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

Related reading

From Microcredit to What?! by Sam Daley-Harris

April is the Month of Microfinance. http://monthofmicrofinance.org/

April is the Month of Microfinance. http://monthofmicrofinance.org/

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Reposted with permission


>>Authored by Sam Daley-Harris, founder and former director of the Microcredit Summit Campaign. He is currently running the Center for Citizen Empowerment and Transformation.

When the American Economic Journal recently published a group of independent studies suggesting that tiny loans to the poor usually don’t raise incomes, it left me scratching my head (although this response to those studies did ring true). As the first director of the Microcredit Summit Campaign, I’ve had the privilege of observing anti-poverty fighters like Grameen Bank founder Muhammad Yunus and BRAC founder Fazle Abed for decades. They, and others like them, never said, “We’re giving millions of microloans a year, we’re done!” Instead, they kept asking this question: “What more do our clients need to move themselves and their families out of poverty.” That question, the effectiveness of their responses to it, and the scale of their institutions have helped their country, Bangladesh, be among the poorest countries in the world most likely to achieve all of the Millennium Development Goals on time.

I first met Muhammad Yunus in 1987. By then Grameen Bank had already worked with its clients to develop the bank’s “16 Decisions,” pledges the clients made that included: 1) we shall not live in dilapidated houses, we shall repair our houses and work towards constructing new houses, 2) we shall grow vegetables all the year round, eat plenty of them and sell the surplus, 3) we shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health, 4) we shall educate our children, 5) we shall build and use pit-latrines, and 6) we shall drink water from tube wells. If it is not available, we shall boil water or use alum.

To be sure, banks like Citi and Barclay’s never had a pit latrine policy with their clients, but this poverty-fighting microfinance institution (MFI) did.

It would take weeks of blogging to cover BRAC’s beyond-the-micro-loan initiatives. But, just as an example, BRAC’s ultra-poor program has been replicated around the world and its schools for children who never entered school or dropped out at an early age are a global model.

Grameen Phone ladies

Grameen Phone ladies

Grameen Phone and Grameen Shakti (a renewable energy company) are giants in Bangladesh and their work with the poor are examples of a microfinance institution continuing to ask what more can be done to improve the well-being its clients.

This eye-popping creativity coming out of microfinance has fascinated me for decades and has taken an entirely different direction with the work of Marshall Saunders, founder of Citizen’s Climate Lobby. In the early 1990s, Saunders worked with Rotary to raise $700,000 for FINCA, teamed with Grameen Foundation and their five-year strategy to help its partners add five million new clients, and then rolled up his sleeves and started Grameen del la Frontera, a microfinance institution in the state of Sonora, Mexico. But along the way, Saunders also got involved as a citizen advocate with the anti-poverty lobby group RESULTS.

Saunders’ view of the world was shaped, in part, by this early encounter with RESULTS. He joined me for a radio interview I was doing on the NPR station in San Diego. During the interview I mentioned that RESULTS had successfully lobbied Congress for $200 million for microcredit.

“At first I thought ‘that’s not right,’” Saunders recalled. “I had busted my butt for three years to raise nearly $700,000 through Rotary, and RESULTS had raised $200 million in their lobbying….it didn’t seem to be realistic, the $200 million. I did make a mental note of it however.”

Saunders continued his work with RESULTS and made a serious commitment to Grameen de la Frontera. He had read about climate change and realized that sea level rise would affect some of his clients.

“It occurred to me that I was trying to get 5,000 more borrowers in Mexico,” Saunders said, “and that Bangladesh might lose millions due to sea level rise. I felt I had to get to the bottom of this. I went to see “An Inconvenient Truth” and went back about a week later…. Then I read that Al Gore was going to train 1,000 people. I said “holy socks, of course that’s what I want to do.”

He joined about 250 others in Nashville, TN for one of the trainings and returned to San Diego to lead the slide show dozens of times. Early on he realized that 98 percent of the information focused on the problem of climate change and that just 2 percent focused on what people could do about it. In addition, many of the actions centered on using more energy efficient light bulbs but didn’t really get at the big picture, public policy.

This microfinance promoter, hunger activist and newly minted climate educator was now reading the newspaper every morning and read that Congress had just approved $18 billion in subsidies to the fossil fuel industry.

“I’d gotten people to change 18 light bulbs yesterday,” he thought, “and that same day Congress approved $18 billion in subsidies to the fossil fuel industry. This is never going to work.”

In 2007 Saunders asked me to coach him in starting Citizens Climate Lobby (CCL). Several months later he led his first presentation with 29 people in the room. He hoped that at least four would agree to become the first chapter of CCL, but all 29 said yes. In 2014, CCL volunteers in the US and Canada had 2,253 letters to the editor published (up from 36 in 2010), had 291 op-eds published (up from 20 in 2010), and had 1,086 meetings with members of Congress, Parliament, or their staff (up from 106 in 2010). Doing something to protect microfinance clients in Bangladesh from the effects of climate change was his first impetus.

