«Ultra Poor Graduation Pilots: Spanning the gap between charity and microfinance Written by: Nathanael Goldberg, Senior Policy Director Innovations ...»
2011 Global Microcredit Summit
Commissioned Workshop Paper
November 14-17, 2011 – Valladolid, Spain
Ultra Poor Graduation Pilots:
Spanning the gap between charity and microfinance
Nathanael Goldberg, Senior Policy Director
Innovations for Poverty Action, USA
Arielle Salomon, Policy Associate
Innovations for Poverty Action, USA
TABLE OF CONTENTS
History of Ultra Poor Graduation Pilots
Graduation Model Implementation
Appendix 1: Graduation Pilots Summary
Ultra Poor Graduation Pilots:
Spanning the gap between charity and microfinance Introduction The Ultra Poor Graduation Program is a global effort to uplift households living in extreme poverty. The original program in Bangladesh has reached over a million households and has been adapted and implemented in eight other countries. This model was established when BRAC, a Bangladeshi development organization, noticed that households at the very bottom of the economic ladder were not benefiting from the services offered by its microfinance program. Microfinance providers gained substantial recognition in the 1990s and 2000s for providing financial services to the poor, but largely failed to reach households in extreme poverty. While this gap was widely acknowledged the response varied considerably, largely breaking into two camps along the lines of the “financial systems approach” vs. “poverty lending” approach outlined by
1. Financial systems proponents focus on the appropriateness of microfinance for the very poor, arguing the very poor need a more intensive suite of services. They note that while microfinance may not reach the very poor, there are millions of unbanked households who deserve access to financial services.
2. Poverty lending proponents focus on targeting: if we can make it easier to identify the very poor we can encourage them to participate in microfinance programs.
Poverty lending advocates have promoted a number of low-cost tools to identify the ultra poor, such as scorecards based on housing or assets, or participatory appraisals (Simanowitz, Nkuna, and Kasim). Yet empirically many very poor households are unwilling to participate in microfinance programs (Karlan, Morduch, and Mullainathan).
This appears especially true for borrowing to launch enterprises.
History of Ultra Poor Graduation Pilots The World Food Program (WFP) and BRAC joined together with the Bangladeshi government in 1985 to target rural women and provide services to uplift them from extreme poverty. The Income Generation for Vulnerable Groups Development (IGVGD) program, expanding off of the existing state welfare system that supplied free grain, united women to accumulate savings and receive productive skills training such as livestock raising and vegetable garden development. By targeting single women with few assets and no access to other aid programs, and providing ongoing support for eighteen months, IGVGD aimed to create a more long-term solution for destitute families. After several months of consumption support and training, beneficiaries received small loans to be repaid with accumulated savings and income from new enterprises. The goal of the intervention was to prepare women to take larger loans from a microfinance institution at the end of the program. An assessment of the program found that two-thirds of beneficiaries had joined microfinance programs. However, many beneficiaries had difficulty leveraging program trainings to improve well-being (Hossain and Zahra).
BRAC recognized the need for more extensive support and the opportunity to augment both social integration and healthcare components. Challenging the Frontiers of Poverty Reduction/Targeting the Ultra Poor (CFPR/TUP) was launched in 2002 as an adjustment of the initial IGVGD intervention, with more intensive mentoring and social and health support.
Recognizing the potential of this model, the Consultative Group to Assist the Poor (CGAP) and the Ford Foundation joined together in 2006 to replicate the intervention in other countries, with a series of quantitative and qualitative evaluations to measure the 4 impact of the model. Today, the Graduation Project, named for its mission to “graduate” the ultra poor from extreme poverty, has expanded to ten pilots in eight countries: India (Bandhan, Swayam Krishi Sangam (SKS), Trickle-Up), Pakistan, Haiti, Honduras, Peru, Ethiopia, Yemen, and Ghana. The pilots are generally implemented by NGOs and microfinance institutions, with technical assistance from CGAP and the BRAC Development Institute (BDI). Randomized evaluations are being conducted in eight of the ten sites: by Innovations for Poverty Action (IPA) in Pakistan, Honduras, Peru, Ghana, Yemen, and Ethiopia; by IPA, the Abdul Latif Jameel Poverty Action Lab (JPAL), and the Centre for Microfinance (CMF) with Bandhan, India; and by the Financial Access Initiative and New York University with SKS India. The programs are in various stages of evaluation: the pilots in India have completed their interventions and follow-up surveys a year after program completion, while pilots in Peru and Ghana are just launching, with final results expected in 2014.
Graduation Model Implementation
Ultra poor households face an interrelated set of challenges, each of which colludes to keep families in extreme poverty. These families are food insecure, do not have access to financial services, have few assets, savings, and inadequate access to healthcare, and often cannot afford education for children or need children to work. Without many opportunities or tools with which to change their situation, these households are vulnerable to shocks, such as bad harvests, and often dependent on charitable or government services for basic food support during lean seasons.
The Graduation Model is designed to give the ultra poor the “breathing space” they need from all these immediate challenges so they can focus on improving their welfare over the long term. The program includes a carefully sequenced set of services, including consumption support, productive asset transfer, livelihood training, savings services, and healthcare. Each component is tailored to fit the country context while maintaining the model’s core components. Throughout the entire implementation period field staff visit
The first step of the program is client selection. At each program site, ultra poor households are identified using a Participatory Wealth Ranking (PWR) during which villagers create an economic ranking of all community households.
The poorest households on this list are visited by field officers to verify their poverty status. Scorecards such the Progress out of Poverty Index and USAID’s Poverty Assessment Tool are helpful for conducting verification checks.
