Syed Hashemi: For many of us, the fundamental reason why we’re in this business is to be able not to just set up banks but to be able to reach out to those who are left out, those who are excluded and a big part of that are those in absolute poverty. Conventional banking wisdom 20 or 30 years ago was that the poor were not bankable. Often these days, while that myth has been broken, we hear a lot of talk about the poorest not being bankable. There is also a lot of discussion and debate about who the poorest are, and often the debate gets into this vague issue of whether or not you can reach the bottom 20%? Can you reach the bottom 5%? Can you reach the bottom 1%? And, obviously, at some point you hit rock bottom and you say “ah-hah, there’s five people in all of China that you can’t reach so, therefore, microfinance cannot reach the poorest.” It’s actually much simpler, especially in terms of the Millennium Development Goals. The poorest have been identified as those living on less than $1 a day. That’s 1.2 billion people in this world. Within the microfinance movement, we also talk about those in absolute poverty as being people in the bottom half of those living below the poverty line. So, in terms of definitions, it’s far more precise. There’s a big concern in the industry about transparency in who we are reaching. There’s been a lot of headway made in the last several years on transparency and the financial data— on portfolio at risk, [financial self-] sufficiency indicators and other indicators. [However,] there has been no concommittent effort at figuring out transparency of the poverty levels of clients. A lot of us are working on that. There is also legislation pending at the Senate in the United States [signed into law June 17, 2003] on ensuring that we do come up with indicators for measuring people in absolute poverty so that a significant portion of USAID microenterprise funds reach the poorest. What we shall do today is talk about these issues.

Kate McKee: What I'd like to do is just provide some background on how we're currently thinking about this issue of transparency and the poverty level of clients, and I want to issue both a plea and a challenge to all of you in the room.

…Since 1994, USAID has actually committed publicly first with a voluntary microenterprise initiative and then, for the last several years, underscored with legislation that was passed by our Congress, …that at least half of our funds should go to support those who are the poorest or poorer clients. The definition that has been used is those that are at or below 50% of the national poverty lines. Now, we have measured this in a way using a very simple proxy measure; it wasn't actually a measurement of people's poverty, but it was the best idea that all of us had in the late 80s and early 90s, about how to do this for microfinance. It was the idea that loan size would serve as not a perfect but an adequate proxy of how poor clients were. Better-off clients would not be attracted by very small loan sizes, that very poor people's…economic activities would tend to fit with smaller loan sizes, etc. I want to stress that this was kind of a compromise that was reached by practitioners, donors and policy makers. We all recognize it wasn't a perfect outcome, but it had the strong advantage of being readily measured by practitioners and of having some association with reality, that smaller loan sizes did seem to attract poorer clients. We're now in a situation where USAID has been working with the practitioner community and with the grassroots advocacy organization, RESULTS, to commit ourselves to better measurement of the actual poverty status of clients. The legislation that is pending, and I expect it will pass within the next couple of months, is deceptively simple but it's going to be enormously challenging for all of us. It says that: "USAID should, in consultation with the practitioners, the implementing partners that it supports, come up with at least two improved tools for measuring the actual poverty level of clients and, further, that these tools should be low cost, that they should relate to the actual life circumstances of the poor." The legislation doesn't say this, but we need to come up with tools that will work for an enormous diversity of organizations since over 700 organizations currently receive support from USAID for microenterprise development. Within the next couple of years, we will need to develop field tests and require the application of these poverty measurement tools to our grantees and, further, we will use this to demonstrate whether or not we're meeting the target that 50% of all resources are flowing to the very poor. The definition that the legislation uses is the one that the [Microcredit Summit Campaign] has adopted - that is that clients that are either at or below half of the national poverty line or are at or below the standard of $1 a day with purchasing power parity in consumption and income. It will be a menu of tools. I can't imagine it will be two. I think it much more likely will be 10 or 12. But, these are supposed to be - and, this is a really important point - the tools are supposed to relate to the actual poverty level of clients, the absolute poverty level, not the relative poverty level. They're supposed to relate back to these national poverty lines and these dollar-a-day standards. And, as a practical matter, they'll need to be reasonably low cost and they'll need to be versatile enough so that they can be applied by a wide variety of not just microfinance institutions but also providers of business development services, since that's what many of our grantees are engaged in.

Syed Hashemi: All the Grameen replicators have means tests that they use. They go through a very complicated system of indicators. I’ve been working with a few organizations simplifying those means tests and saying “You don’t need to ask 20 questions; you can ask two or three questions.” And, you can work out what the really strong indicators of poverty are. And, the potential for that is not just in terms of poverty measurement, but in terms of looking at your social performance, your impact. Because once you have that data about your clients, you can actually then follow up in the future and say: "Well, what has the change been? We have two or three indicators, we know a strong indicator, and we can look at how those change over time. And, we have a really good basis for some sort of social measurement in the future and some monetary impact."

Read remarks by John de Wit