Targeting the Poorest and Covering
Costs
John de Wit, Small Enterprise Foundation
![[de Wit]](http://www.microcreditsummit.org/graphics/dewit.jpg)
Established in 1992, the Small Enterprise Foundation currently serves more than 3,000
borrowers in South Africa, 40 percent of whom are below the national poverty line. John de Wit,
managing director, explains how they discovered that programs offering small loans don't
necessarily reach the poorest.
What I can share with you is an experience of a program that started out wanting to reach the
very poor and ended up being a microenterprise program instead.... When we launched our
program, our heart was to reach the poor...and help them to get over the poverty line.... We
decided that the method we would use is we would offer a very small loan size because, surely,
only the poor would take a very small loan size. The next thing we did is we went to one of the
poorest areas in South Africa...and we began to do the loans. But after a few years, we realized
that [of] the people we were serving, the majority did not live below the poverty line....
And so we had to start questioning, "What do we do about it?" After some time we realized the
issue is, in fact, the targeting [of very poor clients] that Grameen Bank and CASHPOR has been
preaching all the time. And so then we launched the second program which had targeting, and
that program is very different in characteristic in terms of the clients [of] our initial program. . . .
If you look at the housing, then the clients in the microenterprise program generally live in brick
structures, and very often these are plastered. The clients from the poverty program live in mud
buildings. When it comes to schooling, you'll find that about 30 percent of the children of the
poverty program...don't go to school at all. It very, very seldom happens that children of clients
of the other programs don't go to school. The reason why children don't go to schools in the
poverty program is generally because the parents can't afford a school uniform for the children....
When it comes to food, you'll find that the clients in the poverty-focused program don't eat meat
very often.... They don't buy vegetables; they generally collect vegetables. They eat moke and
fish and such things very seldom. The clients in the other program...eat meat quite often, and
they do buy moke, they do buy fresh vegetables.... And then children are the best indication of
poverty by far. There's a substantial difference between the children in the one program versus
the other. You'll find that in the poverty program the children are dirty and are wearing dirty
clothing, and they're not changing their clothing very often. And the main reason is because their
parents can't afford soap. And obviously they can't afford more clothing as well....
So, these are two totally different programs.... When asked to answer the question, "If you want
to reach the poor, can you simply offer a small loan size?" What we found is that it didn't work in
our case. We have to ask ourselves, "Why not? Why did people who had enough assets, why did
they come for such a small loan?" And then, the opposite to that, "Why didn't the poor join?"
The people who are better off joined the program because there's no other access to credit there
except from loan sharks. They're also desperate for credit, and they have very legitimate needs.
But they're coming and taking small, small loans, inappropriate for their own needs, in the hopes
that one day you will give them a bigger loan. And they're prepared to stay with you for years in
the hope that you'll give that bigger loan.
Now the clients that are very much poorer, why don't they come to you in large numbers? And
the reason is they're intimidated by the wealthier clients. What we've heard from literature from
all over the world is what we found in our own case, and through hard experience. The poorer
people see who goes to your program, and they just say, "This program is not for us; it is for
those better off people." And then very often the wealthier people-maybe just the less
poor-intimidate the poor, simply by saying, "This meeting is for serious people. Here we have to
be serious about business. Somebody who is only selling a few vegetables is not serious about
business." Poor people already have pretty low self-esteem, but you add a few comments like
that, and they leave. So, the presence of the non-poor unfortunately did scare away the poor. And
that's why we have to go for an exclusive poverty focus.
We started using a housing index method.... Such a test, of course, is not 100 percent accurate.
David Gibbons reckons these kind of tests are about 80 percent accurate. We recently did a PRA
exercise [Participatory Rural Assessment, see Gibbons on page 12 for a description], and I must
say I think that maybe our test is only 70 percent accurate. But one thing we know for sure is that
the clients we are getting from this test are very, very different from the clients we were getting
from before we introduced the test.
When it comes to the cost of recovery issue, well, for us it's not debatable. We are going to
become self-sustaining. And so therefore, again, we look at the cost-structure; we do long-term
projections; we say that when we get to about 30,000 borrowers, then we will be self-sustaining,
and we set the interest rate appropriately. So for me it's not an issue of "How do you become
self-sustaining?" It's your pricing that is the issue and obviously your efficiency, and then the
determination to become self-sustaining.
