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.

1. Measuring Poverty in Microfinance
Sharlene Brown
National Director
April 5, 2012

2. Agenda
1. Social Performance Management Umbrella
2. Vision for Poverty Measurement in the Microfinance Sector
3. Progress out of Poverty Index (PPI): Poverty Index vs Market Index
4. Purpose & Construction of the PPI
5. Example: Tanzania PPI
6. Uses & Users of the PPI
7. Case Study: NWTF
8. 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 Index
Why 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 purpose
Is… Is Not…
Very specific in its focus: Intended to estimate Intended to capture all facets of
economic poverty based on household poverty
expenditure
10 indicators statistically derived from the 10 randomly chosen indicators
most currently available national household
income expenditure of a given country
A tool with categorical indicators that are All encompassing
highly predicative of poverty, verifiable, quick
to answer, and liable to change over time
10 indicators viewed as one (concept of an 10 individual unrelated questions
index)
A whole made up of 10 parts
10

11. Purpose: PPI vs Market Index
PPI Market Index: S&P 500
Gives poverty-focused organizations an Gives investors and consumers an
understanding of the poverty outreach of understanding of the direction of the US
their portfolio at a point in time economy at a point in time
Based on 10 indicators statistically Based on 500 companies with strong
predictive of poverty from the group of representation in the US economy – the
questions 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 a
sense of the poverty situation of a client. It is sense of where the US economy is
what ALL 10 questions TOGETHER tell us going; it is what ALL 500 companies tell
that is useful us TOGETHER that is useful
Each indicator has a weight (scores Each company has a weight
associated with the questions)
MFIs and other poverty-focused Investors/consumers compare the total
organizations can use outreach numbers index value over time to see the trend of
over time to understand improvement in the the economy
poverty context of the portfolio over time
11 *HIES = Household income expenditure survey

12. Construction: PPI vs Market Index
PPI Market Index: S&P 500
Takes the indicators with the strongest Takes the largest companies in the
correlation to poverty US
Universe: Indicators selected from
questions asked in a specific Universe: S&P 500 companies
government’s household income selected from the largest companies
expenditure survey in the US
Other considerations: Verifiable, easy Other considerations: Stable
to ask, liable to change over time, and financial profile and liquidity (in
culturally acceptable addition to size)
Note: Both indices start with the objective and add a bit of
expert judgment through Other Considerations
12

13. Construction of the PPI
National 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 poverty
Once we determine the two questions with the best ability to predict poverty, we repeat the
process 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 Whole
Observation: PPI users struggle with viewing the PPI as 10 questions
statistically linked together
Car
Components of a car
≠
Think of the parts of a car. By themselves, they are just components with limited
value, 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. You
need all the parts to drive the car. All 10 indicators together is what estimates the
poverty 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 survey
17

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, Philippines
Pilot
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 effective
Outcomes
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 options
22

23. Resources
INDUSTRY
• Imp-Act Consortium: www.imp-act.org/
• Social Performance Task Force: Sptf.info
SUBJECT SPECIFIC
• Grameen Foundation’s PPI: Progressoutofpoverty.org
• Oikocredit’s Social Performance: oikocredit.org/socialperformance