Annual Meeting of The European Bank for Reconstruction and Development (Tashkent, Uzbekistan)

President Lemierre
Honourable Ministers
Excellencies
Ladies and Gentlemen

I am pleased to have the opportunity to join the participants in the Annual Meeting of the European Bank for Reconstruction and Development in Tashkent this year. I would like to thank President Karimov for his gracious welcome. It is with pleasure that I am visiting Uzbekistan again

It is a particular honour to have been invited to deliver the Jacques de Laroisiere Lecture to such a distinguished gathering. It is, I must admit, an honour that I accepted with considerable trepidation. My first reaction was to question whether I would have anything to say that would be of interest to this audience. Unlike those who have presented the Larosiere Lecture in previous years, I am neither an economist, a banker, nor a specialist in national or international finance.

But I have been involved in the field of development for nearly four decades. This engagement has been grounded in my responsibilities as Imam of the Shia Ismaili Community, and Islam's message of the fundamental unity of "din and dunia", of spirit and of life. Throughout its long history, the Ismaili Imamat has emphasised the importance of activities that reflect the social conscience of Islam, that contribute to the well being of Allah's greatest creation - mankind, and the responsibility which Islam places on the fortunate and the strong to assist those less fortunate.

When I became Imam in 1957, I was faced with developing a system to meet my responsibilities in an organised and sustainable manner that was suited to the circumstances, demands and opportunities of the second half of the twentieth century. In a period of decolonisation in Asia and Africa, the Cold War and its disastrous impact on developing countries, and the painful progress towards a global movement for international development, it became essential that the Imamat's economic and social development efforts be broadened beyond the Ismaili community, to the societies in which they lived. Presently, the Ismaili community of approximately 15 million resides in Asia, Africa, the Middle East, Europe and North America.

This led me to establish what is now the Aga Khan Development Network (the AKDN), a group of eight agencies with individual mandates, to engage in critical dimensions of development from distinct yet complementary perspectives and the competencies they require. The Network is active in the fields of health, education, civil society enhancement, culture, and economic and rural development, and now has more than three decades of experience working in South Asia and Eastern and Western Africa, and since 1993, has been active in Central Asia. This work started in Tajikistan with humanitarian assistance and then post conflict reconstruction and redevelopment, and has expanded to other countries including Kyrgyzstan and Kazakhstan more recently. The Network's newest engagement is a major commitment to reconstruction and development in Afghanistan.

Time and experience have taught us a number of lessons, which you may already know, but which explain why our development agencies are structured in number and purpose as they are.

Development is a multifaceted process that:

• must be approached from multiple perspectives, and competencies; 
• necessitates the mobilisation and development of the capacity of local communities or beneficiaries to take responsibility for activities designed to produce sustained results, and; 
• requires long-term engagement with programmes developing into institutions to become permanent and localised.

The structure and operating principles of the Network are a response to this understanding of development. These agencies are all field-based, with a small headquarters staff and drawing on the energies of more than 20,000 employees and volunteers. The long-term perspective and the field driven experience of the AKDN will be the basis of my remarks this afternoon.

I am sure that we can agree that at the most general level, the goal of all development efforts -- be they promoted by governments, national organisations, or international development agencies and institutions -- is to stimulate and facilitate change that is positive in character, significant in impact, long-lasting in consequence, and sustainable into the future. The more complex and difficult question is what does it take to achieve development that meets this aspiration?

Economic development -- increasing the production and consumption of goods and services in the economy, and expanding and improving the quality of employment opportunities for a country's population and its disposable income is certainly critical. I take this as a given, and that is why the Aga Khan Development Network has several agencies whose objectives are the expansion of economic opportunity in selected sectors as a primary objective.

However, it is not at all clear that the quality of life has a direct, one-to-one relationship with the level of production or even the breadth of access to what an economy produces. Without doubt growth plays a central role in the increasing of human welfare and the dignity of life. But other dimensions and challenges to development play at least an equally important role. Unfortunately, many of them are not easily measured in conventional economic terms, nor addressed through usual economic programmes and policies. It is to these aspects of development that I would like to devote most of the rest of my remarks.

I do so for two reasons. The non-economic dimensions of development often escape the attention they deserve because the degree of risk of not doing something is often under-estimated. Secondly, when dealt with competently and over time, they actually support and sustain the health of the economy as well as other aspects of society.

From the perspective of forty years of work, and the experience of the agencies of the Aga Khan Development Network, institutional development stands out as critically important to broad-based sustainable change. By institutional development, I mean the strengthening and refocusing of existing institutions, as well as the creation of new institutions and policies to support them. Because this process takes time, it is also urgent. Institutional development is essential to respond to emergent needs, new opportunities, and persistent gaps if change is to measure up to the standards of being positive, significant, long lasting, sustainable and having a genuinely measurable impact. No country to my knowledge can achieve stable continuous growth if its civil society is constrained by inherent institutional instability.

