Many questions have been raised about micro-finance and its importance as a means for poverty alleviation. As donors and practitioners become increasingly concerned about the quality of their interventions, interest has grown in developing clear and precise measurement methods. Who should be considered as a poor client? Why is it necessary to target poverty? How can a micro-finance institution (MFI) target the poor? What should be the best approach for targeting the poor? How can a MFI simultaneous focus on the very poor and face the challenge of sustainability and outreach? To what extent can financial and non-financial services help improve the living conditions of the poor?
Practitioners and donors have been developing impact measurement tools and promoting discussion groups to tackle this matter and come up with clear answers. Many Organisations and the Micro-Credit Summit have a particular interest in this issue.
Why do we have to measure poverty targeting?
Micro-finance, by providing small loans and savings facilities to those who are excluded from commercial financial services has been developed as a key strategy for reducing poverty. Access to these facilities is seen as a way of providing the poor with opportunities to take an active role in their economy through entrepreneurship, providing them with income and bargaining power and building up social empowerment for poor women and men in their communities.
Over the years we have gained a better understanding of micro-finance. We are more aware of its limitations, its positive and negative effects on poverty. Therefore more attention is focussed on questions such as: "Under what conditions and with what mechanism can micro-finance programmes have a maximum effect on poverty "?
We now understand that micro-finance is not a magic potion leading automatically to better living conditions for poor people. As a matter of fact, in some cases micro finance has led to deteriorated situations and debt equity ratio of the very poor.
The extent to which micro-finance programmes are able to reach the poorest of the poor with their services is still an open debate .
Therefore careful targeting measurements are necessary.
Difficulties: constraints of targeting poverty
Due to the difficulties in defining poverty, different methods of poverty measurement have been used. The most common approach is based on income or consumption levels. A person is considered poor if his or her income or consumption is below a certain minimum level. This level is usually called: the poverty line, which can vary in time, according to the geographical context, social norms and values.
There is currently a world-wide debate on poverty yardsticks to identify the poor. A committee of CGAP (Consultative Group to Assist the Poorest) consultants has been studying the issue for two years without producing any concrete result. Some have argued that it is impossible to design any reliable indicators to identify in a tangible way who are the really poor .
According to the Micro Credit Summit, the poorest are those people belonging to the bottom fifty per cent of the group of people living below a country's nationally defined poverty-line. According to the World Bank, the poor are those who have a level of consumption of at least $2 per day and, the poorest are those who have a level of consumption of at least $1.
Nevertheless, poverty has other dimensions besides income or consumption. It is necessary to include non-income poverty dimensions like education, health, and access to infrastructure, vulnerability, social exclusion, and access to social capital.
Measuring poverty is not easy. Aspects such as quality of life, health, leadership, women's roles, empowerment, etc., are elements difficult to quantify. Besides, arriving at precise poverty measurement methods is expensive and rather disappointing in terms of tangible results. In some cases precise and comprehensive identification tools have been replaced by tools that are less costly and less demanding on staff time and qualifications.
There is no general agreement on the fact that, in order to have a real impact on poverty, micro-finance should expressly target the poor.
Some argue that it is more important to have a wider geographical impact on a permanent basis through quality financial products delivered by competitive, effective micro-finance institutions (outreach approach).
This approach is based on a long term view and the belief that in many cases there is a limit to the "in depth targeting" of the poorest : the credit-worthiness of the client. According to this approach most MFIs do not reach the very poor and there is a trade-off between sustainability and reaching the poorest of the poor .
Some micro-credit advocates argue that micro-finance services should reach the poorest of the poor as access to credit is a human right in the fight against economic exclusion. Narrow targeting of the poorest is necessary (in depth targeting).
In a study of eleven MFIs world-wide, it was found that financially sustainable institutions can reach the poor and that there is no trade-off between reaching the poor with credit and financial sustainability
However, one should note that no matter which approach is adopted, quality and permanent services to the poor can only be delivered through competitive and sustainable financial systems.
Approaches for targeting the poor
MFIs have developed a range of strategies to identify the poor. These poverty targeting strategies include several complementary components:
• ways of identifying the poor;
• ways of attracting the poor;
• ways of excluding the non poor;
• ways of discouraging the non poor.
For effective targeting all these components have to be included in a complementary way.
To accomplish this one needs:
• Agent-related factors (Type of MFIs, client needs, constraints)
• Contextual factors (regulatory framework, infrastructure, etc.)
• Outreach of micro-finance, (how many people are reached, how poor are the clients, in which sectors are they engaged, where do they live, quality of services offered)
• Impact (measuring methods for impact will be discussed in the following article)
Some experiences on targeting measurement
Extensive research has been conducted by numerous organisations to establish reliable efficient cost-conscious methods to measure to what extent micro-finance programmes are reaching the poor. The results are rather disappointing compared to the high cost involved, as no tangible precise conclusions can be drawn from those measurements.
CASHPOR Housing Index
Used by Grameen Bank replication networks in the Asia - Pacific region. It is an observational methodology that produces an indicator, which is highly related to the quality and the status of the house.
