies.

In the case of software development, some provision for open source code should be incorporated, to either exclude its inclusion into the project altogether, or manage its inclusion after vetting the terms upon which the code is made available. A customer will probably want to include an indemnity that they will be protected if the deliverable infringes a third party’s intellectual property rights. And the supplier would be prudent to exclude their liability where the customer combines their deliverable with another product that infringes a third party’s rights.

Acceptance testing

In software development contracts, acceptance testing should cater for expected peak periods; and warranty periods should commence after acceptance. The customer may wish to obtain a warranty period for free rectification of defects.

Warranties and Indemnities

Warranties are essentially statements by a party as to a state of affairs at the time of the contract. Unless specifically excluded, statutory warranties will form a part of a B2B contract, however, the parties have the option of excluding all warranties other than those set out in the agreement. Although perhaps not an ideal approach, but as a minimum, warranties should be included to the effect that the deliverable is free from errors; is compatible with existing hardware and software infrastructure; and complies with the documentation produced.

Limitations and Exclusions of Liability

These clauses remove or set a cap on the liability of either party in the event of some failure to perform their obligations. Usually both parties will have a legitimate interest in limiting or excluding liability, and the key is to strike a balance between the interests of the supplier and the customer. Inappropriate inclusions or limitations of liability may extinguish a legitimate claim for losses sustained for a breach of contract or through negligence.

Managing People

Depending on the services to be provided and the degree of integration of staff from different companies, management of staff may be key to avoiding the supplier becoming a competitor and having their entry into the market being funded, in effect, by the contract fees. If the customer wants to avoid this kind of novel surprise, some attempt should be made to maintain exclusivity during and after the agreement has ended by catering for confidentiality of information and know-how, restrictions on competition in the same market and the post-contractual movement of employees, customers, consultants and suppliers. Courts are generally averse to anti-competitive provisions, so such provisions need to focus on legitimate commercial interests and go no further than necessary.

Exit Management

In the anticipation of entering into a contract, parties often overlook the back-end of the contract and how the parties will close their relationship. There is a good argument that, regardless of how the contract comes to an end, the service provider should assist the customer in a smooth change-over to a new provider. It may be sensible for the service provider to agree to provide its services after termination for a set period for time, either on a time and materials basis or against a payment regime set out in the agreement.

Information Security and Data Protection

Where personal data is moved between parties during the course of a contract, the obligations of either party need to be made clear with respect to the handling of the data and whose responsibility it will be to comply with the Data Protection Act. Providing services online heightens security risks, and a service provider should be in a position to warrant that adequate data protection mechanisms are in place.

Fault Logging and Managing Failure

An imperative in project management and managing liability is to maintain an audit trail. A failure to perform services or define losses sustained cannot be proven without evidence, and genuine claims fail without it. If software is involved, faults logs should describe the fault, its date and time, the program executing, version and release, other memory resident processes running at the time and the error messages generated. It may be in both parties’ interests for a contract to provide that audit logs for processes performed by the system be implemented and regularly archived. Regular backups of data are essential for commercial reasons and provide evidence of liability.

Service Levels

In outsourcing arrangements, where reliance is placed on a third party to perform, business continuity is key. Service levels set standards for response times, system availability and error rectification times. Failures by the provider to adhere to service levels usually result in service level compensation through some measure of credit to the customer for failing to meet these minimum contractual delivery standards. Such a mechanism may add management overhead to the contract, but the alternative of exchanging allegations of breach of contract is far less desirable.

Conclusion

I suspect you may have been surprised by some of the areas highlighted, but there are many others. Contracts are living documents that set out and regulate legal relationships and if well drawn up, will benefit both parties. One of the most neglected, yet the critical requirement towards assuring the success of any contract is the balancing of the parties’ responsibilities. A contract that works is likely to be mindful of the commercial interests of both parties; lopsided agreements, where one party bears the lion’s share of the risk and expense to make the service work should be steered well clear of as they have the greatest propensity to engender recrimination and mistrust. Getting the contract terms and structure correct at the start of the agreement should avoid subsequent business discontinuity – and have the added bonus that your solicitors can then have only have one bite at the cherry.

 

When you think of personal success, what comes into mind? Happiness, work culture, ambience, future prospects and of course, the money! Assessment of available options, career planning, job management and the like are an integral part of personal accomplishment standards today. We are no longer working for pay alone. Look at employees like Google who spend millions of dollars to keep their employees happy. They do it because their workforce is their real worth. That, my friends, is the kind of job most people want!

 

A career development test could easily become one of the most significant tools one has for determining a certain course of action related to his or her professional life. Let’s take a relevant and concrete example to see how a career development test can contribute and influence your decisions. A salesperson that promotes energy-saving lighting systems wants to move a step up, and get to a higher position in sales management. Starting from a career development test, the salesperson in our example would be able to determine with a high degree of statistical precision what his chances are for filling a particular position.

 

Career development tests rely on a complex set of algorithms that reflect the education, experience, salary and suitability levels within the sector specified by the individual. The results of the test are conclusive not only within the subjective parameters provided by the user, but are also a part of a larger picture that takes into analysis national and regional data.

 

A career development test can be conducted online. It takes around half an hour to complete, and it is relevant depending on the country for which it was designed. Go for companies with a reputation for being smart. Avoid amateurish tests that are promoted as the right solution for career assessment because they have a low relevance level for your future. It is recommended that you check the source of the data which is taken as a standard for the general background of the results. Thus, the info on the salary and job growth should be provided by the Bureau of Labor Statistics and Employment in your country, as they are the authority to provide the most accurate details on worker attributes and job peculiarities.

 

Moreover, keep in mind that the results of the career development test are for your information only. They orient you in the direction of a certain course of action. You still have the freedom to decide whether you want to follow through or not.

 

Most people who have taken career development tests have declared themselves more than satisfied and even surprised at the number of possibilities that opened up to them. Avoiding career mistakes and maximizing returns is the advantage of going for such a personalized test.

 

 

Find your dream career with access to 1000’s of career and educational resources. Offers unique career development test that can help you make better life decisions. Take a free Career test now online!

 

 

A career development test can help you succeed Find your dream career with access to 1000’s of career and educational resources. Offers unique career development test that can help you make better life decisions. Take a free Career test now online

 

 

 

Make no mistake; nothing else mentioned in this book will help you grow like androgens, as they are the basic building block for increasing muscle size and strength. All other things only serve to enhance androgens. So whether you use a natural testosterone booster or a pro-hormone or real juice, you need the basics to build your genetic house. Androgens have been shown to create new muscle growth in multiple ways, both by increasing protein synthesis (filling up your muscle balloons) and increasing the differentiation of satellite cells (making more muscle balloons). That makes them the ultimate starting point for a genetic anabolic cocktail.

What are androgens? Quite simply they are testosterone and its derivatives, both legal and illegal. Guess when your body produces the most testosterone? You got it, puberty! That’s why you can gain mad muscle cells if you simply work out and eat right when you are in high school. Eating right is important because your body isn’t going to make new muscle cells if it doesn’t have the protein to fill up the ones it already has (which is why so many high school students work out without results). Growing muscle during puberty happens in the kitchen, not just the gym, but that is another book.

Androgens are the most potent muscle builders you can take. Luckily with our products you get the best of both worlds, increased androgen production without the negative side effects that SCARE the hell out of most people. You can start small and use something like Formadrol Extreme or you can jump up to our prohormones (Liquid Masterdrol and Methyl 1-D) or you can go the illegal route and hit juice (we don’t recommend this by the way). People doing our Trifecta Stack are routinely hitting 8-12lbs of muscle in a month without losing their gains. If you juice, you can probably increase that to 15-17lbs but when you grow that quickly, you rarely keep your gains. Slow, steady gains might not feel as exciting, but they are the way to build a body, not an ego! The combination of Stanolone (Liquid Masterdrol) plus Testosterone (Methyl 1-D) is a very powerful combination and gives you the ULTIMATE in safety and also gives REAL gains that you would see from a SANE steroid cycle, without the negatives!

So, how do you get a spike in androgens? Many ways… The first way is to use an herbal product that typically will trick your body into increasing output of Luteinizing Hormone. These were made popular with products like Tribulus

and have come a long way with the advent of newer ingredients like Long Jack and others out on the market. Some of them, like Horny Goat Weed only

serve to boost sex drive and have not been shown to enhance testosterone production.