When the American Economic Journal recently published a group of independent studies suggesting that tiny loans to the poor usually don’t raise incomes it left me scratching my head. While CCL is truly a unique case, I still wonder why the researchers keep looking at just one intervention when the practitioners know it takes more and why they keep looking at the wrong institutions.


Sam Daley-Harris is the author of Reclaiming Our Democracy (www.reclaimingourdemocracy.org). He founded the anti-poverty lobby RESULTS in 1980 (www.results.org), founded the Microcredit Summit Campaign in 1995 (www.microcreditsummit.org), founded what would grow to become Truelift in 2010 (www.truelift.com), and founded the Center for Citizen Empowerment and Transformation in 2012 (www.citizenempowermentandtransformation.org). Portions of this blog are taken from Reclaiming Our Democracy: Healing the Break between People and Government © Copyright 2013 by Sam Daley-Harris. Published by Camino Books, Inc., Philadelphia, PA. Used by permission of the publisher. All rights reserved.

#tbt: There is No “Silver Bullet” by Jake Kendall

Delegates from the 2000 Microcredit Summit in Zimbabwe

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We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report, 2011. We hope this will encourage you to reflect on the idea that all new ideas are old.


>>Authored by Jake Kendall, Research Fellow, The Bill & Melinda Gates Foundation

The poor are diverse and so are their needs for financial tools

2011SOCR-cover

Download the full 2011 State of the Campaign Report in our Resource Library

The past few years have seen the release of an initial round of results from randomized field trials looking into the impacts of various savings, credit and insurance services on the livelihoods of poor clients. They have been somewhat disappointing to those in the financial inclusion field who expected that they would provide clear marching orders.

Despite failure of many of these studies to find much of a poverty reduction impact on average, digging beneath the surface shows what appears to be a wide variation in both the rates of uptake of the products and in the impacts of the products on different segments of clients. This is not surprising. Financial services are primarily used to manage gaps in income or to generate lump sums for large purchases, investments or emergencies. Individuals will differ in their need to for these services. Thus, we would expect to see differences in uptake and impact. The early evidence seems to confirm that this is the case.

As examples, two recent studies of microfinance credit offerings — Banerjee, Duflo, Glennerster, and Kinnan (2009) studying Spandana in India and Karlan and Zinman (2009) studying First Macro Bank in Manila — do not show any improvement over 14-18 months in basic welfare indicators from providing credit to the general population. They do, however, show large changes in investment behavior or in other outcomes for specific subgroups — e.g. in the India study, entrepreneurs expanded their businesses and those who had similar traits to entrepreneurs launched new ones.

There have been a few studies of the impacts of savings accounts recently as well. Studying rural savings in Kenya, Dupas and Robinson (2009) found savings accounts had impacts when given to women. The study found that women who participated were investing 45 percent more, had 27 to 40 percent higher personal expenditures, and were less likely to take money out of their businesses to deal with health shocks than women who were not offered savings accounts. On the other hand, there were no impacts for the men. Studying Green Bank of Caraga in the Philippines, Ashraf, Karlan and Yin (2006, 2010), find that “commitment savings accounts” do increase average savings among women and increase feelings of empowerment relative to those with regular savings accounts. However, they also found that only 28 percent of those offered the accounts decided to accept them. Studying Opportunity International Bank of Malawi (OIBM) Brune, Gine, Goldberg, and Yang (2010) recently produced data showing that Malawian farmers with “commitment savings accounts” had significantly higher investments in farm inputs, but because the study group is only farmers, it is not at all clear how these impacts would play out in other livelihood groups offered similar accounts. Thus, in the savings studies as well there seem to be very different responses from different groups.

The conclusions we can draw from these studies are limited. It seems clear (and again, not very surprising) that demand for and impact of the different products is often correlated with differences in gender, education, wealth, livelihood segment, etc. That said, the studies to date do not give very fine-grained or particularly insightful segmentations of their study samples. It’s not always easy in academic studies to get sample sizes large enough to do this. There are fundamental limits as to what RCTs can tell us regarding how different individuals or groups respond to a single treatment. Nevertheless, it would appear that a rich direction for future research would be to frame the academic evaluations of financial products more along the lines of how marketers and practitioners would frame them, by focusing on distinct customer segments and assessing the uptake or impact among these different groups.

In a possible exception to the above trend, Jack and Suri (2010) document that, after its launch in 2007, the M-PESA money transfer and e-wallet product reached over 70 percent of all Kenyan households and over 50 percent of the poor, unbanked, and rural populations by 2009. New accounts have even grown by 40 percent since then. The researchers have preliminary results indicating that M-PESA users are better able to maintain the level of consumption expenditures, and in particular food consumption, in the face of negative income shocks. While it’s almost certainly true that, here again, different segments of clients have different uses for the product, clearly most Kenyan households have some financial need that M-PESA fulfills, and by connecting people with the ability to transfer funds, M-PESA may simply be allowing them to transact with a wider and more diverse set of counterparties who can help with whatever particular need they may have.