Getting the ultra-poor on the “economy train”

BRAC group meeting

BRAC group meeting

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>>Authored by Yanira Garcia and Sabina Rogers of the Microcredit Summit Campaign

More than one-fifth of the world’s population lives on less than US$1.25 per day (the “extreme poor”), and most of those people live in rural areas. Due mostly to geographic constraints, it is difficult and costly to reach this population with financial and social services. Having poor infrastructure and few tools, they are stuck in a perpetual cycle of poverty.

This is a problem just begging for a solution. How about six financial inclusion strategies — our “six pathways” — that show promise in ending extreme poverty? Specifically, how about BRAC’s Graduation Approach? In 2002, BRAC set out to help the ultra-poor living on less than 80 cents a day to move up one level of poverty and to develop an approach that could tackle the geography obstacle. (Read Shameran Abed’s blog post to learn how BRAC developed Graduation Approach.)

Exciting results from impact assessments

In June, Science magazine published the results of six randomized controlled trial (RCT) impact assessments of BRAC’s Graduation Approach. The RCTs were conducted in Ethiopia, Ghana, Honduras, India, Pakistan, and Peru among 7000 households and provided the following complementary approaches:

  • Productive assets
  • Training and regular coaching and household visits
  • Access to savings and health services
  • Consumption support

At a half-day event in June at the World Bank, “Creating Sustainable Livelihoods for the Poorest,” the Consultative Group to Assist the Poor (CGAP), Innovations for Poverty Action (IPA), and J-PAL disclosed results from these six RCTs.

The RCTs showed that the Graduation Approach is a cost-effective, clear pathway out of poverty. Specifically, attendees learned that it can help drive a sustainable transition to self-employment and ultimately have large lasting impacts on the standard of living of the ultra-poor. “There will be growth in the economy,” stated Esther Duflo, “and the ultra-poor are not on the [economy] ‘train’ and would never get on the train [without help]…The Graduation Approach would push them onto the train.” (Dr. Duflo is co-director of J-Pal and professor of economics at MIT.)

Eligible households were identified through a participatory wealth ranking process as well as through household visits. On average, participant households had higher incomes, increased savings, greater food security, and improved health and happiness. These effects were consistent across multiple contexts and implementing partners.

Additional outcomes from the study include the following:

  • Daily consumption was not negatively affected over time in the selected sites after the program had ended. The authors suggest increased consumption is a result of increasing self-employment activity.
  • Household members were able to afford two meals per day more often.
  • Households continued to increase their productive assets (most in the form of livestock) as well as their savings after the program had ended, with the exception of Honduras. (Participating households in Honduras suffered an unexpected illness that killed all of the chickens, causing the study to be incomplete.)
  • In Bangladesh, where women were targeted, land ownership increased by 38 percent.

The Graduation Approach had the largest impact on ultra-poor households in Bangladesh, Ethiopia, and India. Researchers suggest that income diversification may have been a leading factor. In addition, cost-benefit calculations confirm that long-run benefits for the ultra-poor outweigh the graduation program’s overall cost.

Policy lessons for scale-up and replication

The RCTs also provide us with important policy lessons for scale-up:

  • For the Graduation Approach to have a lasting impact on ending extreme poverty, the support and action of governments and policymakers is essential.
  • It is possible to make sustainable improvements in the economic status of the poor with a relatively short-term intervention.
  • The positive results to date indicate that this approach can have a profound impact on improving the lives of the world’s ultra-poor.

Scale-up of the Graduation Approach is underway and will reach thousands of households in the coming years. Mariana Escobar, deputy director general for the Department for Social Prosperity in Colombia, spoke about Colombia’s pilot that started two years ago.

In Colombia, the Graduation Approach has helped repair the lives of the victims of the internal conflict and victims of sexual violence. Ms. Escobar explained that these results demonstrate to policymakers and governments that the extreme poor can make good economic decisions when they are given the right tools.

Edgar Leiva (Secretary of Technical Planning, Directory of Public Policies for Paraguay), Hugo Zertuche Guerrero (Director General of Geostatistical Information of PROSPERA in Mexico), Camilla Holmeno (Senior Economist with the World Bank in Ethiopia), and Fiona Howell (Senior Social Assistance Policy Advisor with the National Team For the Acceleration of Poverty Reduction in Indonesia) shared their respective country’s perspective on the Graduation Approach. On a scale of low to high, policymakers were asked to answer the questions below.

Q: How high was the impact evidence to decide to start a program in your respective country?

A: All of the policymakers answered “high.”

Q: How influential was visiting the site and seeing it in person to starting a program?

A: All of the policymakers answered “high.” Edgar Leiva (Paraguay) explained that his government started a pilot program two days after visiting Colombia’s pilot program.

Q: What was each country’s biggest challenge in implementing the program?

A:

  • Camilla Holmeno (Ethiopia): both cost and complexity.
  • Edgar Leiva (Paraguay): maintaining the positive attitude of workers in the program, which helps create a sort of magic and is so important to the success of the program.
  • Hugo Zertuche (Mexico): budget constraints due to recent decrease in oil prices as well as cross-program competition (and a perception that Zertuche’s program was poaching resources from other programs).
  • Fiona Howell (Indonesia): existing structures and system and coordination among the Ministries.

Q: What is the number one research question you would like to know the answer to?

A:

  • Camilla Holmeno (Ethiopia): test different types of packages with varying levels of transfer across Ethiopia.
  • Edgar Leiva (Paraguay): how closely tied the Graduation Approach is to the psychology of people.
  • Fiona Howell (Indonesia): how we can integrate the urbanized poor into the economic system.

Additional questions for future research were posed in the closing section of the event:

  • Which components of the Graduation Approach drive results? Through this study, CGAP and Ford Foundation learned that household visits allotted for 30 percent of the cost of the program. Are household visits necessary?
  • How do the impacts of the Graduation Approach evolve over a longer time span?

Watch the event recording

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