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Oikocredit USA: Measuring Poverty Outreach
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Oikocredit USA: Measuring Poverty Outreach

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Does microfinance reach the poor & ultra poor? This question is one that is frequently debated among practitioners and academics. Historically, the microfinance sector has used a variety of proxies to …

Does microfinance reach the poor & ultra poor? This question is one that is frequently debated among practitioners and academics. Historically, the microfinance sector has used a variety of proxies to gauge the poverty levels of clients reached. In response to this question and concern about mission drift, USAID and Grameen Foundation created two tools that help organizations to answer the question of whether the clients targeted by their services are below the poverty line.

The presentation aims to provide investors and fiduciaries with an overview of Grameen Foundation's Progress out of Poverty Index (PPI) and outline the vision for poverty measurement in the microfinance sector. The sector is at the beginning stages of helping MFIs and other poverty-focused organizations measure the poverty profile of their portfolios and understand movements over time.

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  • www.oikocredit.org
  • www.oikocredit.org
  • www.oikocredit.org
  • Founder’s syndrome www.oikocredit.org
  • www.oikocredit.org
  • First step, uncertainty coeficient. Logit regression to build the scorecard. After all indicators are tested, each indicator is selected based on several factors. The factors that contribute to the indicator selection include the: (used when conducting expert judgment process) - Ability to improve accuracy - Likelihood of acceptance by users (determined by simplicity, cost of collection, and “face validity” in terms of experience, theory, and common sense) - Ability to change values as poverty status changes over time Capacity to contribute to question variety (in comparison with other indicators already in the PPI) - Ease of observation/verification
  • The parts of the car are just that parts of a car – a door, a window, a wheel. Together these components are put together to create a car. We take the parts to create a whole – we see the whole picture – the car.
  • www.oikocredit.org
  • www.oikocredit.org
  • Progress out of Poverty Index December 2007 Grameen Foundation NWTF results for their pilot implementation. Other indicators: age, type of business, number of entrepreneurial activities, rural or urban setting
  • www.oikocredit.org