Another way is to use a natural testosterone booster like LG Sciences Formadrol Extreme, which tricks your body into producing more testosterone by blocking estrogen in the body. This can give you levels above even the very highest natural range (a normal man ranges from 250 ng/dl of testosterone to 900 ng/dl). Formadrol Extreme and similar products trick your body into producing more testosterone and can be very useful as a natural anabolic booster, getting your testosterone levels into the 1400ng/dl range. It is also great for Post Cycle Therapy after a steroid or pro-hormone cycle. They are also useful in combating gynecomastia, commonly called “bitch tits”.

The third way to boost your androgen levels is the use of pro-hormones. First made popular by “Andro”, pro-hormones use the basic building blocks of testosterone to force your body into producing more testosterone through the action of enzymes. The first generation of testosterone boosters, like Andro, had tons of side effects and didn’t work very well. Newer pro-hormones like 1-AD were better, but were still not up to the full value of a steroid cycle. The latest crop of pro-hormones, like Methyl-1-D and Liquid Masterdrol by LG Sciences, reduce the side effects, prolong the half-life in the body and reduce conversion to unwanted, side effect producing by-products like Estrogen. The use of pro-hormones can give you testosterone levels that rival even the strongest steroids, raising your testosterone levels to 3000-3500 ng/dl if used properly.

Methyl-1-D from LG Sciences is a pro-hormone that is formulated to reduce side effects, provide maximum safety and give you AMAZING results. It’s the real basis for our genetics-changing stack. For a more advanced stack, use Liquid-Masterdrol along with Methyl-1-D for the best possible combination of prohormones that hit both the more androgenic (Liquid Masterdrol) and more anabolic (Methyl 1-D) aspects of growth.

The fourth way to boost androgen levels is to use artificial illegal steroids to boost your testosterone levels above even the highest legal levels that pro-hormones can give. I am not here to make a value statement about steroids, but I am just pointing out the option to anyone that is in a foreign country that allows steroid use or is using androgens with a doctor’s prescription.

We highly suggest that you do not use illegal anabolic steroids for obvious reasons and we hope that you respect the law and your body by using natural substances that are safer alternatives. If you do use steroids however, we recommend that you do so safely, cycling off them for at least a month at a time, taking supplements like Fish Oil to cleanse your liver and reduce the chance of cardiovascular side effects. Now, that being said, steroids are obviously not that dangerous, since prescription compounds, such as Testosterone Gel, are being pushed as the next great development (never mind that the Testosterone Gels on the market are loaded with side effects including conversion to DHT which

aggravates the prostate and estrogen that can promote breast cancer, even in men). Once the root of all evil, steroids are suddenly completely safe and side effect free when turned into a prescription drug. Wake up people! Again, we don’t encourage you to use steroids, but if you do, please consider doing them safely (there is a section at the end of good supplements to take with steroids that will offer some nice protection from their side effects).

So, if you are going to do a cycle of steroids, this is the perfect time to add in some serious genetic expression supplements to maximize your growth. One of the funniest things I see is the juice crowd bashing the supplement crowd, when in reality someone on a cycle will probably benefit the most from proper supplementation.

Studies show that androgens do indeed cause genetic changes that can benefit powerlifters and bodybuilders.

Here you see how increasing testosterone through natural boosting, pro-hormones or illegal anabolic steroids can vastly increase satellite muscle cell expression. This is the first real pathway that the body uses to increase muscle size and the number of muscle cells. By increasing the raw number of satellite cells, testosterone is the foundation of our genetic altering arsenal.

Skeletal muscle morphology in power-lifters with and without anabolic steroids.

Eriksson A, Kadi F, Malm C, Thornell LE.

Department of Integrative Medical Biology, Section for Anatomy, Umea

University, 901 87 Umea, Sweden.

The morphological appearance of the vastus lateralis (VL) muscle from high-level power-lifters on long-term anabolic steroid supplementation (PAS) and power-lifters never taking anabolic steroids (P) was compared. The effects of long- and short-term supplementation were compared. Enzyme-immunohistochemical investigations were performed to assess muscle fiber type composition, fiber area, and number of myonuclei per fiber, internal myonuclei, myonuclear domains and proportion of satellite cells. The PAS group had larger type I, IIA, IIAB and IIC fiber areas (p<0.05). The number of myonuclei/fiber and the proportion of central nuclei were significantly higher in the PAS group (p or = 5 myonuclei. The results of AS on VL morphology in this study were similar to previously reported short-term effects of AS on VL. The initial effects from AS appear to be maintained for several years.

Androgen receptor in human skeletal muscle and cultured muscle satellite cells: up-regulation by androgen treatment.

Sinha-Hikim I, Taylor WE, Gonzalez-Cadavid NF, Zheng W, Bhasin S.

Division of Endocrinology, Metabolism, and Molecular Medicine, Charles R. Drew University of Medicine and Science, Los Angeles, California 90059, USA.

Androgens stimulate myogenesis, but we do not know what cell types within human skeletal muscle express the androgen receptor (AR) protein and are the target of androgen action. Because testosterone promotes the commitment of pluripotent, mesenchymal cells into myogenic lineage, we hypothesized that AR would be expressed in mesenchymal precursor cells in the skeletal muscle. AR expression was evaluated by immunohistochemical staining, confocal immunofluorescence, and immunoelectron microscopy in sections of vastus

lateralis from healthy men before and after treatment with a supraphysiological dose of testosterone enanthate. Satellite cell cultures from human skeletal muscle were also tested for AR expression. AR protein was expressed predominantly in satellite cells, identified by their location outside sarcolemma and inside basal lamina, and by CD34 and C-met staining. Many myonuclei in muscle fibers also demonstrated AR immunostaining. Additionally, CD34+ stem cells in the interstitium, fibroblasts, and mast cells expressed AR immunoreactivity. AR expression was also observed in vascular endothelial and smooth muscle cells. Immunoelectron microscopy revealed aggregation of immunogold particles in nucleoli of satellite cells and myonuclei; testosterone treatment increased nucleolar AR density. In enriched cultures of human satellite cells, more than 95% of cells stained for CD34 and C-met, confirming their identity as satellite cells, and expressed AR protein. AR mRNA and protein expression in satellite cell cultures was confirmed by RT-PCR, reverse transcription and real-time PCR, sequencing of RT-PCR product, and Western blot analysis. Incubation of satellite cell cultures with supraphysiological testosterone and dihydrotestosterone concentrations (100 nm testosterone and 30 nm dihydrotestosterone) modestly increased AR protein levels. We conclude that AR is expressed in several cell types in human skeletal muscle, including satellite cells, fibroblasts, CD34+ precursor cells, vascular endothelial, smooth muscle cells, and mast cells. Satellite cells are the predominant site of AR expression. These observations support the hypothesis that androgens increase muscle mass in part by acting on several cell types to regulate the differentiation of mesenchymal precursor cells in the skeletal muscle.

That being said, we can safely increase testosterone using supplements and don’t need illegal anabolic steroids! Pro-hormones boost natural testosterone by giving you the building blocks for testosterone and other steroid hormones. Pro-hormones are the safest, most effective way to boost testosterone without using drugs. The second way is to use natural testosterone boosters. There are many on the market, like tribulus, long jack and others. The best combination is an anti-estrogen that tricks your body into producing more testosterone. There are many of these products on the market, but the latest generations are far more effective and have fewer or no negative effects on the body. Here is what some peer reviewed journal entries say about using testosterone to activate satellite cells:

Testosterone-induced muscle hypertrophy is associated with an increase in satellite cell number in healthy,young men.

Sinha-Hikim I, Roth SM, Lee MI, Bhasin S.

Division of Endocrinology, Metabolism, and Molecular Medicine, Charles R. Drew University of Medicine and Science, Los Angeles, California 90059, USA.

