Good News for the Ultra Poor

I participated in a recent meeting at the World Bank with researchers, funders, and development practitioners interested in helping people living in extreme poverty improve their lives. We have seen promising results from the CGAP-Ford Foundation Graduation pilot programs targeting the “ultra-poor” demographic – the most vulnerable families, living in the bottom 15% of their economy, which for years have been among the hardest to reach by development interventions. Participants discussed the challenges of scaling up these programs, which include securing funding, hiring competent and empathetic staff, and finding the most viable livelihoods for those coming out of extreme poverty.

Despite the incredible progress made in this area over the last decade, many suggested that funders might be reluctant to support the next phase of these programs due to their perceived high costs. I disagree. Research at BRAC in Bangladesh, which pioneered an approach now used by ultra-poor programs around the world, shows that for just $150 a year for 2 years, we can produce impressive and remarkably sustainable results on multiple indicators. Most families “graduate” from extreme poverty to the bottom rung of the economic ladder, where they are able to benefit from microfinance. Cost benefit analysis found that we ultimately reap over $5 for every $1 invested.

The main strategy discussed at the global meeting was inspired by the work of BRAC: a strategy that targets the ultra-poor by sequencing creative interventions, including confidence building and the transfer of productive assets such as livestock, to enable women-headed households and other vulnerable families living on 50 cents a day or less to “graduate” into sustainable livelihoods.

Built on two decades of working with the World Food Programme and the Government of Bangladesh, BRAC helped over 2.2 million of very vulnerable families earn income through raising poultry using a value chain approach that used the safety net food aid. Unfortunately research in 2001 by Dr. Syed Hashemi showed the gains didn’t last. So, in 2002, BRAC began its first phase of its new program. It challenged the frontiers of poverty alleviation, working with 100,000 households living in conditions that made them difficult to reach with conventional programs, including microfinance. BRAC designed a program that targeted this ultra-poor population, testing a solution that had the potential to make measurable dents in the scale of the problem.

Empirical evidence from BRAC encouraged CGAP and the Ford Foundation to test the idea by replicating the approach in cooperation with other anti-poverty organizations, launching 10 different pilots in eight countries. Due to funding constraints, the Graduation Pilots were launched with a much smaller number of households – up to 1,000 households, but sometimes as few as 150 women.

Now, six pilots have graduated somewhere between 75-98% of initial participants. Some organizations and governments now aim to scale up to levels similar to that of BRAC, which as of December 2011 reached 373,000 families with its ultra-poor program supported by DFID and AusAid among others. The Indian microfinance organization Bandhan and Pakistan’s Poverty Alleviation Fund are both moving to serve over 50,000 households over the few years.

Meanwhile, independent research continues to yield new insights into long-term effects. Working with outside scholars from the London School of Economics, BRAC has new data that shows impressive incomes and productivity gains sustained after four years. The magnitude of impact on per capita income was not only sustainable over the long term, but also increased over time. Self-employment, as the primary occupation of the working-age members, tremendously increased due to program participation. There were also benefits to food security with strong improvements in nutrition as measured by consumption of meat, fish and leafy vegetables, and by price per calorie. Earlier BRAC research highlighted gains in income and food security as well as health, sanitation and education.

Today, the focus for us all should be on systems for efficient and effective scaling. The evidence suggests these programs are a good bet for scarce donor resources. As BRAC has learned, we need to create partnerships that generate livelihoods, create ecosystems for entrepreneurship, and ultimately forge new pathways out of poverty. To scale up, one needs to have the right leadership, systems and resources in place.

Our challenge now is to generate the political will among the backers of microfinance and savings-led strategies for women’s empowerment to target resources in more strategic ways. I am particularly encouraged by the promise of the business model that Bandhan is using to grow its program through financing from profits of its microfinance bank, along with 75% coming from a large commercial bank, Axis Bank. A study by Grameen Foundation of Fonkoze in Haiti and the Small Enterprise Foundation in South Africa found that the ultra-poor program may be a cost-effective customer acquisition strategy.

Pressures for corporate social responsibility, responses to critiques of microfinance, and the drive for new markets and customers may open up new opportunities for the poorest. Equally important, pressures on governments for more inclusive and equitable societies may accomplish the same goal. As the international community discusses what comes after the UN’s Millennium Development Goals in 2015, it is encouraging to see the enthusiastic leadership from multilateral and bilateral aid organizations (e.g. World Bank, Asian Development Bank, DFID, AusAid) along with private foundations – notably The MasterCard Foundation, Dell Foundation and Ford Foundation – and international NGOs, networks and associations. As the evidence continues to pour in, it is time to redouble our efforts by publicizing the empirical basis for investing in the ultra-poor.