Overview
Microcredit is an excellent tool for poor people with the stability and skills to operate a microenterprise. But what about those who are too vulnerable or too insecure to run a business?
The people at the very bottom of the economic ladder are usually excluded from microfinance and served by safety net programs: transfer programs targeted at the poor or those vulnerable to shocks. Safety net programs usually take the form of cash transfers, food aid, or price subsidies. While safety programs are able to alleviate poverty, they are unable to develop income generating activities or build assets to move people out of poverty.
The graduation model incorporates the targeting and transfer elements of safety net programs, and introduces entrepreneurial activity through training, an asset grant, and credit. The key to the graduation model is the careful sequencing of several development services to facilitate consumption stability and, subsequently, enterprise development.
BRAC pioneered the graduation methodology over a period of ten years adapting their IGVGD program. Their currently program, Targeting the Ultra Poor, began in 2004 and today, over 800,000 households have “graduated” out of safety net programs to become successful microentrepreneurs. While their businesses are small and their income is still inadequate, moving poor people from dependence on hand-outs to becoming independent earners is a gigantic leap in development terms.
CGAP and the Ford Foundation have partnered to explore how BRAC’s program can be adapted in other parts of the world. We are designing and funding pilots in five sites (with several more planned in Ethiopia, Honduras, Ghana and Peru) to see how safety net components can be coordinated with microfinance services to create a pathway for the poorest people out of extreme poverty.
These pilots are all being carefully monitored and evaluated, and several are accompanied by rigorous randomized control trials. This careful monitoring will allow us to track changes in the lives of the beneficiaries as result of the program. Moreover, we will be able to distinguish between those poor people for whom the program succeeds and those for whom the program is insufficient. We are also keeping careful track of costs, and the kinds of impacts one can expect as a result of such an intensive program.
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