David Gibbons, CASHPOR
![[Gibbons]](http://www.microcreditsummit.org/graphics/gibbons.jpg)
CASHPOR is a network of 23 Grameen Bank replications in nine countries of Asia. Here,
David Gibbons, founder and executive trustee, explains how they cost-effectively determine the
poverty level of their clients.
I see the two parts of this topic as very much interrelated. We are not talking about methodology
for reaching the poorest on the one hand and covering costs on the other. We're talking about
cost-effective targeting or cost-effective identification of the poor. Now, why must we put some
effort into identifying the poor? Why can't we just offer our services to everybody in the rural
areas and let them decide whether they want to participate? Well, this is one of the relatively
unknown secrets, I think, of the success of the Grameen Bank. Not widely known is the fact that
it is exclusively for people below a certain asset wealth line. In the case of Grameen Bank, it's 50
decimals of average agricultural land and household assets of not more than the value of one acre
of agricultural land in the area concerned. So Grameen is exclusively for households below that
line. And this was developed because of Professor Yunus' observation that many...so-called
poverty-focused programs throughout the third world, in particular, had failed because the
benefits were taken by the not-so-poor and the non-poor.
All of the replications under CASHPOR have followed that basic principle. We have spent a lot
of effort trying to adapt the Grameen approach to identifying the poor to other conditions in other
countries in the region.... We feel we have, now, a very cost-effective way of identifying the poor
that works in most conditions throughout Asia-with some adaptation always necessary. But the
basic tool, which I will describe as the housing index, holds from China to Vietnam to The
Philippines, Indonesia, North and South India, Bangladesh, and so forth. We have moved away a
bit from Grameen's targeting, which involves a household interview, because we feel a
household interview is too expensive and produces information of questionable
reliability-validity-especially if you focus on household income.... So we have found an indicator
that we think, in most cases, enables us to identify about 80 percent of the poor very quickly.
And that is what we call the house index.... There are three dimensions of the house, and we can
look at it from the roadside. We don't have to conduct any interviews. We just go up and down
the lanes in the village and map the houses which appear to be qualified. We look at the size, we
look at the physical condition or building materials, and we look at the material of the roof.
The material of the roof is very interesting because that turns out to be a simple but powerful way
of identifying the very poor, as distinct from the poor, in most countries of Asia. I'm talking
about thatched roofs, roofs made out of woven bamboo, roofs made out of twigs, roofs made out
of plastic sheeting. These are temporary roofing materials which always have holes...always leak,
always create a health problem for the household. Nobody wants to live under a temporary roof
unless they have to. So the people living under these temporary roofs are nearly always the very
poor. Now if you combine that with small size of [the] house and very simple building
materials-mud, jute sticks, things like that-then you are very close to identifying most of the very
poor....
Some very poor people live in bigger houses, for various reasons. They might have inherited a
bigger house and now they no longer have any income. So we have an appeal procedure, because
these people will come up to our field assistants and say, "Hey, how come you are not putting me
on the list? I want to participate also.... I have a big house, but I actually have no income. I'm
very poor." So then we say, "Okay, you are an appeal case." A more senior officer, usually the
branch manager, will come and interview such cases. This is how we try and pick up the
exceptions to the rule.
Now, there is one major limitation of this house index, which I should mention. And that is in
communities where there is an effective government housing program, such as many parts of
India now.... Then you can have very poor people living in so-called pucca houses (modern
brick, cement, and concrete houses). But they have nothing else. So it doesn't work where there is
an effective government housing program for the poor. For those cases we have found it very
useful to use the PRA method, the Participatory Rural Assessment method, for wealth ranking.
We bring the whole village together to find out who are the very poor, who are the not-so-poor,
who are the non-poor, through participatory methods....
First the representative of each household lists their major assets (e.g., land, house, large farm
animals, farm equipment, etc.), with their current values. These are recorded on cards, one for
each household. Then the name of each household is read out and the villagers are asked to say to
which of three piles it should be added: not-so-poor, poor, or very poor. In cases of dispute, the
asset list is read out and a final decision is reached by consensus.
Interestingly, we find when we compare the cost-effectiveness of these two methodologies, the
house index versus the PRA, they come out almost exactly the same. It takes about five minutes
for an experienced field assistant to use the house index properly, and it takes about five minutes
per household to use PRA properly, if you break it down. So these are alternatives. They can be
used according to the local circumstances. They have roughly the same cost implications.