Testosterone (T) supplementation in men induces muscle fiber hypertrophy. We hypothesized that T-induced increase in muscle fiber size is associated with a dose-dependent increase in satellite cell number. We quantitated satellite cell and myonuclear number by using direct counting and spatial orientation methods in biopsies of vastus lateralis obtained at baseline and after 20 wk of treatment with a gonadotropin-releasing hormone agonist and a 125-, 300-, or 600-mg weekly dose of T enanthate. T administration was associated with a significant increase in myonuclear number in men receiving 300- and 600-mg doses. The posttreatment percent satellite cell number, obtained by direct counting, differed significantly among the three groups (ANCOVA P < 0.000001); the mean posttreatment values (5.0 and 15.0%) in men treated with 300- and 600-mg doses were greater than baseline (2.5 and 2.5%, respectively, P < 0.05 vs. baseline). The absolute satellite cell number measured by spatial orientation at 20 wk (1.5 and 4.0/mm) was significantly greater than baseline (0.3 and 0.6/mm) in men receiving the 300- and 600-mg doses (P < 0.05). The change in percent satellite cell number correlated with changes in total (r = 0.548) and free T concentrations (r = 0.468). Satellite cell and mitochondrial areas were significantly higher and the nuclear-to-cytoplasmic ratio lower after treatment with 300- and 600-mg doses. We conclude that T-induced muscle fiber hypertrophy is associated with an increase in satellite cell number, a proportionate increase in myonuclear number, and changes in satellite cell ultrastructure.

Androgen regulation of satellite cell function.

Chen Y, Zajac JD, MacLean HE.

Department of Medicine, University of Melbourne, Austin Health, Heidelberg, Victoria 3084, Australia.

Androgen treatment can enhance the size and strength of muscle. However, the mechanisms of androgen action in skeletal muscle are poorly understood. This review discusses potential mechanisms by which androgens regulate satellite cell activation and function. Studies have demonstrated that androgen administration increases satellite cell numbers in animals and humans in a dose-dependent manner. Moreover, androgens increase androgen receptor levels in satellite cells. In vitro, the results are contradictory as to whether androgens regulate satellite cell proliferation or differentiation. IGF-I is one major target of androgen action in satellite cells. In addition, the possibility of non-genomic actions of androgens on satellite cells is discussed. In summary, this review focuses on exploring potential mechanisms through which androgens regulate satellite cells, by analyzing developments from research in this area.

Androgen receptor in human skeletal muscle and cultured muscle satellite cells: up-regulation by androgen treatment.

Sinha-Hikim I, Taylor WE, Gonzalez-Cadavid NF, Zheng W, Bhasin S.

Division of Endocrinology, Metabolism, and Molecular Medicine, Charles R. Drew University of Medicine and Science, Los Angeles, California 90059, USA.

Androgens stimulate myogenesis, but we do not know what cell types within human skeletal muscle express the androgen receptor (AR) protein and are the target of androgen action. Because testosterone promotes the commitment of pluripotent, mesenchymal cells into myogenic lineage, we hypothesized that AR would be expressed in mesenchymal precursor cells in the skeletal muscle. AR expression was evaluated by immunohistochemical staining, confocal immunofluorescence, and immunoelectron microscopy in sections of vastus lateralis from healthy men before and after treatment with a supraphysiological dose of testosterone enanthate. Satellite cell cultures from human skeletal muscle were also tested for AR expression. AR protein was expressed predominantly in satellite cells, identified by their location outside sarcolemma and inside basal lamina, and by CD34 and C-met staining. Many myonuclei in muscle fibers also demonstrated AR immunostaining. Additionally, CD34+ stem cells in the interstitium, fibroblasts, and mast cells expressed AR immunoreactivity. AR expression was also observed in vascular endothelial and smooth muscle cells. Immunoelectron microscopy revealed aggregation of immunogold particles in nucleoli of satellite cells and myonuclei; testosterone treatment increased nucleolar AR density. In enriched cultures of human satellite cells, more than 95% of cells stained for CD34 and C-met, confirming their identity as satellite cells, and expressed AR protein. AR mRNA and protein expression in satellite cell cultures was confirmed by RT-PCR, reverse transcription and real-time PCR, sequencing of RT-PCR product, and Western blot analysis. Incubation of satellite cell cultures with supraphysiological testosterone and dihydrotestosterone concentrations (100 nm testosterone and 30 nm dihydrotestosterone) modestly increased AR protein levels. We conclude that AR is expressed in several cell types in human skeletal muscle, including satellite cells, fibroblasts, CD34+ precursor cells, vascular endothelial, smooth muscle cells, and mast cells. Satellite cells are the predominant site of AR expression. These observations support the hypothesis that androgens increase muscle mass in part by acting on several cell types to regulate the differentiation of mesenchymal precursor cells in the skeletal muscle.

Testosterone action on skeletal muscle.

Herbst KL, Bhasin S.

UCLA School of Medicine, Charles R. Drew University, Los Angeles, California 90059, USA.

PURPOSE OF REVIEW: To highlight recent data demonstrating direct anabolic effects of androgens on the mammalian skeletal muscle and review the mechanisms by which testosterone regulates body composition. RECENT FINDINGS: Testosterone increases lean body mass and decreases fat mass in young men; the magnitude of the changes induced by testosterone in lean and fat mass are correlated with testosterone dose and the prevalent testosterone concentrations. Older men are as responsive to the anabolic effects of testosterone on the muscle as young men, but have increased frequency of adverse events with higher testosterone doses. This reciprocal change in lean and fat mass induced by androgens is best explained by the hypothesis that androgens promote the commitment of mesenchymal pluripotent cells into myogenic lineage and inhibit adipogenesis through an androgen receptor mediated pathway. Resident muscle satellite cells increase in number with testosterone administration forming myoblasts leading to greater numbers of myonuclei in larger myofibers. Testosterone administration is associated with increased size of motor neurons. The roles of 5-alpha reduction and aromatization of testosterone into dihydrotestosterone and estradiol, respectively, in mediating testosterone effects on body composition are poorly understood. SUMMARY: Testosterone induces skeletal muscle hypertrophy by multiple mechanisms, including its effects in modulating the commitment of pluripotent mesenchymal cells. These changes in skeletal muscle lead to improved muscle strength and leg power; however, further studies are needed to determine the effects of testosterone on physical function and health-related outcomes in sarcopenia associated with aging and chronic illness.

Here you see how increasing testosterone through natural boosting, pro-hormones or illegal anabolic steroids can vastly increase satellite muscle cell expression. This is the first real pathway that the body uses to increase muscle size and the number of muscle cells. By increasing the raw number of satellite cells, testosterone is the foundation of our genetic altering arsenal.

Introduction

The non-governmental or the voluntary organisations have been playing a crucial role in all the socio-economic spheres, including that of the tribal peoples, in India. At one level, they can be termed as the ‘means’ by which the nation makes optimum use of its human resources. However, the mushrooming of voluntary organisations working in the field of rural development in recent years has generated widespread debate about their role, structure, programmes and performance.

 

A unique feature of voluntary organisations is that they stimulate voluntary action among the target community and involve the progressive elements of that community. In the present context of human resource development, voluntary organisations, in their functioning, have demonstrated the freedom and flexibility of working with a personal touch, a capacity for initiative and experimentation with novel programmes. Thus, voluntary organisations exercise full freedom in selecting localities for programme implementation and are free of bureaucratic hassles. In the Indian context, the attributes of a tribe are that they live in relative isolation of hills and covered forests, and often in geographical areas inaccessible to the mainstream population. Tribes generally are groups without a written letter or script. Their sense of history is shallow or mixed with mythology, and in terms of their cultural ethos, language, customs, institutions and beliefs, they stand out from other sections of society.

In India, tribes have different names such as vanyajati, vanavasi, pahariya, adimajati, janajati, anusuchit jati and scheduled tribes — all of which mean the ‘aboriginal’. India stands second interms of tribal population after Africa in the world. According to the 2001 Census, the total population of the tribals is 84.2 million, and accounts for 8.2% of the country’s population. There are about 689 scheduled tribes speaking about 105 languages and 225 subsidiary languages. They have traditionally lived in about 15% of the nation’s geographical area, mainly forests, hills and the undulating inaccessible terrain in plateau areas that are rich in natural resources. They have lived mostly as isolated entities for centuries together and this explains their politico-socio-economic backwardness.

