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Targeting the Ultra Poor: can the poorest be reached by microfinance?
Can the poorest be reached with finance? “Ultra poor” members of society face a series of constraints and deprivations that distinguish them from the general poor. Limited social networks, chronic malnutrition, and reliance on patronage systems characterize a socioeconomic class that is hard to “bank.” Research now indicates that most microfinance institutions serve poor and lower-income customers, but not the poorest. A new FAI Framing Note on “Targeting the Ultra Poor” discusses why the most disadvantaged citizens are missed by a system intended to serve the poor, reviews pilot programs that target the ultra poor in Bangladesh, India, and Haiti, and offers a preliminary assessment of the impacts these programs are having.
In this video, Jonathan Morduch discusses BRAC’s pilot initiative for reaching the ultra poor, the Income Generation for Vulnerable Groups Development (IGVGD), and the SKS Ultra Poor Program (UPP), both of which have been replicated all over the world. Bandhan, an MFI in India, launched its Chartering into Unventured Frontiers – Targeting the Hard Core Poor (CUF – THP) in 2006. Fonkoze in Haiti offers a two-tiered programming system: Chemen Lavi Miyo (CLM), the first step, is a two-year program for individuals who lack productive assets.
Will these programs work? The Ford Foundation and CGAP have been conducting rigorous evaluations of these programs. “The ideas are very powerful,” Morduch says, "the question becomes, are the interventions powerful too, and will they stick?"
Themes:
Credit, Ultra Poor
Check out these models:
Check out these models: www.facinternacional.org, www.communityempowermentfund.org
FAC grew out of the Community Empowerment Fund. CEF seeks to serve the lowest income population domestically--homeless and those in transition through small no interest loans and flexible matched savings accounts. We have found that with low overhead costs--through student volunteers and a model based on client need instead of profit, we can create programs that we can work with those most shut out by the financial system-- through building trusting relationships. With these relationships, loans are more secure, savings accounts are more worthwhile and accountable. Although we are not an income generating institution, we work to stay low cost and member driven so that we depend on the least outside support as possible. FAC used this model internationally--- going to Guatemala and focusing on supporting those living in La Limonada-- a large urban slum where many organizations refuse to work. By using student volunteers for administrative duties and fundraising, their loan officers are able to work with the most at risk populations and focus completely on services and relationships. Although these models are not without fault, it is very interesting to see what a low-cost model can allow an organization to do when it comes to working with the poorest groups.