6 Eligibility criteria vary per country. The three pilots in India as well as the pilot in Haiti only target female beneficiaries. However, the other pilots do not target by gender and work with the head of household. Beneficiaries in the Honduras program must comply with the following primary criteria: live in the community for a minimum of three years, earn less than 600 Lempiras (about 32 USD) per capita per month, have at least one household member under the age of 18, not receive regular support from another program, and not have a loan.
Once participants have been selected, consumption support—either a cash stipend or inkind package—is distributed on a weekly or monthly basis to stabilize household consumption. In some countries like Pakistan, implementers give beneficiaries consumption support out of program funds. In other countries like Ethiopia, the program builds off an existing state system (the Productive Safety Net Program) which provides a monthly in-kind package of food and supplies like oil. In Yemen, the pilot is a partnership between the government’s microfinance support agency and its conditional cash transfer program. As in Ethiopia no “new” consumption support is required, since households poor enough for the graduation pilot are all eligible for the cash transfer program. While the content and delivery of each pilot’s stipend varies, the purpose of smoothing consumption remains consistent. SKS does not provide consumption support, noting their households have survived by working as day laborers when necessary, but provides a small stipend for working capital to purchase animal feed.
As households have a more secure supply of food, the focus shifts to the asset transfer and livelihood trainings. Implementers hire livelihood experts to conduct a market analysis in the pilot region, identifying entrepreneurial activities along with their potential risks and returns. Livelihood consultants also consider beneficiaries’ existing income sources in an effort to diversify household revenue.
After this research, implementers choose livelihood options along with related assets to offer to program beneficiaries who ultimately decide which activity to pursue. The livelihood trainings assure that assets are used to earn a sustainable income. Across 7 project sites, livelihood activities range from raising livestock such as chickens and goats to beekeeping to engaging in petty trade. Trainings include caring for livestock, reselling animals after fattening, and maintaining sales records, depending on the livelihood chosen. Most project sites supply beneficiaries with one livelihood, though, the project in Honduras encourages income diversification through small-scale farming on household land (coffee and plantains) in addition to raising chickens or fish; and multiple pilots encourage small vegetable gardens for private consumption.
In promoting sustainable livelihoods, the Graduation Model fosters a savings culture for its beneficiaries. Implementers in Pakistan encourage participants to use village Rotating Savings and Credit Associations (ROSCAs) that pool members’ money to be distributed to one member in each savings period. In Honduras, as in India (Bandhan and SKS), Ethiopia, and Peru pilots, beneficiaries are required to open an individual savings account at a local microfinance institution. Beneficiaries in Yemen have access to a savings account at local post offices. For many pilots, the withdrawal of savings is only allowed for emergency situations until clients graduate.
Good health is essential to enable participants to focus on their new livelihoods, and to keep children in school. Partners in Yemen will provide health education covering topics like hygiene and sanitation. The Pakistan pilot has hired community health workers to serve beneficiaries. Additional services like veterinarian consultation for participants raising livestock and sessions on confidence building and social integration vary by site.
CGAP works with each implementing partner and beneficiaries to determine graduation criteria for the end of the program. For the SKS pilot in India, a beneficiary graduates if she meets the following goals: children are in school, she can pay for a month’s worth of food, she has two income-generating activities, and savings of at least US$20.
Beneficiaries strive to achieve these benchmarks by the end of the 24-month program and are monitored throughout the program period.
To evaluate the impact of the Graduation implementation, teams of researchers are conducting randomized evaluations of eight pilots. IPA is conducting research for seven pilots: Bandhan (India), Pakistan, Honduras, Peru, Ethiopia, Yemen, and Ghana. J-PAL and CMF are also involved in the Bandhan implemented pilot in India. FAI is evaluating the program implemented by SKS in India. BRAC Development Institute (BDI) is conducting qualitative research for five of these randomized evaluations.
Randomized controlled trials, often used in medicine to test the effects of drugs, isolate the effects of the Graduation Model so that impacts can be confidently attributed to the program itself, and not other factors. Without a rigorous evaluation it is impossible to tell to what extent changes in people’s lives are attributable to the program. Participants tend to be systematically different than non-participants even before they benefit from the program. This is especially true for a targeted program like the Graduation Program which selects only the poorest households. Moreover, participants may be affected by various interventions in their region, or shocks such as favorable or unfavorable harvests.
Thus, even if one were to witness participants’ welfare improving, the change might not in fact be due to the program in question but rather to unmeasured external factors.
Conversely, if welfare appears to be declining it might be the case that welfare may have been even worse in the absence of the program. Randomized controlled trials solve these problems by using random assignment to compare participants and non-participants who, on average, are alike—except for the impact of the program.
The first step of the evaluation process is to administer a baseline survey to all eligible households in the sample, identified by the PWR process. This survey collects data on consumption, assets, physical and mental health, community participation, and entrepreneurship. After this information is collected, households are randomly assigned to a treatment or comparison group. The comparison group serves as a counterfactual, revealing outcomes for those who do not participate in the Graduation Program. After the 9 duration of the study, the program may be extended to households in the comparison group.
Program implementation begins after random assignment of households. At most project sites, short surveys are administered to treatment and comparison households to track levels of consumption every few months. After households complete the program (about two years after the baseline survey), enumerators administer an endline survey collecting the same data as the baseline. In most cases, a second follow-up survey is administered the subsequent year to assess long-term impacts a year after program completion. Data gathered during these surveys reveal the changes in household outcomes.