 

However, we have to acknowledge that even before the freedom struggle a few voluntary organisations were active in the sphere of tribal welfare. They also played a significant role in the field of rural development and nation building and continued to do so. Many great personalities took initiatives to form such organisations, which at present, are performing a key role at the grassroots level in implementing various developmental works. Until such time that a genuinely democratic machinery of governance evolves, there will remain a strong urge for voluntary organisations to play a mediating role between the State and the people.

 

As early as 1871, the Bhil Seva Mandal came up in Gujarat. At that time, A.V. Thakkar was the moving spirit behind voluntary organisations committed to tribal development. By the time India got independence, he could establish more than 20 voluntary institutions in different parts of the country. Some other leaders in the Indian National Congress were also involved in tribal development activities. Dr. Rajendra Prasad’s Bharatiya Adim Jati Sevak Sangh helped a lot in shaping the tribal policy when the Indian Constitution at the drafting stage. Various approaches have been evolved in the country in the domain of tribal affairs; prominent among them are the voluntary agency approach, the political approach and the anthropological approach. These three approaches find support in three important policies: 1. Policy of Isolation 2. Policy of Assimilation and 3. Policy of Integration.

After Independence, the policy of integration was found to be the most suitable one. Also, Nehru’s concept of tribal integration was reflected in the successive five-year plans. The policy of integration is the outcome of serious research activities undertaken by many social anthropologists in India. Its main objective is ‘social integration and cultural assimilation’. It was in the fifth five-year plan that the tribal sub-plan (TSP) approach was adopted. In order to fulfill the sub-plan objectives nearly 198 ITDAs and 257 MADA pocket, 78 clusters and 75 micro projects for primitive tribal groups (PTGs) were set up all over the country. Consequently, various strategies came into being. With the passage of time, it has widely been noted that the programmes and activities related to tribal development cannot be implemented by the governments alone. Thus, the significance of participation of the community and the role of voluntary organisations/NGOs was realised in this all-important sphere.

Objectives:

To study the role of NGO’s / voluntary organizations in tribal development.

To study the budgetary allocations for tribal welfare.

To analyse the amount spent for various developmental programs like vocational training centres and literacy programs.

To study the tribal participation in the NGO sector.

Methodology:

The present study used the literature available in different tribal welfare departments, government of India source on tribal welfare, its budgetary allocation and their analysis. A detailed analysis was made using budgetary allocations and their expenditure on the literacy rate improvement, vocational training and other welfare activities. An interpretation was made from the financial year 2001-02 to 2006-07 on the different developmental programs.

Voluntary organisations are necessary:

to supplement government efforts in such fields where the administrative machinery has no reach

to fight against policies and actions which encourage exploitation of the helpless groups and render help to such social groups, including the tribal groups, to stand on their own feet to protect their ways of living and lifestyles.

A voluntary organisation can easily adapt itself to the needs of the people. A sensitive worker can assess each specific situation with sympathy and personal care. Thus, the gulf that arises between what should be done and what is being done as a result of some what inflexible operation of the administrative apparatus, can be bridged.

Objectives of NGOs / voluntary organisations

Whatever the nature of NGOs/voluntary organisations, they play a key role in the upliftment of the weaker sections of society. The objectives of voluntary or non-governmental agencies include some or all of the following:

To create an awareness regarding participation in socio-economic development

To create an able and efficient local leadership

To assist in the planned efforts to create socio-economic infrastructural facilities

To facilitate the process of expanding employment opportunities

To induce appropriate persons to set up small scale productions and

To make the tribals give up the pre-agricultural technology and seek better education.

Role of NGOs / voluntary organisations

NGOs/voluntary organisations have a long history of active involvement in the promotion of human welfare and development. They come up with a mission to serve a human cause, spontaneously-voluntarily and without any compulsion or control, to fulfill certain needs of specific groups of people. These organisations are flexible and possess the virtue of humanitarian service with concern. Voluntary action is the soul of social action as this medium secures active involvement of the people from policy making to implementation of programmes. Their activities cover a diverse range of functions in the welfare sector. The programmes of voluntary organisations are strictly service-oriented, professional in nature and specialized in functions. The essential feature of voluntary action is that it fixes the problem. It starts to not only to solve a problem but also to prevent the occurrence of it. Voluntary action, thus, ultimately aims at creating a situation conducive to the development of potentialities in individuals, groups and communities so they can find solutions to their problems and realise their ultimate goals.

Regarding the role and nature of voluntary organisations, there appears to be two different views. Some are happy with the functioning of such organisations and plead for their increasing role. According to them, these organisations should be given ample scope to serve people. For, the government agencies, crippled as they are with bureaucratic complications and rigidity, have failed to work satisfactorily. Others hold that it is undesirable to give undue importance and authority to voluntary agencies as there is a great possibility of institutionalizing the chances.

In this context, the suggestion is that the voluntary organisations should be given ample scope to work in collaboration and co-operation with the government agencies and subject to strict government scrutiny and monitoring. The need for involving the NGOs in rural development was highlighted and acknowledged by various official committees set up by the Government of India. One of these was the Balwant Rai Mehta Committee (1957) which in its report emphasized that during the implementation of community development schemes more and more emphasis should be laid on NGO’s /VOs. The Dhebar Commission in its report on the scheduled areas and Scheduled Tribes opined that the principle of active and purposeful participation of people at all levels could best be served by assigning an important role to non-official organisations. It is necessary in any democratic framework to take up some of the nation-building activities under non-official auspices.

The report of the committee on Panchayat Raj Institutions (1973) appreciated the role of voluntary organisations in the development of rural and interior areas. The committee reiterated that these organisations could be particularly involved in conceiving projects and schemes. They can be of great help in creating strong public opinion in support of measures of social change. The Sivaraman Committee set up by the Government of India also recommended involvement of voluntary organisations in planning and implementation of the integrated rural development programmes. Thus, there exists a widespread agreement among all the concerned that voluntary organisations have an important role to play in the overall development of the rural areas.

Grant-in-Aid to voluntary organisations for the welfare of the Scheduled Tribes

The Ministry of Tribal Affairs is the key governmental agency with respect to the welfare and development of the tribal peoples all over the country. It is the responsibility of the ministry to reach the target groups, particularly the tribals living in remote and inaccessible areas. The objective is to bring them into the mainstream of development by assisting them to overcome their social, psychological and educational backwardness. Capacity building is the key factor here. Such training would equip them to employ their capabilities to their fullest potential thereby reducing their reliance on others and achieving self-sustenance to the maximum extent possible – which is the ultimate goal of the government.

 

The NGOs supplement the efforts of the State in ensuring that the benefits reach the maximum number of people. In certain cases, voluntary organisations are in a better position to implement the governmental schemes in a more efficient manner than the administrative machinery. This is primarily attributable to the highly committed and dedicated human resources that are available with the voluntary organisations. The role of NGOs was in the reckoning since the first five-year plan. Many organisations have done commendable job in tribal areas and are still active. Since the last two decades, there has been an exponential growth in the number of NGO/VOs approaching the ministry of tribal affairs for financial assistance.

It has been felt that along with few very dedicated and committed voluntary organisations / non-governmental organisations a large number of other organisations have also come up that want to grab public funds for their narrow and selfish interests. The ministry would take all the possible steps to curb the entry of such voluntary organisations/non–governmental organisations in the field of tribal welfare. The Ministry of Tribal Affairs feels that some organisations solely depend on aid from the government. This situation has to change. The voluntary organisations should aim to expand their effort on the support from the government and thereafter establish other support systems that could free them from financial constraints.

It should be the intention of the organisations to obtain support of other sources for their work. This can happen after they establish themselves with the support of the government and prove their usefulness to society, at large. If the impression that NGOs can support themselves financially gains ground, then the support of corporate houses and even the community would follow as a natural consequence. Contribution, both in kind and cash, would come easily once their credentials are firmly established. Additional resources, if necessary, could also be mobilised. Voluntary organisations should make all possible efforts to involve the community in their work. Community participation helps in building confidence among the people and in providing feedback for further improvement and reorientation of the programmes. Thus, the long-term interests of the tribal communities can be served. The Ministry of Tribal Affairs endeavors to provide full advantage of all schemes to the non-governmental organisations/voluntary organisations that have absolute credentials in the field of tribal welfare. It also wants to promote new groups with brilliant ideas and new strategies for the speedy development of the targeted people.