Transcript

  • 1. Measuring Poverty in Microfinance Sharlene Brown National Director April 5, 2012
  • 2. Agenda1. Social Performance Management Umbrella2. Vision for Poverty Measurement in the Microfinance Sector3. Progress out of Poverty Index (PPI): Poverty Index vs Market Index4. Purpose & Construction of the PPI5. Example: Tanzania PPI6. Uses & Users of the PPI7. Case Study: NWTF8. Q & A
  • 3. Poverty Outreach Debate
  • 4. Social Performance Management Poverty Responsibility to measurement Client the environment Protection Governance Principles issues Responsibility to staff
  • 5. PPI: Then & Now• First PPI created in 2005• 7 years later, there are: • 44 PPIs • 150 PPI users • 123 practitioners • 27 intermediaries • Certified PPI Users • 12 Certified PPI Users • 9 are Oikocredit partners • 5 trained and supported by Oikocredit through capacity building
  • 6. A Quick Review of a Market IndexWhy do market indices exit? • To give us an understanding of how the market (the economy) is moving • Serve as benchmarks for our investments
  • 7. A Poverty Index …• Recognizes the established poverty benchmarks for national & international poverty rates for a given country• Allows pro-poor organizations to benchmark poverty distributions to national & int’l poverty levels
  • 8. PPI: An innovative approach to estimate poverty An innovative tool that uses data collected by national governments and takes the form an index. The PPI is country specific. Example of a market index National Survey + 8
  • 9. The PPI is…• A 10-question poverty scorecard• Country-specific and measures economic poverty• Intentionally focused on non-financial indicators• Has categorical indicators: family, house, and ownership of consumer durables• Indicators tend to be verifiable, liable to change over time, and easy to answer
  • 10. The PPI: An index with a specific purposeIs… Is Not…Very specific in its focus: Intended to estimate Intended to capture all facets ofeconomic poverty based on household povertyexpenditure10 indicators statistically derived from the 10 randomly chosen indicatorsmost currently available national householdincome expenditure of a given countryA tool with categorical indicators that are All encompassinghighly predicative of poverty, verifiable, quickto answer, and liable to change over time10 indicators viewed as one (concept of an 10 individual unrelated questionsindex)A whole made up of 10 parts10
  • 11. Purpose: PPI vs Market IndexPPI Market Index: S&P 500Gives poverty-focused organizations an Gives investors and consumers anunderstanding of the poverty outreach of understanding of the direction of the UStheir portfolio at a point in time economy at a point in timeBased on 10 indicators statistically Based on 500 companies with strongpredictive of poverty from the group of representation in the US economy – thequestions asked in the HIES* 500 with the largest influence on the economy (market capitalization)No one indicator in the index gives us a No one company in the index gives us asense of the poverty situation of a client. It is sense of where the US economy iswhat ALL 10 questions TOGETHER tell us going; it is what ALL 500 companies tellthat is useful us TOGETHER that is usefulEach indicator has a weight (scores Each company has a weightassociated with the questions)MFIs and other poverty-focused Investors/consumers compare the totalorganizations can use outreach numbers index value over time to see the trend ofover time to understand improvement in the the economypoverty context of the portfolio over time11 *HIES = Household income expenditure survey
  • 12. Construction: PPI vs Market IndexPPI Market Index: S&P 500Takes the indicators with the strongest Takes the largest companies in thecorrelation to poverty USUniverse: Indicators selected fromquestions asked in a specific Universe: S&P 500 companiesgovernment’s household income selected from the largest companiesexpenditure survey in the USOther considerations: Verifiable, easy Other considerations: Stableto ask, liable to change over time, and financial profile and liquidity (inculturally acceptable addition to size) Note: Both indices start with the objective and add a bit of expert judgment through Other Considerations12
  • 13. Construction of the PPINational Survey All indicators on the national household survey are ranked according to how strongly they predict poverty levels . The full list of 400-1000 indicators is narrowed to the 100 most powerful ones. 100 indicators Using both statistics and expert judgment, a 10 indicator scorecard is constructed. PPI 10 indicators Likelihood Scorecard Table Each possible response is assigned point + value based on the original national survey responses. The total score (summing from 0 to 100) is then linked to probabilities of falling above or below the poverty lines.
  • 14. Construction: More on Togetherness Key Concept: The PPI is built indicator by indicator. Possible Options Indicator #2 = Indicator #1 + Indicator #2 Indicator #1 Indicator #2 = Indicator #1 + Indicator #2 Use statistical Indicator #2 Indicator #1 = + Indicator #2 analysis to determine the question with the strongest ability to predict poverty Statistical analysis used to BEST TWO determine the best two questions that TOGETHER strongly predicts povertyOnce we determine the two questions with the best ability to predict poverty, we repeat theprocess starting with the best two and continue using statistical analysis to find the 3rd,then 4th , and so on until we arrive at 10 indicators -- all statistically linked together 14
  • 15. Viewing the PPI as a WholeObservation: PPI users struggle with viewing the PPI as 10 questionsstatistically linked together Car Components of a car ≠Think of the parts of a car. By themselves, they are just components with limitedvalue, but together they would make up a car. If I gave you only a wheel or car door,you can’t drive those things down the street. Each PPI indicator is a like a part. Youneed all the parts to drive the car. All 10 indicators together is what estimates thepoverty rate of a group of clients. 15
  • 16. PPI: Tanzania
  • 17. Use of HIES and PPI Data Practically every government uses house income expenditure surveys to understand the poverty levels of their citizens. The PPI uses the data framework (house income expenditure surveys) provided by governments to create a tool that is useful for MFIs and other poverty focused organizations. HIES = Household income expenditure survey17
  • 18. Who Uses the PPI?• MFIs and poverty-focused organizations• National and/or regional associations• Social investors, funders, and int’l NGOs• Others (Governments, etc.) 18
  • 19. Direct PPI Data Collection from Partners Oikocredit/Social Investor Partners/Investees Each partner/investee collects PPI data and shares results with funder
  • 20. Indirect PPI Data Collection from Partners Funder/Social Investor Partners/Investees Funder/Social Investor takes the lead and deploys interviewers to a sample of their portfolio to collect data
  • 21. Vision for Poverty Outreach Data Make client-focused Track outreach & decisions movement over time
  • 22. PPI MFI User: NWTF, PhilippinesPilot Census of one branch (Cauayan)Implementation Integrated the PPI collection across all branches after piloting Collected information on additional indicators to use as it refines its outreach and its products and services Compared data by branch to understand what products and services are most effectiveOutcomes Changed its eligibility requirements for incoming clients by targeting 10 percent of clients above the poverty line Facilitated entry for the poorest clients by adjusting loan size, loan cycle period and possible pre-payment options22
  • 23. ResourcesINDUSTRY• Imp-Act Consortium: www.imp-act.org/• Social Performance Task Force: Sptf.infoSUBJECT SPECIFIC• Grameen Foundation’s PPI: Progressoutofpoverty.org• Oikocredit’s Social Performance: oikocredit.org/socialperformance