Three dimensions of the house are considered:
1. size of the house,
2. physical condition or building materials,
3. material of the roof.
The ranking of the poor and less poor is done within the geographical and social context. People living in houses constructed from mud bricks, with poor quality thatch roofing, small windows and in a general state of disrepair tend to be selected as the poorest. In order to improve this method members of the community participate in ranking themselves according to their own perception of poverty.
Participatory Rural Assessment (PRA) and Participatory Wealth Ranking (PWR)
PRA/PWR allows communities to rank themselves according to their own perceptions of poverty. Detailed discussions are held with a large number of people in each community to define poverty, and to rank the community according to their criteria. These methods have been based on participatory rural mapping and wealth ranking. One of the most attractive aspects of this approach is the opportunity that it gives for the people themselves to define their own concepts of poverty and wealth.
PWR/ PRA does generates information which can be used to relate the results to these standard measures. The main problem is where local definitions of poverty include non-economic variables.
Geographical Distribution of Poverty
A list of the geographical concentration of poor households can help micro-finance practitioners to target the poor. Using locations as a proxy for poverty-level criteria mean taking into account variables such as levels of marginality, quality of public services, geographic dispersion, rates of illiteracy, infant mortality, life expectancies. The main limitation of this method is that it may include non-poor households.
The nature of activity serves as a proxy for the income levels. In the same way, levels of poverty can be determined by identifying the location of the enterprise. The Institute of Rural Management, SEWA in India, tries to target its members by working with women who are engaged in activities which are pursued mostly by low-income category households such as street vendors, house-based workers, rag pickers, etc.
Small Size Loans
Some programmes have selected as a targeting method the selection of the poorest area in a region as the operational area; this methodology was designed to offer small loans through group-based lending. Following the theory that small loans and high transaction cost in terms of time spent to enter the programme and participation in lengthy meetings would deter all but the very poorest from joining.
House-to-House Interviews to Potential Clients
This method uses a client or household interviews and surveys to determine the poverty of the family. Evaluators meet the people at their homes, observe the household conditions and ask related questions about family members, sources of income, expenses, food consumption, etc. The limit of this method is the inaccuracy of the income and expenditure surveys.
At Ruhunu UNESCO in Sri Lanka, a card is completed for each beneficiary family with information gathered from a survey of the family's circumstances and their level of poverty. The survey includes aspects as monthly income, quality of housing, health, number of school-going children availability of electricity, among others aspects.
Findings from the different approaches
On Poverty Reduction
Studies have shown that most poor people have benefited from micro-finance programmes but that narrow targeting is not necessarily a condition for reaching the poorest. Some large-scale non-targeted schemes have proven to reach the poorest.
• More poor people can be reached through building competitive, sustainable financial systems which provide a wide range of small-scale financial transactions than through narrow targeted programmes.
• Increasing numbers of practitioners are stressing the importance of offering a range of quality and flexible financial services in response to the wide variety of the needs of the poor.
• Micro-finance has its limitations. It should not be seen as the only solution to poverty alleviation. In certain circumstances other inter-ventions sometimes could be more effective than micro-finance. For example, in the case of natural disaster situations, micro-finance needs other complementary interventions, like subsidies for responding to the needs of those clients who have lost their capital and personal belongings and do not have any liquidity to pay their current debts.
• Micro-finance is not appropriate for all the poor people. In some cases micro-enterprises owned by the poor are not ready for or do not need financial products. In other cases, micro-entrepreneurs are not creditworthy.
• Toward Guidelines for Lower-Cost Impact Assessment Methodologies for Microenterprise Programs, Jennefer Sebstad, AIMS, June 1998
• The World Bank Group, Understanding and Responding to Poverty, Poverty Newsletter #3, March 1999
• Microfinance and Poverty Reduction, Johnson S. and Rogaly B. Development Guidelines, Oxfam Publications, 1997
• Micro-finance and Poverty: , Questioning the Conventional Wisdom, Gulli Hege, IADB, 1998
• Discussion Forum, Microcredit Summit, Poverty Measurement, discussion group, paper #2.
• Talking Points for "Participatory Methods of Poverty Measurement, Anne Case, Center for International Studies, Princeton University, 1999
• Ruralance and Poverty Alleviation, Manfred Zeller and Manohar Sharma, IFPRI, 1998
• Impact monitoring and learning for poverty-alleviation, The Small Enterprise Foundation, Development Department, Simanowitz Anton
• Supporting poverty alleviation through micro-finance, The Small Enterprise Foundation, Development Department, Simanowitz Anton
• Effective strategies for reaching the poor, The Small Enterprise Foundation, Development Department, Simanowitz Anton
• Examining the impact of micro-finance services, increasing income or reducing poverty?, Graham A. N. Wright, 1999
• Micro-finance and Anti-poverty Strategies, A donor perspective UNCDF Policy Series, José Garson, 1997
• Finance against Poverty, David Hulme and Paul Mosley, Volume 1 and 2, Routledge, London, 1996
• Overview of studies on the Impact of Microenterprise credit, Monique Cohen, Jennefer Sebstad and Gregory Chen, June 1996
Par Verónica González Aguilar
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