It has been the constant endeavor of the ministry to identify the voluntary organisations/non-governmental organisations which have an all India character and known for their selfless service and facilitate them with some preferential treatment with regard to sanction of new proposals and relaxation of certain norms and conditions relating to release of annual grants. In this direction, the ministry has identified a few such organisations and categorized them as “Established Voluntaries Agencies (EVAs)”

The following organisations have been identified as the EVAs by the ministry:

Ram Krishna Mission and its affiliated organisations

Akhil Bharatiya Banavasi Kalyan Ashram

Bharat Sevashram Sangh and its affiliates

Bharatiya Adim Jati Sevak Sangh

Seva Bharati & its affiliated organisations

Vidya Bharati and its affiliated organisations

Swami Vivekanand Youth Movement

Schemes in the voluntary sector

There are three on-going schemes with the ministry, which are open to participation of the voluntary and non-governmental organisations. The schemes are:

Grant–in–aid to voluntary organisations working for welfare of scheduled tribes (GVWST).

Educational complex in low literacy pockets for the development of women’s literacy in tribal areas (ECLP)

Vocational training centers (VTC)

In addition to the said schemes, the ministry has an exclusive programme for non-governmental organisations with regard to the development of primitive tribal groups (PTGs)

Scheme of grant-in-aid to voluntary organisations working for the welfare of the scheduled tribes (GVWST)

Objective: The prime objective of the scheme is to provide for an overall improvement and development of the target group i.e., the scheduled tribes though voluntary efforts in the fields of education, health & sanitation, environment, drinking water and legal services as well as the need-based socio-economic upliftment efforts. It also supports other relevant activity deemed appropriate and having a direct impact on the target group. The scheme is under implementation since 1953-54.

Salient features: The grants are provided to the non-governmental organisations on their application in prescribed formats, in the form of supporting projects that meet the objectives of the scheme. The NGO’s are required to maintain separate accounts in respect of the grants released to them, which are open for inspection by all appropriate officers/agencies of the government. The NGO is also required to maintain separate accounts of Grant-in-Aid audited by the Government Auditor or a Registered Chartered Accountant and submit complete set of copies of Audited Statement of Accounts as prescribed by the Ministry. The grants are generally made in two installments every year subject to satisfactory performance of the NGO. Activities of the NGOs are monitored as per the established provisions of the Financial Rules besides field inspection by the Ministry or the State Government officials or by any other agency designated by the Ministry.

Funding Pattern: Funds are granted – to the extent of 100 per cent – directly to the Non-Governmental Organizations working in the Scheduled Areas based on the recommendations of the State Governments and the Union Territories. The non-governmental organizations are supported to the extent of 90 percent of the project cost for projects in areas other than Scheduled Areas. However, the Ministry of Tribal Affairs has the discretion to assist even up to hundred percent.

 

Schemes of Educational Complex in Low Literacy Pockets

The Scheme was introduced in 1993-94 in 136 districts with less than 10 per cent literacy rate among tribal women. It is being implemented through:

Non-Governmental Organizations

Institutions set up by the Government as Autonomous Bodies and

Registered Co-operative Societies.

Objectives: The primary objective of the scheme is the promotion of education among tribal girls in the targeted districts of the country. The secondary objective is to improve the socio-economic status of the economically backwards and the illiterate tribal masses.

 

Coverage: The scheme covers 136 districts with less than 10 percent literacy among ST women spread over 14 States namely Andhra Pradesh, Bihar, Chattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttaranchal and West Bengal.

 

Procedure for Release of Grant-in-aid and Funding Pattern

The extent of assistance under the scheme would be 100% in all cases.

In the event of the Ministry of Welfare itself executing any element of the programme i.e. engagement of consultants, for project formulation, monitoring and evaluation, as well as expenses towards cost of training of NGO functionaries, etc, full cost shall be borne from the budgetary provision of the scheme.

Under the programme, while predefined cost heads are stipulated at the project formulation stage, each implementing agency shall submit a detailed project proposal clearly bringing out the programme modalities and individual expenditure heads. Ministry of Welfare while approving the project shall indicate the extent of support to the project as a whole as well as to each component of the project against which re-appropriation to the extent 20% of the total grant shall be permissible.

Salient Feature: Educational complexes can be set up in rural areas in the notified districts and can have classes up to V with provision for up-gradation up to Class XII provided they have sufficient accommodation for classrooms, hostels, kitchen, and garden and for sporting facilities. These educational complexes impart not only formal education to tribal girls but also train students in agriculture, animal husbandry and other vocations and crafts as to make them skilled for leading a better life. The teaching from classes I to III is imparted in tribal dialects of the area and women with proficiency in tribal dialect are engaged as teachers. The strength of students for each class is fixed at 30, however a maximum of 10 more students, if available, in the locality are admitted as day scholars.

Performance of the schemes

Table 1: Grant- in-aid to voluntary working for the welfare of scheduled Tribes

(Rs in Crores)

Year

Allocation

Expenditure

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

BE RE

27.00 —

32.00 31.95

30.00 25.21

30.00 29.00

22.00 22.00

26.00 30.00

11.00

30.4866

26.9030

29.3008

26.1087

14.08 (upto31.12.06)

Source: status of Tribal in India.

From this table it can be concluded there is not much increase in the amount spent for the tribal welfare through Grant-in-aid. In the year 2001-02 an amount of 27 crores was allocated but only eleven crores was spent. In the following years all most all the allocated amount was spent completely but there no increase in the budget allocation.

Establishment of Ashram schools

The Ashram schools have played an important role in raising the literacy levels of the scheduled Tribes. They provide the necessary environment conductive to learning. The schedule is in operation since 1990-91.

Construction of Girls Hostel for scheduled Tribes

The main objective of the scheme is to ensure adequate enrolment of scheduled Tribes girls in educational institutions, particularly at the school stage. The scheme of girls’ hostels for scheduled tribes has been in operation since the Third Five Year Plan.

Construction of Boys Hostel for Schedule Tribes

The main objective of the scheme is to ensure adequate enrolment of Scheduled Tribes boys in educational institutions, particularly, at the high school level. The scheme of Boys Hostel for Scheduled Tribes has been in operation since 1989-90 under the Centrally-sponsored scheme of Establishment of Boy’s Hostel in Tribal Sub-Plan areas.

Schemes for Primitive Tribal Groups (PTGs)

Objective: There are certain tribal communities that are having low levels of literacy, declining or stagnant population, and pre-agriculture level of technology and are economically backward. There are 75 such groups in 15 States/UTs that have been identified and categorized as the Primitive Tribal Groups (PTGs). Each of these groups is small in number, differentially developed with respect to one another, of remote habitat with poor administrative and infrastructure back up. Therefore, they are in urgent need of support from the government as well as the non-government agencies. Their protection and development at par with other tribal groups has to be accorded utmost priority.

 

The problems and needs of PTGs are quite different from other scheduled tribes. Since they constitute the most vulnerable among tribal groups, States/UTs have been requested to allocate requisite funds and plan special schemes for their socio-economic development. However, there are areas/activities, which though very crucial for the survival, protection and development of PTGs, are not specifically catered to by any existing scheme. Funds under this scheme should be used for such activities.

Scope: Such provisions/activities should not be identified only at the central level as they may differ from State to State and within a State from project to project (ITDA). However, funds under the scheme could be used for helping the beneficiaries of the project to cope with extremely adverse situations that threaten their very survival and protect them against various forms of exploitation thereby bringing them to a stage from where they can demand and receive specific assets and services. The activities under the scheme may include measures such as awareness generation and confidence-building, training for skill development of tribal youth, self help groups and provision of services/ inputs not covered by any existing scheme. In terms of beneficiaries, the scheme can cover maximum number of the PTGs.

Implementing agency: The scheme will be implemented through integrated tribal development projects (ITDP) / Integrated Tribal Development agencies (ITDAs), tribal research institutes (TRI) and non governmental organisations having requisite skills and determination. The State government concerned will be responsible for proper execution, implementation, supervision and coordination of the scheme, including selection of NGOs.

