How Incentivizing Change is Transforming the Urban Landscape in Bangladesh

Governance requires accountability through shared decisions. Photo credit: Mohammad Rakibul Hasan.

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Published: 28 February 2023

Performance-based funding improved urban governance and quality of infrastructure and services, and promoted women’s empowerment.

Overview

The growth rates of Bangladesh’s urban population—widely disbursed across more than 500 smaller cities and towns—have been twice the national rate for decades. Secondary towns, known as pourashavas, represent more than 40% of the total urban population. They act as a buffer for already overwhelmed larger cities by serving as an alternative destination for rural migrants.

Back in 2000, the pourashavas had poor infrastructure and services constraining economic growth. These challenges were due to inadequate governance with low community participation, deficient management, and limited financial resources. Many pourashavas did not have the institutional arrangements (e.g., committees, forums, etc.) in place for communities to collectively express their needs, preferences, and ideas to elected representatives and officials. In general, the secondary towns were managed by untrained staff and experienced delays in hiring staff for approved posts. Also, the pourashavas did not have the capacity to generate sufficient revenues and had to depend on budgetary transfers from the national government, which accounted for more than half of total funds for most of these pourashavas

Further, women and the poor lacked access to essential services and had few livelihood opportunities despite their potential to contribute to the economy. They were also subjected to practices and norms that undermined female prosperity and safety, such as child marriage, domestic abuse, and unequal pay for equal work. 

In 2002, the Asian Development Bank (ADB)-supported Urban Governance and Infrastructure Improvement (Sector) Project (UGIIP) introduced incentive-driven, performance-based lending that depended on mayors to lead pourashava reforms. Participating pourashavas that met predefined, best-practice standards of good governance qualified for infrastructure funds.

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This article summarizes Incentivizing Change: How Governance Reforms are Changing the Urban Landscape of Bangladesh, which shares the more than 20 years of experience of ADB in working with the Government of Bangladesh in refining its strategy for governance-driven urban development through three UGIIP projects—the first approved in 2002, second approved in 2008, and third approved in 2014.

Incentive Mechanism and Strategy

The UGIIP offered participating pourashavas performance-based financing to achieve meaningful reforms and technical assistance and capacity building to implement the reforms. The opportunity to receive infrastructure funds against the performance was the incentive mechanism for pourashavas' reforms and a strategy for a shared growth.

To develop the pourashavas' capacity in a holistic way, ADB and the government introduced the Urban Governance Improvement Action Program (UGIAP), the centerpiece of the UGIIP strategy. This has been refined by each of the three successive UGIIP projects as designed and implemented. The UGIAP under UGIIP-3 covered seven key areas of good governance with as many as 28 sub-activities.

Figure 1: Key Areas of Urban Governance Reform

Source: Urban Governance and Infrastructure Improvement (Sector) Project Management Office.

Pourashavas that met the governance requirements received their allocation for six types of infrastructure projects: (i) slum improvement, (ii) urban roads and drains, (iii) water supply, (iv) sanitation, (v) solid waste and fecal sludge management, and (vi) municipal facilities. Those pourashavas that do not meet the reform requirements within the given time frame are disqualified from participating further in the project. 

Lessons

The UGIIPs provide lessons and good practices in advocating for and implementing performance-based infrastructure investment. These are the key takeaways:

  1. What mayors initially feared has been their greatest success: public accountability.
  2. Designing for results and momentum offers mayors a chance at getting good results within their political tenure.
  3. Well-structured evaluation of the municipalities’ performance protects the credibility of the entire program.
  4. Performance-based access to funding can create healthy competition among the pourashavas.
  5. Budget allocations are proof of pourashavas' intent and actual action.
  6. Demand and dependence can be addressed by competition and cost-sharing.
  7. Operation and maintenance require special emphasis.
  8. Pourashavas and projects need more responsive human resource protocols and a robust consultant marketplace to recruit and retain talent.
  9. Town planners are needed.
  10. Slum communities need greater equity in development spending.
  11. Recognize and promote women’s role and contribution to development.
  12. Decentralize municipal staffing decisions.
  13. Leverage the law on standing committees.
  14. Systematic knowledge sharing and transfer of good practices are essential.

The inquiry into UGIIP’s history and most recent results rendered three key messages.

Greater fiscal autonomy through local revenue generation. The tendency for the pourashavas to over-rely on central government fiscal transfers can be relieved through more effective local taxation and nontax revenue streams. However, municipalities need technical support in improving their tax administration and developing revenue sources. Since UGIIP-3 began, pourashavas on average have nearly doubled the amount of holding and non-holding taxes collected; holding tax has increased from $6 million to $13 million per year and non-holding tax has increased from $13 million to $22 million per year. This is one of the most important achievements of the UGIIP-introduced reforms for strengthening self-reliance of pourashavas.

Governance requires accountability through shared decisions. Mechanisms for participatory governance come from town- and ward-level coordinating committees comprised of both elected councilors and residents, who work together on identifying local infrastructure priorities. Specialized committees take on various administrative and operational areas, such as gender equity, slum improvements, and poverty reduction. These committees develop action plans that are funded by the annual budget.

Livelihood training for women is a multiplying factor. A training program to develop skill and business sense can empower a woman to pursue entrepreneurship, reinvest in other women, and continue to grow and diversify her business. The opportunity to engage in such trainings under the guidance of a female trainer was a key success factor in stories told by many female participants. Some women also became socially empowered to challenge practices and norms that undermine their prosperity and safety, such as child marriage, dowry traditions, domestic abuse, and unequal pay for equal work.

Laxmi Sharma
Senior Urban Development Specialist, Water and Urban Development Sector Office, Sectors Group, Asian Development Bank

Laxmi Sharma is with the Water and Urban Development Sector Office. An engineer with more than 25 years of experience on integrated urban planning and development, water and sanitation, solid waste management, inclusive city development, urban transport sector, and infrastructure and service financing models, she is skilled in multi-stakeholder driven development; project design, processing and management; and application of technologies. She has multi-cultural working experience in multiple countries—Bangladesh, Georgia, India, Kyrgyz Republic, Maldives, Nepal, Sri Lanka, Tajikistan, and Thailand. She holds a Master of Engineering degree from the Asian Institute of Technology Bangkok. 

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Amit Datta Roy
Senior Project Officer (Urban Infrastructure), South Asia Department, Asian Development Bank

Amit Datta Roy has more than 12 years of experience working in the field of urban planning and development, urban policy, spatial planning, transportation planning, water and sanitation, waste management, urban governance, performance-based infrastructure development, and pro-poor activities. He has worked in multiple countries from Asia and the Pacific, including Afghanistan, Bangladesh, Cambodia, Jordan, Maldives, Myanmar, and Viet Nam. His expertise includes project design, project management, monitoring and evaluation, research, and policy advocacy. He has a Master of Business Administration (MBA) degree and a Bachelor in Urban and Regional Planning degree. He is a certified Project Management Professional.

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Melissa Howell Alipalo
Social Development & Knowledge Solutions Consultant for Urban, Water, Natural Resources & Environment

Melissa Howell Alipalo combines her academic training and applied experience in journalism, anthropology, and social development to leverage communications and knowledge solutions for better development design and results. She has worked with the Asian Development Bank since 2005, designing, implementing, and documenting various projects throughout the region in multiple sectors.

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Asian Development Bank (ADB)

The Asian Development Bank is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

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