Graduation pilots: Creating opportunity for the extreme poor

December 22, 2009    

Many people assume microfinance serves the very poorest people. In fact, this is usually not the case. While microfinance has been very successful at reaching the working poor, the extremely poor are generally only reached by “safety nets” that provide services like food aid and guaranteed employment. “We believe microfinance can have a role in poverty reduction,” says CGAP expert Syed Hashemi. And a new CGAP brief, Creating Pathways for the Poorest: Early Lessons on Implementing the Graduation Model, shows one possible way how.

Graduating out of poverty

In 2006, CGAP and the Ford Foundation decided to explore a new way to help the poorest “graduate” from extreme poverty. Based on methodology developed by BRAC in Bangladesh, the graduation model partners with local organizations to help “ultra” poor people develop sustainable livelihoods.

Take Srimati Sardar, in West Bengal, India. Two years ago, she and her husband earned at most 10 cents a day. Today, after participating in the CGAP-Ford Foundation Graduation Pilot implemented by Trickle Up, Srimati has a successful goat-herding business. Her stable income has allowed her to join a self-help group, where she deposits 21 cents a week to save for her children’s education, business investments and healthcare expenses. Srimati is now able to plan for her family’s future – and is on the path out of poverty.

How it works

“The first critical step is selecting the very poorest households,” says CGAP microfinance analyst Aude de Montesquiou. “In the beginning, participants receive a cash stipend to give them breathing space. Once their food consumption stabilizes, they can start saving, and receive business training.” Later on, participants receive a carefully chosen asset to help jump-start a new economic activity. Participants are monitored throughout the process – they receive home visits to help boost confidence and build expertise, and to provide social and health services.

The pilots

In partnership with local organizations, CGAP and the Ford Foundation have nine graduation pilots underway in seven countries: Ethiopia, Haiti, Honduras, India, Pakistan, Peru, and Yemen. The pilots are in various stages of development: four have reached graduation, while five are currently being implemented. Over 5,000 households are being reached in the pilot phase.

Under the Trickle Up Graduation Pilot in West Bengal, 300 of the poorest women in the area were selected to participate in the program. They received training, a consumption stipend, and a livelihood asset.

The women faced major challenges from the beginning. Many of the participants’ poultry fell ill with bird flu, and disease killed many of the goats. Floods and other natural calamities – like this summer’s cyclone – destroyed homes and livelihoods.

“Despite these obstacles, 258 out of 300 women proudly graduated from the program – with assets worth US$150, savings over US$20, and diversified sources of earnings,” says Hashemi. They were also active in their SHGs, had basic knowledge of sanitation and hygiene, and were aware of the availability of government programs they could benefit from. In October, Trickle Up held a joyful Graduation Party, during which participants sung and danced.

With early successes like this, the graduation pilot program looks to the future. “We don’t yet know what percentage of program households will manage to graduate and stay above extreme poverty. Nor do we know what the benefits of the program are in terms of employment, creation of new economic activities, and improvements in nutrition and education,” says CGAP expert Mayada El-Zoghbi.

But CGAP and the Ford Foundation will be closely monitoring the program’s impact. It’s possible participants could fall back into extreme poverty without continuous support, but it’s well worth finding out.