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This post was written as a contribution to the Month of Microfinance, which is a movement of student and professional organizations from around the world who have committed ourselves to client-centered microfinance. Learn more.
World Bank President Jim Yong Kim announced last year the World Bank’s new goal of reaching the end of extreme poverty by 2030. What will it take to get there? In his video address to the 2013 Partnerships against Poverty Summit delegates, Kim called on them to work together across sectors and stating the Bank’s readiness to welcome partnerships with the microfinance sector. (Watch the video.)
More recently still, Duncan Green of Oxfam posted a neat summary of the latest report from the Overseas Development Institute’s Chronic Poverty Advisory Network (Chronic Poverty Report 2014-2015). He highlights the report’s segmentation of combating (chronic) poverty into three groupings: alleviating poverty, preventing people from falling below or back below the poverty line, and maintaining movement out of poverty once started. Green points out that in the long run, all three must be in play simultaneously. But in practice, incentives in the development sector (whether mandated performance metrics or investor trends) push actors to aim for easier, quicker wins found in the latter two categories. Aiming to reach the hardest to reach, the poorest of the poor, or the most vulnerable is not a recipe for quick or easy.
Despite the challenges in doing so, the Microcredit Summit Campaign advocates precisely for addressing extreme poverty. This originates from our perspective that designing products and programs with the poorest and most vulnerable first in mind will lead to benefits for the less poor as well. We are encouraged by the Chronic Poverty Report’s division of efforts which echoes the need to work also across sector divisions as well, but feel that we must work to alter incentives and attentions such that we’re beginning with addressing poverty in the first place, extreme poverty in particular, as the point to build on.
Some strategies that can help us get there
The 2013 Summit looked deeply at the kinds of partnerships that can help build structures and tools to do more for the extreme poor. Some of the major themes speak directly to strategies that can help us get to the 2030 goal of ending extreme poverty.
In a prior post we described a project the Campaign worked on in partnership with Microfinance Opportunities to discover what’s working and what’s not working in the world of mobile financial services. We know that mobile platforms can help microfinance institutions (MFIs) reach clients who are living farther and farther from physical branches and they can do it at a reduced cost.
As the World Bank’s Global Findex (2012) has shown, closing this physical access gap is essential to address financial inclusion for the poor, and microfinance providers have indicated to us that they see mobile platforms as a means to do this. As Roger Voorhies of the Gates Foundation said at the 2013 Summit, “Digitization can cut 90 percent of the cost of transactions, reduce paperwork, and increase the number of people reached by financial services.” If mobile platforms can help institutions lower the costs of delivering services, they can make those services more affordable to clients.
The variety of microinsurance products now available has grown dramatically to include life insurance, health insurance, property insurance (and no longer just agricultural inputs and assets), and disability insurance, to name just a few.
However, organizations offering these products may find that people at all levels of poverty tend to underestimate the magnitude of crises and as a result, they undervalue insurance or elect to “self-insure” using savings. There is strong evidence that self-insuring actually costs more to the client in the long run. Instead, greater focus should be on improving products to build greater demand for insurance.
Richard Leftley, CEO of MicroEnsure, spoke at the 2013 Summit about building demand for microinsurance. MicroEnsure found that people living in poverty respond positively to an organization that not only provides a microcredit or savings service, but also mitigates the risks they may face by providing additional products like life insurance in conjunction with the primary service.
This is an important point because for insurance products to be priced at levels affordable to the poor and extreme poor, high volumes need to be achieved on very thin marginal returns. Early evidence seems to show that increasing demand, lowering delivery costs through digital platforms, and offering insurance services in combination with other services make products more viable for poor and very poor clients.
There is a mounting body of evidence that points to a “better together” approach for poverty interventions. Taking health services as an example, a growing body of evidence from around the world indicates that when health and financial services for the poor are linked in a systematic and cohesive manner, key barriers to health for the poor can be reduced (For example, see this article).
In a forthcoming report by the Campaign and our Health and Microfinance Alliance partners, we took another look at the state of integrated health and microfinance in India. We found that MFIs design health programs to address lack of awareness about essential health issues, affordability of care, and access to health products and services. Here are some examples:
- Equitas has provided vision camps benefiting more than 850,000 people with free screening, eye glasses, and cataract operations.
- Bandhan has a local health volunteer program in 14 districts with almost 2,000 volunteers reaching over 460,000 families.
- SKDRDP introduced health insurance in 2003 and now covers some 1.3 million clients for hospitalization, maternity care, funeral expenses, disasters, and follows the principle of zero rejection.
Let’s take a look also at the graduation models as implemented by CGAP. Designed to help people “graduate” out of extreme poverty, these programs provide an array of microfinance services based on five core elements: targeting (the poorest people), consumption support, savings services, skills training, and an asset transfer to jumpstart savings and asset accumulation.
Or, how about conditional cash transfers (CCTs)? Yves Moury of Fundación Capital works with governments in Latin America to help those receiving cash transfers to build assets over time (and therefore their resilience) in ways that gradually end their need for government support. Moury said at the 2013 Summit that linking savings services with existing CCT programs is a powerful innovation to scale up access to savings accounts.
At the Summit we pitted the graduation model against this CCT model and asked Secretary Corazon Soliman of the Filipino Department of Social Welfare and Development and Juan Borga of the IDB to choose which had the greatest potential for the extreme poor. They answered, “Both, in combination.” (Watch the video.)
From the institutional level (combining multiple approaches within one MFI) to the macro level (collaborating across sectors as President Kim is calling for) we’re seeing a growing emphasis on a “better together” approach in addressing extreme poverty. Many, including the Campaign, may feel they’ve been calling for a strategy like this for years. Now, though, there is an opportunity to seize the moment in helping to bring these partnerships about.
These kinds of combined approaches will mean increased complexity in implementation—more actors involved in project implementation may well bring about inevitable frustrations to work through. But based on evidence starting to emerge, we believe it’s these combined approaches that may hold the key to having a sufficiently faceted intervention for the multi-faceted problem of extreme poverty.