Overcoming the Obstacles to Identifying the Poorest Families:  Using Participatory Wealth Ranking (PWR) and the CASHOR House Index (CHI), and other Measurements

Moderator, Jaya Arunachalam

We’re going to be making one simple key point—microfinance must be designed to meet the needs of the poor and the poorest. Otherwise it doesn’t reach them; it doesn’t meet their needs. It’s not an issue of having appropriate tools. We feel that that argument has been won already. We have tools. …But so often we hear that the very poor will not join our programs, that we cannot reach them, even that we do not know who they are, or that microfinance is not a solution for the very poor—perhaps the very poor need other things. Yes, it is difficult to reach the very poor, but quite frankly there are too many excuses. The fact is that many, possibly most, MFIs don’t reach the very poor. Most MFIs don’t provide the services that the very poor need; that is the crux of the issue—understanding who we want to reach and designing a program that meets their needs. 

This is our challenge: the challenge to identify the very poorest, to reach the very poorest, and to provide the services to raise the very poor out of poverty. If the very poor are not benefiting, then we must do something about it. We must include them in our programs, we must develop methodologies for working with them, and above all, we must design programs which meet their needs. Our paper is about the first step in this process—the identification of the very poor.

Experience has shown that the very poor do not necessarily participate in programs, as they view the programs as not belonging to them. Many poor, especially poor women, need to be specifically motivated. Therefore, we need to know who they are, so we are able to attend to them and motivate them to join the program. Targeting is not only a starting point to an effective program for working with the poor or understanding who the poor are, but it also helps the designers to understand what are the needs of the very poor, because very often we try to address the needs of the very poor by designing something that is not suitable. Program designers will be guided by the target group. By knowing who the clients are, who the beneficiaries of the program are, [program managers] are able to design a better and more suitable program. 

Sukor Kasim, Women's Development Banking Trust, South Africa

There are quite a number of tools that are available that can be customized to suit local conditions. In our paper, we have given examples as diverse as China, southern India, even the Filipino conditions. Basically, these tools are reliable, simple, and cost-effective. In the process of identifying the poor, we have, through our experience, found out that the poorer the clients, the more difficult to incorporate them into the program. Because of this culture, the poor will find it intimidating to join. Motivation is a very crucial role. In fact, motivation is the process of opening the hearts of the poor, that credit is their right. But some would consider that credit is their right but prefer it to be in the form of charity. We are faced with the problem, if credit is the right of the poor, and microcredit institutions are delivering that right to the poor, it has to be in the form of a loan program. Some of our programs have to make sure that not only are we reaching the poorest, but also that we are scaling up our outreach so that most of the poor in our branches join our program. Scaling up outreach of the poorest is the next important step in ensuring that we benefit as many poor as possible in our program.

Nimal Fernando, Senior Project Economist for Microfinance, Asian Development Bank

I agree most microfinance institutions currently do not reach the poorest. I also agree that the culture of poverty-focus is essential if you want to reach a particular poor target group. I also firmly believe that we need to make a concerted effort to reach the poor. I do not believe in active targeting. I do believe financial services should be provided to all those who remain outside the frontier of formal finance. These include poor, poorest, and low-income households and their microenterprises. 

Today we need market surveys and studies to design products and services suitable for the poorest of the poor. For such service you may want to identify the poorest to collect necessary information to design suitable products and services and delivery mechanisms. Then you design such products and services, and provide them in the market. …But the crux of the matter is that the poorest of the poor are excluded. They remain outside the formal frontier of finance because we have failed to provide the services that they require—services that are compatible with their socio-economic characteristics. We have failed in this. They do not want the services that we typically provide. We are not in line with their socio-economic characteristics. We do have to address this question. 

In most Asian countries, the poorest live in resource-poor areas, in remote areas, in areas where infrastructure is extremely poor, in hill areas. So reaching them on a sustainable basis is costly, difficult, and our knowledge on how to reach them is highly imperfect. I think we have to strengthen, research, and build our knowledge based on how to reach them effectively. 

Peter van Rooij, Microfinance Specialist, International Labor Organization

If practice has shown that the vast majority of the poor still do not have proper access to microfinance, if it is proven to be difficult to move a mountain, then maybe the subtitle of the paper should be how to get Mohammed to go to the mountain. Or in other words, have microfinance institutions reached out to the poorest.

I believe that some of these tools are rather supply-driven. If you agree that the provision of microfinance should be demand-driven, then the central question should be demand-driven. The provision of microfinance should be demand-driven. What are the needs of the poor is the central question, and not so much who are the poor.

Question: Mr. Fernando, you say that you don’t believe in active poverty targeting, but all of the unreached should be served. Do you agree that without targeting the poorest, they’ll be the last to come forward, and the last to be served, and that targeting is one of the ways to resolve this?

Nimal Fernando:
There was a recent research study done that took a look at over 2000 clients who had eligibility to borrow at any time. But about 30% of them never borrowed since they joined the program. Why? Because credit is not what they wanted. They were participating in the flexible savings program. We do believe, in the Asian Development Bank, that if you design products which are compatible with socio-economic characteristics of the poor and do provide these services effectively through effective delivery mechanisms at the lowest transaction costs, then you can reach the poorest.

Without targeting actively the poorest, MFIs can reach the poorest by what they call "passive targeting." That is through product design. But if you design a product and then display it in your showcase, that does not help. Product design is necessary but not sufficient. You have to find out effective ways of delivering it.

Anton Simanowitz:
There are a lot of issues that have been raised. …I want to give the example of the Small Enterprise Foundation. Firstly, the very poor select themselves out of the program. When they mix with better off people, there is a sense that the program isn’t for them, it’s for better off people, and they select themselves out. This is where the process of motivation becomes important.

The second reason the very poor didn’t join the program is that they were selected out by other members. Particularly when you talk about group-based lending, other members of the group see the very poor as being a hindrance to them. This means they have less access to larger loans, they are perceived as being more problematic. So they are actually selected out by other members.

The third reason that the very poor were not included in the program is the program wasn’t designed for their needs. [T]here were a number of practical factors in the design of the program which did not meet the needs of the very poor. Those were reinforced by the demand-driven needs coming from the program. We heard from clients, "we need larger loans, we need shorter loan terms. We need these different products." What we were hearing was not the voices of the very poor; we were hearing the voices of better off people in the program. So when we say that a mixed program doesn’t work, we don’t mean that you cannot have an organization which includes clients of different levels, we’re saying that if you mix the very poor in the same groups, in the same centers, with better off people, the voices of the better off people come out strong. The organization which is listening to the demand of the clients becomes a demand-driven organization; but the demand that you’re listening to is not the demand of the very poor, it’s the demand of better off people that you’ve mixed into the program, and the very poor get pushed out.

Ben Nkuna
The question concerning the poorest as the highest risk group is the reason why we have this debate here today. Most MFIs are afraid to go to that highest risk group. But the challenge is, if we want to end poverty in the world, we have to go to that highest risk group. We have seen that if the poor take the loan, they are able to pay the loan back. We have many programs that are doing targeting that reach the poorest, that have 100% repayment rate, as opposed to some programs that are not reaching the poorest who do not have the highest repayment rate. Therefore, it is not much of an issue about risk. It is an issue about what you understand. What support do they need to get out of poverty? What support do they need to be able to run their businesses and pay their loans back?

The full text of this paper is available at www.microcreditsummit.org/papers/povertypaper.htm.