The need is universal. It exists in big countries and small countries, countries better endowed with natural resources, and those that have less, countries in the developing world, the developed world, and those in transition following the dissolution of the Soviet Union.

The need for institutional development also applies to every sector of society: to government at all levels, to business large and small, and to that diverse array of informal and formal organisations that have come to be referred to collectively as civil society institutions. One clear lesson of the last half of the twentieth century is that governments cannot do everything. The role of the private business sector in national economies is now universally acknowledged as both critical and legitimate.

But the refocusing of existing institutions and the development of new ones to enter spheres of social activity previously undertaken solely by government is not yet as widely recognised. Nor is there as clear an understanding of what form new institutions might take, and how they should relate to government -- an issue that is at least being addressed with respect to government's relations with the private business sector, as opposed to the private social sector. There, lack of clarity, or even confusion, dominate the field.
What do I mean when I speak of civil society institutions? Of the three sectors -- government, private business and civil society -- it is the most diverse and the least well understood. Moreover I am not sure that even those who work on the sector define it in the same way. My purpose is not to enter into an academic discussion but only to ensure that I am understood. I prefer to think of civil society in the widest sense, including all sorts of organisations and initiatives. It includes much more for example than is captured by the term NGO. I would for instance include professional organisations that aim to uphold best practices, or that serve and contribute to a vibrant and effective business sector, such as chambers of commerce, and associations of accountants, bankers, doctors, lawyers and the like.

Civil society organisations are generally non-profit or not-for-profit - at least implicitly. They may, however, generate money from fees or services that they provide. This is the source of a great deal of confusion in many parts of the world because non-profit is frequently confused with charity - giving services or sustenance to the needy. The confusion is understandable because charity has a long history in all religious traditions, and renders real assistance to those not able to help themselves. Some civil society institutions should and will always be involved in charity. But those of a new type exist to provide services in return for fees that will cover some or all of the costs of operations including salaries, but not produce a profit for owners or investors. Perhaps "non-commercial" conveys the purpose and operating principles of civil society institutions in many parts of the world, more clearly than the term "non-profit."

Because most civil society institutions are non-commercial, and whatever dividends they produce contribute directly to the improvement of the quality of life of their beneficiaries, these institutions are faced with the fundamental problem of identifying financial resources that will keep them alive and enable them to grow.

At the heart of the issue is the question : "Is civil society bankable?" If so, what criteria should apply? The long history of the AKDN agencies has shown that while there are numerous financial institutions and programmes that are available to support economic investment, non-commercial civil society institutions face the permanent threat of being systematically under-funded. One of the causes, at least from the experience of AKDN is that civil society institutions are rarely, if ever, part of a national planning process. Relations between public sector and private sector health delivery, or education delivery, are more often left to chance than a thought-through process driven by clear development goals. Within the civil society sector there is not even consultation between the providers working on the same problems from different perspectives as to how they might work together for better effectiveness.

In addition, financial institutions find it difficult to rationalise the role, needs and futures of civil society institutions within the national economy. At least in the banking sector, they cannot tailor their financial support systems when available, to the characteristics of non-commercial civil society institutions.

A number of these characteristics are common, such as the need and desire for longevity, incapability to plan growth on the basis of secure long term funding, the need to employ competent people at fair market rates, and in some cases the impossibility or unwillingness to become commercial ventures.

I would like therefore to share with you some specific examples from our own activities here in this region. How does a private sector hospital that has chosen not to offer its services for commercial gain, fund its expansion or the cost of increasingly expensive sophisticated technical equipment? How does a private university fund its expansion into new areas of higher education when student fees will never reasonably cover more than 25% of the cost of running the university? How do you address the now well-recognised problem of pockets of poverty in developing countries, when on the one hand it is clear that they present a real threat of destabilisation, but at the same time have no hope of improving their economic standards, unless a key piece of unbankable infrastructure is built. A good example is the recently constructed bridge, linking Tajik Badakhshan to Afghan Badakhshan, which could never be justified on the basis of normal banking criteria.

Within civil society in much of the developing world, there are professions which are critical to stable growth and to democracy, but which are systematically under resourced in terms of pay and opportunities for ongoing training. The three that I would cite today are: teachers, nurses and journalists. The economic status of these professions simply has to be corrected if the consequences are not going to be the progressive degradation of education, the progressive degradation of health care, and national media, which will be incompetent or open to all sorts of undesirable pressures including corruption. And yet, the additional costs of better remuneration to such professions will simply add to the end cost of the product, making it even more inaccessible to those who need it most, the poor.

