Short-term needs and long-term aspirations of the extreme poor: aspirations of the extreme poor: Irrational behaviour, agency and cash transfers in Bangladeshcash transfers in Bangladesh

Christopher Maclay & Hannah Marsden, EEP/shiree

Structure of Presentation

• What do we mean by:• Extreme poverty in Bangladesh?Extreme poverty in Bangladesh?• Extreme poor under-investment?

• Characteristics of the psychological context of life in • Characteristics of the psychological context of life in extreme poverty

• Introduction to IMPACT Project

• IMPACT’s role in stimulating investment.IMPACT s role in stimulating investment.

• Conclusions and options going forward

Why do the extreme poor under-invest in the future?invest in the future?

• Under-investment and seeming “irrationality” seen by practitioners across the worldpractitioners across the world.

• Even in Bangladesh where widespread microfinance access.

• We think that this is not irrational, but (in part) because of the psychological context of life in p y gpoverty/extreme poverty.

• Causes heavy discounting of future and underinvestment underinvestment.

• Arguably a dimension of poverty in itself.

Characterising extreme poverty in BangladeshBangladesh

• Monetarily incomes less than $0.40/person per day in y $ p p yBangladesh.

• Truly ‘multidimensional poverty’• Truly multidimensional poverty .• Economic, political, social exclusion.• Lack of health, education, WATSAN, etc.

Extreme poor (under)investment

For agricultural practices• Fertilizer use.Fertilizer use.

75%52-85% return on 25%

(Duflo, Kremer & Robinson, 2000)

75%return on investment

25%

Microfinance• Bangladesh: 500 MFIs, 11,700 branches. • Emerging literature: Loans not always used for enterprise.Emerging literature: Loans not always used for enterprise.

Features of the psychological context of extreme poverty & its impact on investmentp y p

1. Extreme poverty frustrates aspirations and reduces sense of agency sense of agency. • Sensation of external locus of control.

2 The e treme poor are risk a erse 2. The extreme poor are risk averse. • Extreme poor disproportionately affected by risk.• Investment appears to have high cost. “Less wiggle room”

(Karlan and Appel 2011) Future is discounted (Karlan and Appel, 2011). Future is discounted.

3. The extreme poor tend to prioritise other needs

Future needsother needs.

• Extreme poor have to ensure survival today.

• Echoes of Maslow/Alderfer Immediate d• Echoes of Maslow/Alderfer. needs

So….

...what can be done to stimulate investment by the extreme poor?

• Asset transfer programmes like EEP/Shiree

• eg. IMPACT

Research Methodology

1. Field research with 37 HHs in CHT region (Phase 1 and Phase 2) – March 2011and Phase 2) March 2011.

2. Household Baseline Profile & IGA Tracking Tool.

3. Observations from close operational involvement.

Improving Markets and Poverty Alleviation through Cash Transfer (IMPACT)g ( )

• Problem: heterogeneous beneficiary group, short project lifespan

- 200Tk/month for h li

lifespan• Solution: demand-driven Conditional Cash Transfers (CCT)

schooling.- 500Tk for latrine.- 300Tk for de-worming.-1200Tk for food.-500Tk to attend doctor.2 claims of 3000Tk for -2 claims of 3000Tk for

cultivation.

IMPACT’s (short term) Impact• After 1 year: average income & asset value from IMPACT-supported IGAs = 28,815Tk ($388.55).

Chi P i & t l 40 000Tk • Ching Prue: income & asset value = 40,000Tk ($539.37)

• 98.5% reinvested without project support. • Ching Prue: Expected income next year of more than $1200 than $1200.

Why has this project enabled this investment?

Satisfying primary needs –building a stable platformbuilding a stable platform

• CCT menu developed through in-depth consultation p g pwith beneficiaries.• Beneficiaries prioritise their own needs.

• Oy Ching Marma: ‘If I have no food in my stomach, what will I be able to do?’

• Echoes of Maslow/Alderfer.

Enabling Flexibility and agencyagency

• Beneficiaries chose how to invest cash.• 73.3% - spent some of IGA cash transfer on food• 53.3% on house repairs, stockpiling of rice, or other non-condition-related needs non-condition-related needs.

Aung Ram Tanchanga: ‘All of society donates 200Tk h l i li i h d to the temple. It is a religious purpose. You have to do

it. You have to... it is our social work.’

• ‘...conforming to (rather than combating) the risk-mitigating behaviours followed by many vulnerable households’ (Jason Wolfe, forthcoming)

Result: Increased confidence and a reduced discount rateand a reduced discount rate

Conclusions1. Demand-driven conditional cash transfer model

can enable the extreme poor to both satisfy needs can enable the extreme poor to both satisfy needs and stimulate investment.

2. Confidence-building is crucial to extreme poor investment

Options going forward?

investment.

Options going forward?1. Scale-up possibilities? Social Transfer Bank?2 Employ psychologists2. Employ psychologists.