Terms& Conditions

The financial assistance as provided under the scheme should be utilized for the purpose it has been sanctioned and for the welfare of the members of the Primitive Tribal Groups

The financial assistance given to ITDPs/ ITDAs and TRIs would deemed to be given to the state governments concerned and rules and regulation governing the grant in aid to States / UTs will apply to them.

The implementing agency shall allow the representative of the Ministry of Tribal Affairs or the State government to monitor or evaluate the actual working of the scheme.

The private agencies (NGOs) shall furnish a certificate to the effect that they accept the grant sanctioned to them subject to terms and conditions laid down by the Tribal Affairs Ministry. They should also furnish a bond with two sureties in the name of the competent authority signed by an office bearer duly authorized by the Board of Directors of the agency for the actual implementation of the scheme and submit accounts of the grant sanctioned by the ministry.

Table 2: Grant-in-aid to low literacy pockets in tribal areas (Rs in Crores).

Year

Allocation

Expenditure

2002-2003

2003-2004

2004-2005

2005-2006

BE RE

8.00 7.00

8.00 6.00

8.50 8.00

6.00 6.00

6.00

5.7482

7.6793

6.00 (upto31.12.05)

Source: Status of tribal in India

From the table 2 one can observe that the expenditure incurd was not the total amount sanctioned. For example in the year 2002 -03 an amount of 7 crores rupees was allocated but only 6 crores was spent. It is nearly the same spending in the next three following financial years.

Vocational Training Centers

Objectives: There is a great need for vocational training centers in tribal areas where the Left wing extremism is on the rise. Large-scale unemployment has been stoking rebellious tendencies among the tribal youth in such areas. The extremism is manifestation of frustration and lack of faith in the present pattern of development. It is necessary that both the State and Central governments should make efforts to wean away the tribal youth from disruptive activities. Establishing vocational training institutes and creating a wide range of employment opportunities can be the way forward.

Table 3: Grant-in-aid for vocational training centres in tribal areas (Rs in Crores)

Year

Allocation

Expenditure

2002-2003

2003-2004

2004-2005

2005-2006

BE RE

6.00 3.00

4.00 2.00

4.00 1.50

1.40 1.40

2.3044

1.1801

0.5654

0.7341 (upto31.12.05)

Source: Status of tribal in India

From the table 3, the amount spent for vocational training centers is very less and also the amount being spent on such programs is being reduced. In the year 2002-03 though the amount that was sanctioned was 3 crores, only 2.3 crores was spent. This trend continued in the following years.

Non-governmental organisations shall meet the following requirements:

 

It is a registered body under an appropriate Act so that it gets a corporate status. A legal personality and a group liability have to be established for its activities.

It has an appropriate administrative structure and a duly constituted managing/executive committee

The aims and objects of the organisations and programmes in fulfillment of those aims and objects are preciously laid down and

The organisation is initiated and governed by its own members on democratic principles without any external control.

Procedure for Release of Grant-in-Aid

Under the scheme, 100% Central assistance will be given to States/UTs/NGOs for setting up and running of vocational training centres.

In the event of ministry of welfare itself executing any element of the programme i.e. engagement of consultants for project formulation, monitoring and evaluation as well as expenses towards cost of training of NGO functionaries etc. full cost shall be borne from the budgetary provision of the scheme.

Under the programme while no predefined cost heads shall be stipulated at the project formulation stage, each implementing agency shall submit a detailed project proposal clearly bringing out the programme modalities and individual expenditure heads. Ministry of welfare while approving the projects shall indicate the extent of support to the project as whole as well as to each component of the project against which re-appropriation to the extent of 20%of the total grant shall be permitted.

Conclusion

In India, we have a pluralistic society as opposed to a monolithic culture. The voluntary organisations cater to the needs of our cultural plurality. If we would like to avoid concentration of power in the hands of a few, we must retain this multi-ethnic character of a free society and make full use of it. Voluntary organisations can serve as ‘power breakers’. Efforts should be made to prepare people for a new kind of society through voluntary work. When the State’s resources are limited, voluntary action would bring forth additional resources and cover the areas hitherto uncovered by the State. In view of their flexibility in operation, ability at experimentation and innovation, pioneering spirit and other such qualities, voluntary organisations can continue to work for better standards, better methods and better forms of organisation. There is an argument that at the empirical-existential level voluntary agencies are nothing but the stooges of the ruling elite and the corporate sector, mainly of the capital finance variety. In this new role, voluntary organisations have created a crisis that begs a comprehensive solution.

However, given the circumstances in terms of administrative or governmental reach, especially in the implementation of welfare schemes for the tribal peoples, we for once cannot deny the positive role of the non-governmental organisations. There are many areas yet to blink the state’s radar. They are either very remote or inaccessible. In such a situation, the concerned and committed civil society groups have no other alternative but voluntary approach. The role of NGOs in the fields of education, health, sanitation, housing and particularly agriculture has not been a wide ranging one. We shall hope they would expand their area of action.

References:

G.S. Ghurye, The scheduled Tribes, 2nd Edition, 1958

Dhebar, Commission Report on Scheduled Areas and Scheduled Tribes, Delhi, 1961.

D.R. Methe, “Legal Protection to Tribals and Tribal Development A New Deal for Tribals and Tribal Development” in S.G. Deogaonkar (ed), Problems of Development of Tribal Areas, 1980

Verrier Elwin, A New Deal for Tribal India, 1963

S.C. Dude, “Approaches to Tribal Problems in India, Kitab Mahal, Allahabad, 1968

Kulkarni, V.M. Voluntary Action in a Developing Society, New Delhi, Indian Institute of Public Administration, 1969.

Gore, M.S., ‘Relative Roles of State and Voluntary Agencies in the Organisation of Social Services”, Proceedings of the seminar on ‘So Administration in Developing Countries’, New Delhi, India International Centre, New Delhi, 1964,

Franda, Marcus, Voluntary Associations and Local Development in India : The Janta phase, New Delhi, Young Asia Publications, 1983

Verghese, B.G., “Voluntary Action: A New Mission for the New Missionaries”, Voluntary Action, XIV: 1, January- October, 1977

Windey, M.A. “A Rural Reconstruction Movement in India “ Voluntary Action, XVIII: 3-4 March- April , 1976

Shah, Ghanshyam and Chaturvedi, H.R. Gandhian Approach to Rural Development: The Valid Experiment, Delhi, Ajanta Book International, 1983

1M. RAKESH. M.A., B.Ed. Department of Economics, Osmania University. Hyderabad.

Sierra Leone: Microfinance Demand and Stakeholders’ Perceptions of Impact
By Kenday S. Kamara, October 2008

With a population of about 6 million people, composed of 20 ethnic groups, “with Temne (30%), Mende (30%), Creole (10%) and Other (30%) making up the composition; and with an estimated 935,800 households, Sierra Leone has one of the lowest human development index (HDI) with economic growth estimated at 5.5 percent and inflation at 2.2″ (UNDP). The country is scarred by a decade long civil war. And since January 18, 2002 when the war was officially declared over, majority of Sierra Leoneans are today still struggling and in dire conditions.

The persistence of poverty is causing irreversible harm to the Gross Domestic Product (GDP) of Sierra Leone and the good life of her people. The level of poverty and the extreme low levels of incomes due to massive unemployment in Sierra Leone exceed colonial levels by over 60 percent and is not getting better. The country has been classified by a United Nations Human Development Report “as one of the poorest countries in the world with widespread poverty, high infant mortality rate about 182/1000 and life expectancy, among the least in the world, about 38 years; low adult literacy rate estimated at 30% while only 35% of the population had access to safe drinking water in 1998″ (UNDP). The country was ranked bottom of the 177 countries listed in the UNDP’s Human Development Reports from 1991 to 2004. 

The economic costs of unchecked poverty trends will be severe. In the late 70s and the 80s, the widespread students’ discontent in the country anticipated the nemesis that befell the country in the 1990s-which could be rightly described as “the age of consequences” when the country had to go through the most brutal civil conflict in modern times claiming thousands of lives with many thousands losing their limbs and causing severe economic losses and the effect on the country’s GDP extremely damaging. What this indicates is that the persistence of poverty is creating major security risks and the pervading scenarios of resource scarcity is only causing increased mortality rates as a consequence of unmitigated disease proliferation under extreme conditions.  