In the developing world the backlog of unmet existing needs combined with those of rapidly growing populations puts incredible pressure on even the most forward-looking, well-resourced and efficient governments. In the countries of the former Soviet Union, the previously high levels of achievement in health and all levels of education are no longer sustainable because governments cannot provide the same levels of subsidies. And in all parts of the world the growing differentiation and specialisation in the fields of health and higher education, demand institutions of a new type, mastery of new areas of knowledge and technology, the capacity to innovate, and the identification of new sources of funding. Not even the governments of the richest countries in the world can meet these challenges without contributions from the private business and the civil society sectors.

Civil society organisations need to reach for the highest level of competence to justify their support. The sector combines energy, creativity, with a social conscience. Together these constitute a powerful impulse and should be nurtured. At the same time capacities for management, programme design and implementation, fundraising, and self-study and evaluation need to be strengthened. The process of learning from the experiences of the sector is important for the organisations themselves, and for government, international development agencies, universities and even the private business sector. How can we improve the process of self-analysis, evaluation and the exchange of experiences without diminishing the autonomy and creative initiative of civil society institutions? How can they learn from their own experiences in order to improve the management of their programmes?

But the Network's experience also reveals that the civil society sector faces a number of challenges that must be addressed if it is going to make an effective and continuing contribution to national development in this region. Even when needs are readily evident, the sector's role and potential are not well understood. There are questions about its legitimacy, there is no framework, no predictable and reliable environment in which civil society organisations can function and prosper. There is often a lack of clarity about to whom, and for what, it is responsible and accountable, and there is little appreciation as to how it is and can be financed, and its sustainability. How should these civil society institutions be governed? What standards should be applied to define their success?

Governments, donor agencies and others need to do more to create an environment that enables civil society institutions to emerge and develop. The basic issue is how to improve mutual understanding and create the conditions of confidence, and mutual predictability that will enable people and institutions to realise their full potential.

There are some larger contextual issues that are critical as well.

The first is regional cooperation, a subject that has been mentioned at various points in the programme over the last two days, although primarily in terms of its economic consequences. The last few years have seen the emergence of groupings of neighbouring countries coming together to promote trade and broader economic relations. This is critically important for Central Asia as well, and can build on the demography of the region and elements of common culture that have developed over extended periods of time as symbolised by the Silk Road. Central Asia is still well situated to play an important role between Europe, China and the Indian sub continent. That role will be more important and have greater impact if the countries of the region can find ways to develop their economies and resources on a cooperative basis rather than as individual nations. But why restrict this cooperation to the commercial domain only? Many civil society needs are clearly regional, hence our creation of the University of Central Asia in partnership with the governments of Kazakhstan, Tajikistan and the Kyrgyz Republic to provide education specialised in high mountain studies on a regional basis.

Pluralism, the recognition of people of diverse backgrounds and interests, organisations of different types and projects, different kinds and forms of creative expression, are all valuable and therefore deserving of recognition and support by government and society as a whole. Without support for pluralism, civil society does not function. Pluralism is also essential for peace, a statement that is unfortunately documented by armed conflict in contexts of cultural, ethnic, or religious differences on almost every continent at this time. It is of particular importance here in Central Asia given the demography of most countries.

The purpose of my comments today is not to point an accusing finger at international or national banking systems. Nor do I want to appear ungrateful for the generous assistance we have received from our donor-partners over the last many years. I do want to share with you however, my deep conviction drawn from years of experience, that financial support systems for non-commercial civil society institutions, do not exist in certain countries, or are insufficient, or are ill-adapted to the needs of such institutions.

If the international financial community were willing to look in depth at the problems that should be addressed in supporting non-commercial civil society institutions, some strategic goals should be set. The first one that I would propose to you is to ensure that as civil society grows it does so in a manner that it enhances public appreciation of the diversity of most people within common frontiers as an asset and not a liability. Events in recent years have shown in Eastern Europe, in the great lakes area of Africa, in numerous countries in Asia, including Afghanistan and Tajikistan, that there is a central need for these societies to develop in a way that each group within them feels valued and respected, and is encouraged to contribute to the goal of national development.

I do not believe that most people are born into an understanding or an environment where pluralism is seen as an asset, but on the other hand I am convinced that civil society institutions have a central role to play in bringing value to pluralism and inclusiveness. But again, who will fund the tools with which pluralism will find its way into civil society, as a central necessity for civilised life in the future?

Thank you for hearing me out. I was not invited here to speak to you about banking, though I clearly understand and admire the purpose of EBRD, which is development through economic stimulation. Creating a sound future for the peoples of Central Asia requires just as much in my view, a clear focus on building new concepts and new institutions for new civil societies.