Overcoming the Obstacles of Identifying the Poorest Families: Using Participatory Wealth Ranking (PWR), the CASHPOR House Index (CHI), and Other Measurements to Identify and Encourage the Participation of the Poorest Families, Especially the Women of Those Families, Updated June 2000

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EXECUTIVE SUMMARY

Microfinance has proven to be an effective and efficient mechanism in poverty reduction the world over. The 1997 Microcredit Summit declared as its goal to reach "100 million of the world's poorest families, especially the women of those families, with credit for self-employment and other financial and business services by 2005." This is a bold objective, since reaching the poorest families through microfinance is still in its infancy, and most microfinance institutions (MFIs) currently reach the poor, not the poorest.

This paper is about the first step in this objective: identifying the poorest clients. It is a step mostly avoided or forgotten in the clamor to open up programs that can start dispersing loans, and lose no time in reaching financial self-sufficiency. Our question is how can microfinance benefit the poorest if we don't know who the poorest are? How can we say we are reaching the poorest if we are not measuring this? How can we identify these families on the ground, and encourage their participation in microfinance programs? And how can we measure impact if we don't know where clients start?

We argue that unless active poverty-targeting is used then we cannot build microfinance services for the poorest. Experience has shown that if better-off people are included, this may well discourage the poorest from joining! Hence, even if our aim is not to exclusively reach the poorest, unless we use active targeting we may well inadvertently miss the poorest altogether.

It is not a question of cost or sustainability (although this has a major impact on how poverty targeting is done). Whether a program is exclusively targeted or not, experience has shown that to reach the poorest we must specifically design a program that caters to their needs. Poverty targeting can assist this process by raising awareness of the different needs of different types of clients and allowing for different products to be effectively targeted.

Many people argue that it is impossible, or too expensive, to design reliable poverty-targeting tools. However, there are a number of cost-effective screening methods in use. This paper describes two poverty-targeting methods that are effective in identifying the very poor, and which have been operationalized and utilized on a large scale with thousands of potential clients. Other lesser-known approaches are also briefly discussed.

The CASHPOR House Index (CHI), uses external housing conditions as a proxy for poverty, and can be very effective in conditions where there is a consistent relationship between poverty and housing conditions. Participatory Wealth Ranking (PWR), uses a community's own definitions and perceptions of poverty, and employs rigorous crosschecking methods to ensure consistency and accuracy of results. Both methods aim to build on existing information, collect the minimum data necessary for reliable targeting, and follow-up targeting with a motivation process to encourage the poorest to join the program.

Both methods are context specific. PWR relies on detailed knowledge of a community of itself, and is unlikely to work in contexts where the community is weak, or where there are high levels of conflict or mistrust. Similarly, the CHI relies on there being a strong correlation between housing conditions and poverty. This is not a universal relationship and is very much defined by the context. Where the CHI is adapted to local conditions, perhaps even including other externally visible, non-housing indicators, there is a greater chance of the Index being applicable to a wider range of contexts.

A third tool, we term a "check-list" approach, builds up a list of poverty proxys or indicators, based on a local understanding of poverty. Scores are then assigned to each indicator, or a poverty-line level determined. The poverty level of a household can then be calculated from their score, or number of qualifying indicators.

These methods must not be applied blindly but adapted to local needs and conditions. A number of choices need to be made which will determine which tool is used.