The business owner I was interviewing turned red with anger. She tried to speak, but was too emotional to get any words out. After a pause, she managed to splutter out an answer. “The bureaucracy is crazy!” she told me. “For the last reporting period, I delivered ten boxes of receipts to the donor. For the next reporting period, they want even more! I spend more time on reporting than I spend running my business.”
Anyone who works in private sector development will be familiar with the above complaint. Donor programmes often provide money directly to businesses, encouraging them to adopt innovative business models which benefit the poor. Donors talk a lot about the importance of being adaptive, flexible, business-minded, and of not burdening grantees with huge amounts of paperwork. Despite this, interviews often reveal businesses struggling with burdensome reporting requirements. Some business owners don’t mind, or find a way to manage the requirements efficiently. Some blame themselves for not being good enough at reporting. And others, like the business owner we met in the opening paragraph, burn with impotent fury at the system that wastes their time.
Why does all this bureaucracy exist, despite the verbal commitments to better working? A cynic can find many reasons. Risk-aversion. Job-creation for pen-pushers. Sheer incompetence. All valid reasons. But I wanted to also draw attention to a counter-intuitively positive side of pointless bureaucracy; it helps ensure that development finance goes to the businesses that need it.
Development finance should go to businesses that can’t find finance anywhere else. Otherwise it is wasted, subsidising a business that could just have got a loan or invested their own resources. Unfortunately, it’s difficult to tell which businesses that applies to. The business has an obvious incentive to exaggerate the extent to which they need finance. Donors want to fund businesses with viable business models (otherwise the money is wasted) – but these are precisely the companies who would find it easiest to gain loans elsewhere. This presents a tricky challenge to development projects working with the private sector. How do you know which business models are good enough to be worth supporting, but not so good that they could get finance from other sources? This is called the challenge of ‘additionality’.
Pointless paperwork provides an elegant and simple solution to this dilemma. Why would any business put itself through the agonising, soul-destroying tedium of development finance when it could invest their own money? Why would they complete twenty-page reports, count the number of female disadvantaged disabled fisherman whose capacity was built, or scan receipts for several thousand transactions? There is only one reason; because they can’t get money any other way. Complex reporting requirements are a good way of ensuring that any business receiving a development grant really needs it.
 To protect identities – while keeping this blog post interesting – the above example is a composite of multiple interviews I have done, rather than a single person.