The social indicators of development in Sierra Leone that fell drastically in the course and aftermath of the 10 years scourge the country underwent putting Sierra Leone at the bottom of UNDP’s Human Development Index has not changed much today. More than 80% of the population still falls below the poverty line of $1 per day. Containing poverty, therefore, will require increasing the current levels of support programs that target poor and very poor populations in Sierra Leone and also support increase of women’s access to financial services.

Microfinance support structures, for instance, have been found to be quite relevant to poverty alleviation and gradual and steady development in developing countries. And it is no rocket science the way microfinance works: micro loans provided to multiple beneficiaries through microfinance support channels are used as revolving investment funds benefiting many beneficiaries all at once.

However, considerable leadership and organizational development work has to be done to build the capacity of microfinance institutions and micro-financed beneficiaries in Sierra Leone. This is necessary for the microfinance support machine in Sierra Leone so that it exists in a way that it feeds on the success and growth of microfinance supported programs. The growth of microfinance supported programs would translate to supporting more microfinance outreach programs to benefit more Sierra Leoneans thus fueling the engine of economic growth. Periodic programs impact assessments are necessary as well to assess whether microfinance supported programs have had the desired impact on beneficiaries and on the economies of beneficiaries’ in various communities. 

Per capita poverty in Sierra Leone today is four times as dismal as those in countries like Ghana, Nigeria and Senegal and 10 times as dismal as those in Botswana and South Africa. Sierra Leone is renowned for widespread corruption and as one of the world’s most corrupt countries with a per capita income to be the lowest in the world. The current administration must therefore urgently implement a durable national strategy to address the persistent poverty threat through well regulated microfinance structures.

The youth, women and children are by far the most vulnerable to poverty. Widening unemployment increases the mortality rate, and worsening GDP devastates the country at gargantuan proportions. Emerging graduates from higher institutions of learning and vocational institutes are also highly vulnerable to the fallout from the widening unemployment rate in the country, including lack of savings, inadequate healthcare, and almost zero productivity in all sectors of the economy. These categories of unemployed are understandably loath to bear the burdens of the transitioning new political leadership while a whole new crop of politicians continue to corrupt apace.

Launching an effective regime for robustly coordinated microfinance structures presents an opportunity for APC leadership. The APC leadership must strive to bring microfinance channels into a system that establishes the common understanding for the widespread development impact of microfinance loans being one of the main ways beneficiaries create employment for themselves and be able to overcome food insecurity, address emergencies, and pay for medical and lifecycle expenses. With an efficiently regulated microfinance supply structure, the social impact of microfinance growth can also be seen in the growth of education and in the number of children able to complete secondary education in beneficiary communities. Further, microfinance stakeholders would become empowered in terms of increased self-esteem gained from being able to provide for their family and increased decision-making at the enterprise level.

Untapped Potential

Sierra Leone can learn a great deal from Latin America and East Asia’s experience with successfully active microfinance programs. “The largest distribution of loans and mobilization of savings in terms of GNP are recorded in South East Asia (Thailand, Bangladesh, Vietnam, and Indonesia), and Latin America (Bolivia, Honduras, Panama, Jamaica, and Colombia)”.

Sierra Leone’s microfinance sector, on the other hand, is at a very nascent stage, composed of a mix of projects coordinated by NaCSA (National Commission for Social Action) and some international and other local NGOs. About 60 microfinance NGOs, projects and programs in the country are coordinated by NaCSA’s Social Action and Poverty Alleviation (SAPA) program (a government run retail MFI). Only 10% of financial services to micro and small businesses were estimated in 2003.

A distinguishing characteristic of Sierra Leone’s financial sector is its high exclusivity, mostly serving the middle class, supporting high margin type enterprises and people with guaranteed salaries. The economic activities of commercial banks are primarily on treasury bills rather than investing assets on business sector lending. 

Effort to develop the microfinance sector in order to create an inclusive financial sector that has the potential of directly impacting at least 20% of the total population in terms of income and employment generation in a sustainable manner is a sound approach. The relevance of microfinance to economic development is evident and the gradual integration of microfinance into high level commercial financial activities of banks is key to building an all inclusive financial system.

“NaCSA is a governmental body that was established as a ‘Social Fund’ in November 2001 by an Act of Parliament as the successor to the National Commission for Reconstruction, Resettlement and Rehabilitation (NCRRR). The NaCSA Microfinance Program (MFP) is primarily a technical assistance and training vehicle for building a viable, sustainable and growing microfinance sub-sector. It operates with its own staff and through the NaCSA network of 16 decentralized offices.” A recent ACP-EU-supported national survey of MFIs coordinated by NaCSA evaluated the degree of transparency of reporting processes and the kind of increases in efficiency and progress towards operational self-sufficiency these MFIs are making. The March 2008 survey outcomes were meant to determine the kind of sustainability objectives to be pursued. Data from the national survey are meant to be used to increase the effectiveness of ACP-EU interventions in terms of capacity building, internal controls and promoting a customer orientation.

Given the unique nature of the ACP Business Climate Facility (BizClim)-an ACP-EU joint initiative financed under the 9th European Development Fund (EDF) as a proactive capacity building international development program-the NaCSA coordinated survey project provided the opportunity for ACP-EU to play a leadership role in helping to develop a shared understanding of sector needs and gaps, and to provide vision and strategy for bridging challenges. The ACP-EU values the strategic and deliberate setting of objectives, specific policy replication activities and targets, and building capacity. The ACP-EU survey thus made an assessment of the strategic positioning and comparative advantage of ACP-EU in the broader microfinance context in Sierra Leone and vis-à-vis other players in the microfinance arena. It also examines the relevance and significance of ACP-EU investments and technical assistance to ACP-EU-funded microfinance programs.

ACP-EU has offered its capacity (of programs flexibility and professionalism) to contribute to microfinance development and to help Sierra Leone meets her Millennium Development Goals (MDG) measured in terms of cutting poverty in half by 2015. Sierra Leone has need for support to diversify her community level economies and economic activities if it is going to meet her MDGs. ACP-EU has a distinct capacity to innovate in this area by using the best means available (a microfinance demand and supply survey) to find out about the programs impact of microfinance in Sierra Leone by asking the various stakeholders for their perceptions. Ahmed Saybom Kanu, Administrative Officer for Statistics Sierra Leone explained in a meeting with the author of this essay “that the issue of micro credit has greater sociological dimensions. How these dimensions are looked at, varies. Therefore, it is good to learn more about microfinance and how the sector can be expanded with greater outreach.”

Unfortunately, former president Kabbah’s NaCSA squandered an opportunity to properly manage the resources provided by the ACP-EU that could have helped underwrite the transition to a vibrant micro financed economy: instead of efficient management of micro loans, it opted for the politically expedient path of giving away micro loans without proper loan management mechanisms. Many of the microfinance beneficiaries, particularly party affiliates, reacted by misusing micro loans resulting in billions of leones used in misplaced priorities. The Kabbah government had less motivation to impose stringent microfinance-efficiency standards, let alone be transparent and conform to ACP-EU standards.  The current APC leadership should now be expected to actively debate the capacity of NaCSA on the development of a vibrant microfinance sector. The emphasis should be on creating opportunities for the poor and low income people. In that regard, the country’s large informal structure needs to be stimulated and developed through a well coordinated microfinance supply system to absorb huge numbers of the population to become gainfully self employed. “Estimates are that the informal sector accounts for at least two-thirds of the total labor force, and 70% of the urban labor force. More than half the population is under 20 years of age. Of the total population around 65 percent lives in rural areas” (UNCDF).

The Microfinance Landscape

 The commercial banks are both major players in the Sierra Leone economy and the country’s leading lending institutions. Commercial banks’ leadership will therefore be indispensable in the creation of a national regime to coordinate microfinance opportunities. But commercial banks have shown little or no interest in microfinance and they hesitate to help establish a national system capable of channeling the necessary funds to microfinance activities. These banks provide mostly basic financial services with a client base of about 85,000 clients.

Fortunately, the Sierra Leone Commercial Bank (a bank partly owned by government) is beginning to recognize the growth potential of microfinance alternatives. The bank has created opportunities in microfinance borrowing using a group-guarantee methodology with loans to be provided to groups. Also, the other government owned banks, the National Development Bank (NDB), the National Cooperative Development Bank (NCDB), and the Bank of Sierra Leone’s community (chiefdom) pilot banks have involved in wholesale and retail finance to MFIs.

