promising approaches for reaching very poor people

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Presentation byLaura Foose, Alternative Credit Technologies, LLC

and Jan Maes, Trickle Up

March 11, 2005

The Implications of the Microenterprise for Results

and Accountability Act of 2004 ±Promising Approaches for Reaching Very Poor People



OverviewOverview

What are the implications of theMicroenterprise Results andAccountability Act of 2004 (H.R.3818)?

Why did the legislation come aboutand what do advocates of it hopewill be accomplished?

What are promising approaches for

reaching very poor people? How can microfinance products

and services be designed toachieve greater depth of outreach?



Microenterprise Results and Accountability Act of Microenterprise Results and Accountability Act of

2004 (H.R. 3818)2004 (H.R. 3818)

The legislation requires that 50% of all USAIDmicroenterprise resources benefit the very poor

The legislation defines the term very poor as thosehouseholds living in the bottom 50% below the nationallydefined poverty line or those living on the equivalent of less

than $1/day (in Purchasing Power Parity (PPP)).

In addition, the legislation requires USAID to develop, fieldtest and certify no fewer then two low-cost methods for partner institutions to assess the poverty level of their currentand prospective clients.

All partner organizations applying for microenterpriseassistance from USAID will be required to begin using thecertified tools to determine and report the poverty level of current and prospective clients no later than October 1, 2006.



Why did the legislation come about?Why did the legislation come about?

Pro-poor advocates wanted transparency in the industryabout who we are really reaching.

Policymakers, donors and development practitioners

want to access reliable information about the povertylevels of the beneficiaries/clients of developmentservices so that they can steer their investments andprograms toward the population segments they want toreach.

Mainstream microfinance is integrating into the formalfinancial system, with commercialization and strategicpartnerships with banks. With this emphasis on scalingup, very poor people are being left behind.



Who is being reached?Who is being reached?

Most microfinance clientstoday fall in a band aroundthe poverty line

The extreme poor are rarely reached by

microfinance

Social safety net programs areoften more appropriate for the

destitute and extreme poor Source: Monique Cohen/CGAP Presentation



Developments as a result of the legislationDevelopments as a result of the legislation

Certification of Poverty Assessment Tools

Social Performance movement

Development of products and services that are

more appropriate for very poor people



Promising Approaches for Reaching Very Poor PeoplePromising Approaches for Reaching Very Poor People

Flexible Savings

Credit products designed for the very poor

Grants for seed capital

Asset transfer programs

Leasing

Non-financial Services: health, literacy, social action

Strategic Alliances

± between grant programs and microfinanceprograms

± between social safety net programs and

microfinance programs



Examples of Promising ApproachesExamples of Promising Approaches

BRAC (Bangladesh)

Asset grants

Training

Health services

SEF (South Africa)

Microcredit tailored tothe very poor and

Participatory WealthRanking

ARC (Guinea)

Three-Steps Approach:

1. Start-Up Grant2. Basic Loan

3. Advanced Loan

TUP (Cambodia)

Seed capital grants

Savings match



BRACBRAC

Challenging the Frontiers of Poverty Reduction-Targeting the Ultra Poor Program

TARGET GROUP

Ultra Poor Women in Bangladesh

MODEL

Foundation for sustainable livelihood by: Asset Grants: physical capital Health: human capital Social Development (support group formation): social capital

Savings: promotional focus

RESULTS

Reduced vulnerability Savings product: from promotional to protectional focus?



ARC ARC

Three Step Program

TARGET GROUP

Vulnerable women in refugee camps

MODELThree-Step Approach1. Startup grant (and business development training)2. Small basic loans3. Larger advanced micro-loans

RESULTS Over 20,000 refugees served since 1996 Only 3% loan loss rate High level of graduation from grant to loans Increased asset ownership from grants to loans



Trickle Up ProgramTrickle Up Program

TARGET GROUP

People living with HIV/AIDS in Phnom Penh slums

MODEL

Local Partner Agency: healthcare ± home visits Business training Business leader and assistant Seed capital grants Savings incentive through matched savings

RESULTS Pilot project Businesses survival rate improved Savings help through crises Access to ARV improved



SEFSEF

Tshomisano Credit Programme (TCP)

TARGET GROUP

Poorest members of a community

MODEL

Three stages1. motivation2. business planning3. on-going support

Constant monitoring of client satisfaction through impact monitoringsystem

RESULTS

Business value, independent household savings, and satisfaction withfood and housing increase steadily over the cycles

Graduates move up to the MicroCredit program at SEF



Common elements of effective programs reaching the poor:Common elements of effective programs reaching the poor:

Leadership is critical

Organizational buy-in

Active Targeting is necessary

Building up confidence of clients

Flexible product and service design

Cost Effectiveness

Secure place to save

Flexible repayment option



Final RemarksFinal Remarks

Even among very poor people there aresubcategories: extreme poor, destitute«

Not everyone who is very poor can be

assisted with MED or MF

Reaching down comes at a cost

- financial sustainability is not always

possible

- cost-efficiency is crucial

promising approaches for reaching very poor people

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