What do handbags have to do with counter-insurgency?

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Bilquis Rafiq’s family is unusual for the village and the part of Pakistan where they live:  each of her three children – two boys and a girl- are in school. The family can afford to pay the school fees for all their children because Bilquis has been earning a living from Popinjay[1], a for-profit social impact oriented enterprise that makes high-end handbags for sale in Pakistan and the USA.

In a country where the education system provides few affordable options for families living on little, many Pakistanis choose to send their children to foreign-funded madrassas – or religious schools- which offer to feed and house as well as educate their students, at little or no cost. The madrassas however are notorious for the highly conservative, often extreme religious doctrines they transmit to their students, and the link between the madrassa system and recruitment of insurgent fighters in both Pakistan and Afghanistan is well-known.  Without the madrassas, many households in rural areas don’t even have a realistic option for sending their children to school.

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Bilquis’ earnings from hand-embroidering the Popinjay handbags helps her family, not only to meet their basic household needs and send children to school, but keep her children within the household rather than in the care of religious teachers. Bilquis’ family is also able to save a little for unforeseens. In Pakistan, where government service delivery is not reliable, nor accessible to all, and where natural disasters and the actions of armed non-state groups, crime and safety concerns impinge on everyday life, having a secure income and generating savings mean the difference between impoverishment, and resilience in the face of crisis.

Foreign direct Investment (FDI), including from the diaspora, is a significant source of funding for many developing countries, comprising approximately ¾ of all capital flows. In Pakistan, FDI levels, at $1.4 billion (for fiscal year 2012-2013) are high. However, much of this is in the oil and gas sector, and little of the government revenue is translated into services and income earning opportunities for the population. Similarly in Afghanistan, security needs remain strong, as does the imperative to deliver services and secure livelihoods for people. But as aid levels dip, valuable government revenues will need to be spent on the Afghan security forces[2]. And while private investment in the mineral extraction sector in Afghanistan could contribute several percentage points to GDP growth over the next decade, extractives are renowned for being enclave industries, in that they do not generate significant growth in other sectors. Small-scale enterprises, that offer employment opportunities, inject investments into local economies, and transfer valuable skills- such as the embroidering that Bilquis is doing, offer hope for communities who are struggling in the face of poverty, and for those individuals who may be ripe for being mobilized to support insurgent groups either through radicalized education, or through mobilization because of a perceived lack of alternatives.

Creating the conditions under which impact-oriented enterprises can flourish however is not easy; in both Pakistan and Afghanistan, they lack the support, resources and the ecosystem that would allow them to do business. Invest to Innovate (i2i)[3], has been working in Pakistan since 2010, providing Popinjay and other small-scale enterprises with the kind of support that they require. i2i assists these enterprises by engaging mentors, putting them through accelerator programs and helping them connect with investors that are willing to take on the risk of providing capital to early stage enterprises in fragile states. Equally important is the work done in partnering with local stakeholders who can help build a strong entrepreneurial ecosystem in Pakistan that to fosters broad-based economic growth and positive social change in the country. Stability and economic development, including generating income-earning opportunities, have been treated by and large by aid donors as government obligations. However, donor support for creating the space and ecosystem for private sector development, particularly small and medium sized enterprises can help not only in generating prosperity and distributing economic gains more equitably, but ultimately also by creating the conditions for stability.

[1] http://www.popinjay.co
[2]Financing the Afghan security forces will require an estimated $5 billion per anum
[3] http://invest2innovate.com/index.html

An earlier version of this post was published by the International Network for Economics and Conflict.

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