The government needs to support the enabling environment to expand the landscape of microfinance operations in Sierra Leone by providing tax breaks to mainstream commercial banks to encourage these banks to support innovations in the area of microfinance. Greater involvement of mainstream commercial banks in microfinance lending should be more than sufficient to quickly transform the nation’s microfinance infrastructure from a relief orientation to a self sustaining business-like orientation. The greater involvement of commercial banks strategy will complement the effort of institutions like World Hope International (WHI); the Association of Rural Development (ARD); the American Refugee Committee (ARC), and the Grass Field Women’s Development Association which transformed itself into PRIMED (Promoting Initiatives for Micro Enterprise Development) which have been the most recognized microfinance institutions in Sierra Leone.

The government should also take advantage of the potential of the two indigenous financial mechanisms that provide access to credit-the Osusu or rotating savings and credit associations (ROSCAs) and moneylenders. The ROSCAs are common throughout the country and they serve as mechanisms for people to save for medical, bundu society, bride price, or school fees. The moneylenders found throughout the country (with the common terms of borrowing being a 2 for 1 system) have also been crucial in providing microfinance to hardworking Sierra Leoneans at the informal level. The government should provide formal support mechanisms to directly encourage the development and growth of the activities of these ROSCAs and moneylenders rewarding those ROSCAs and moneylenders that successfully manage high numbers of beneficiaries. This performance-based support system would allow ROSCAs and moneylenders to compete for funds by implementing government microfinance goals through a combination of creative ROSCA and money lending initiatives, including the creation of ambitious innovative enterprises and the implementation of regulations that allow high recovery rates. ROSCAs and moneylenders are potential developers of microfinance facilities. Their innovative lending technologies will need to be supported by sustained government subsidies to help them grow and become affordable enough to formalize their activities.

Furthermore, the government should support research and development on and the deployment of innovative microfinance lending technologies and legal status. The need for a fully operational credit bureau to improve the flow of information on current and potential bank customers is becoming even more relevant.

Expectations of the Commons

Microfinance and the enhanced self-esteem that comes with it is the Holy Grail for economic development in Sierra Leone. By meeting microfinance start-up, expansion, consolidation, and integration are sufficient ingredients to support national economic growth. With the capacity to develop and test products in existing markets and new markets the economy booms and repayment of microfinance loans is ensured. Various client-built awareness programs can also be benchmarked from elsewhere to make MFI programs effective in Sierra Leone.  The financial flows from microfinance activities would provide a national macroeconomic shock absorber, with more funds from recovered micro loans automatically flowing to growing the economy.

Further, successes of successful MFIs need consolidated. Also, strengthening MFIs and using the right organizational formalization and industry norms (management oversight, organizational policies, procedures and systems) are required. When the productivity of MFIs is increased their scale and scope grow and prices should be adjusted to ensure profitability.  Again, the convenience of a special regulatory framework in place for MFI growth will sow seeds for growth and the ambition to venture into new markets.

MFIs should be integral to the formal financial sector. Understanding, therefore, the volume of demand for microfinance can help determine sources that can finance their growth. Demand oriented products can be introduced in communities and in turn successful MFIs in these communities can pay taxes and licensing fees to government to support national economic growth. Also understanding the banking system in Sierra Leone and the modalities involved in providing financial services to poor and low income people can finance growth and attract capital from private capital markets and deposit takings from the public.

Addressing opportunities and constraints for development of the microfinance sector in Sierra Leone is critical. There is a high unmet microfinance demand in the country. By getting to know the gap between the demand and supply of credit for micro and small business activities, to understand the impact of ROSCAs and traditional money lenders to microfinance in Sierra Leone is also critical. The private sector has literally been found to be the engine for growth in developing societies as well as developed societies. But if microfinance beneficiaries can only be financed by collecting cash collaterals then the very essence of microfinance is negated. Grants and soft loans to help build the capacity of microfinance operations in the country are necessary and they define the very essence of microfinance – character and capacity building to help the hopeless succeed in generating income for themselves and to manage their income competently. With microfinance, Sierra Leoneans lacking adequate subsistence and living in poverty are given a chance to start somewhere. The success of microfinance sustains real national economic growth.

And perhaps, however, the most daunting concerns about microfinance is the question of regulation. Microfinance beneficiaries could simply be tempted to renege on their obligations to repay micro loans, undermining the very concept of micro financing completely. Most fundamentally, they would jeopardize the collective benefits of the national microfinance regime. Therefore, the incentives to develop a credit history must be strong, and the price of default in lending must be high. Capacity building of regulatory authorities and development of effective regulatory tools (also a salient recommendation by the 2008 ACP-EU BizClim financed national survey) is essential for effective regulation of microfinance.

As microfinance institutions face increasing demands to put in place stringent regulatory measures, the primary enforcement strategy for dealing with recovery of microloans is to impose the threat of temporary exclusion from the microfinance regime and the loss of future access to micro-credit opportunities. Uncooperative beneficiaries would also lose access to high volume investments, for instance, in the mining and agricultural sectors.

The time has come for the government to enable the growth of microfinance lending technologies. A national microfinance enabling regime would serve the nation’s economic interests by promoting innovation and opening up new opportunities and services.  Based on the outcomes of the recent ACP-BizClim-supported microfinance demand and supply survey of microfinance beneficiaries and MFIs, demand shows the distinctiveness to be greater than total supply. Strong commitment to sustainability and increased outreach as well as profitability and scale are emphasized.  The industry needs considerable support to build capacity, capital base and plans for expansion. The concept of microfinance itself is cost-effective in terms of contributing to development and poverty alleviation. Dollars invested are used more than one time. To therefore foster growth of microfinance, character and capacity building infrastructures need to be supported. Character and capacity building supportive infrastructures have the potential “to bring microfinance institutions to such a scale that they can play a role as an integrated part of the broader financial sector.  Successful implementation implies the identification of constraints to sector development and a concerted effort to put in place the various building blocks needed to help bring microfinance to scale and to support financial sectors to become more inclusive” (UNDP).

In order to succeed in this area, you need to be sure to listen to them and be open to ideas spoken. Try to help them with further information, and try never to be judgmental. As a parent, you should know that career development and planning might affect your child’s future. There are many ways in which you as a parent can help your child.

-Career Center Visit- Whenever you pass by a career center, don’t forget to pick up a business card. When you find your child stuck and feeling anxious about his or her future, you can offer that business card and ask him or her to call the counselor. Students use their first semester to settle into their college life and this would be the right time for you to prompt them to visit the counselor. Reassure your child that meeting a career counselor can take place any time and it is important to make wise career decisions. Many centers offer full career development and job search help.

-Resume Advice- Writing a resume can be quite a task and a student can identify his or her weak areas by writing one. Suggest that they get sample resumes from career centers, from books, or from the Internet, and then draft one accordingly.

-Encourage them to be occupationally literate- Ask your child what he or she wishes to pursue after graduation; if he or she fumbles with the choice then talk about their strengths or talents and then recommend:

1. A self assessment inventory and analysis of strengths and weaknesses.

2. A talk with their favorite faculty member.

3. Research on their choice subjects.

Career decision and planning should be an ongoing process and not a one-time talk. Don’t force your decision on them while discussing.

-Freedom of decision-Allow your child to select his or her career. Children should always follow their interests and passions, and many may change after gaining more information and developing new interests. Some may end up with a different career, so don’t become alarmed if your child changes his or her plans frequently. Plans will develop and keep changing, so be patient with them. You can make suggestions but never force them to select your choice.

-Suggest an internship- Career Centers do not place your child in a job immediately after graduation and a college degree does not guarantee one, so having relevant experience is crucial. Ask your son or daughter to select a sample career by opting for internships and experimenting with summer jobs.

-Encourage your child to select an extra curricular activity- Experiencing college life and involvement in some extracurricular activities can help develop some all important extra factors, such as qualities of leadership, team spirit, etc.

-Persuade your child to update his knowledge- Encourage your child to read the newspaper and know everything about current affairs. Ask them to watch news or read business issues.