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Resource Library / Ultra Poor Graduation Pilots: Spanning the gap between charity and microfinance

Author(s):
Nathanael Goldberg
Arielle Salomon


Nathanael Goldberg, Senior Policy Director, Innovations for Poverty Action, USA



Arielle Salomon, Policy Associate, Innovations for Poverty Action, USA



Introduction


 


The Ultra Poor Graduation Program is a global effort to uplift households living in extreme poverty. The original program in Bangladesh has reached over a million households and has been adapted and implemented in eight other countries. This model was established when BRAC, a Bangladeshi development organization, noticed that households at the very bottom of the economic ladder were not benefiting from the services offered by its microfinance program. Microfinance providers gained substantial recognition in the 1990s and 2000s for providing financial services to the poor, but largely failed to reach households in extreme poverty. While this gap was widely acknowledged the response varied considerably, largely breaking into two camps along the lines of the “financial systems approach” vs. “poverty lending” approach outlined by Robinson :


 


1. Financial systems proponents focus on the appropriateness of microfinance for the very poor, arguing the very poor need a more intensive suite of services. They note that while microfinance may not reach the very poor, there are millions of unbanked households who deserve access to financial services.


 


2. Poverty lending proponents focus on targeting: if we can make it easier to identify the very poor we can encourage them to participate in microfinance programs.


 


Poverty lending advocates have promoted a number of low-cost tools to identify the ultra poor, such as scorecards based on housing or assets, or participatory appraisals (Simanowitz, Nkuna, and Kasim). Yet empirically many very poor households are unwilling to participate in microfinance programs (Karlan, Morduch, and Mullainathan). This appears especially true for borrowing to launch enterprises.


 


The Ultra Poor Graduation Model works in the common ground between these opposing viewpoints, recognizing that building livelihoods has the potential to help ultra-poor households escape extreme poverty, but food-insecure households need more than just financial services to diversify incomes and increase assets.


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