Sharlene Brown

National Director

April 5, 2012

Measuring Poverty in Microfinance

Agenda

1. Social Performance Management Umbrella

2. Vision for Poverty Measurement in the Microfinance Sector

3. Progress out of Poverty Index (PPI): Poverty Index vs Market Index

4. Purpose & Construction of the PPI

5. Example: Tanzania PPI

6. Uses & Users of the PPI

7. Case Study: NWTF

8. Q & A

Poverty Outreach Debate

Social Performance Management

Poverty measurement Client

Protection PrinciplesGovernance

issues

Responsibility to the environment

Responsibility to staff

PPI: Then & Now

• First PPI created in 2005

• 7 years later, there are:

• 44 PPIs

• 150 PPI users

• 123 practitioners

• 27 intermediaries

• Certified PPI Users

• 12 Certified PPI Users

• 9 are Oikocredit partners

• 5 trained and supported by Oikocredit through capacity

building

A Quick Review of a Market Index

Why do market indices exit? • To give us an understanding of how the market (the economy)

is moving

• Serve as benchmarks for our investments

A Poverty Index …

• Recognizes the established poverty benchmarks

for national & international poverty rates for a

given country

• Allows pro-poor organizations to benchmark

poverty distributions to national & int’l poverty

levels

PPI: An innovative approach to estimate poverty

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An innovative tool that uses data collected by national governments and takes the form an index. The PPI is country specific.

National Survey

+

Example of a market index

The PPI is…

• A 10-question poverty scorecard

• Country-specific and measures economic poverty

• Intentionally focused on non-financial indicators

• Has categorical indicators: family, house, and

ownership of consumer durables

• Indicators tend to be verifiable, liable to change

over time, and easy to answer

The PPI: An index with a specific purpose

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Is… Is Not…

Very specific in its focus: Intended to estimate economic poverty based on household expenditure

Intended to capture all facets of poverty

10 indicators statistically derived from the most currently available national household income expenditure of a given country

10 randomly chosen indicators

A tool with categorical indicators that are highly predicative of poverty, verifiable, quick to answer, and liable to change over time

All encompassing

10 indicators viewed as one (concept of an index)A whole made up of 10 parts

10 individual unrelated questions

Purpose: PPI vs Market Index

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PPI Market Index: S&P 500

Gives poverty-focused organizations an understanding of the poverty outreach of their portfolio at a point in time

Gives investors and consumers an understanding of the direction of the US economy at a point in time

Based on 10 indicators statistically predictive of poverty from the group of questions asked in the HIES*

Based on 500 companies with strong representation in the US economy – the 500 with the largest influence on the economy (market capitalization)

No one indicator in the index gives us a sense of the poverty situation of a client. It is what ALL 10 questions TOGETHER tell us that is useful

No one company in the index gives us a sense of where the US economy is going; it is what ALL 500 companies tell us TOGETHER that is useful

Each indicator has a weight (scores associated with the questions)

Each company has a weight

MFIs and other poverty-focused organizations can use outreach numbers over time to understand improvement in the poverty context of the portfolio over time

Investors/consumers compare the total index value over time to see the trend of the economy

*HIES = Household income expenditure survey

Construction: PPI vs Market Index

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PPI Market Index: S&P 500

Takes the indicators with the strongest correlation to poverty

Universe: Indicators selected from questions asked in a specific government’s household income expenditure survey

Takes the largest companies in the US

Universe: S&P 500 companies selected from the largest companies in the US

Other considerations: Verifiable, easy to ask, liable to change over time, and culturally acceptable

Other considerations: Stable financial profile and liquidity (in addition to size)

Note: Both indices start with the objective and add a bit of expert judgment through Other Considerations

Construction of the PPI

National SurveyAll indicators on the national household

survey are ranked according to how strongly they predict poverty levels .

The full list of 400-1000 indicators is narrowed to the 100 most powerful ones.

100 indicators

Using both statistics and expert judgment, a 10 indicator scorecard is constructed.

10 indicators

Each possible response is assigned point value based on the original national survey responses. The total score (summing from 0 to 100) is then linked to probabilities of falling above or below the poverty lines.

Scorecard

+

Likelihood Table

PPI

Construction: More on Togetherness

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Indicator #1

Use statistical analysis to determine the question with the strongest ability to predict poverty

Indicator #2

Indicator #2

Indicator #2

=

=

=

Indicator #1 Indicator #2+

Indicator #1 Indicator #2+

Indicator #1 Indicator #2+

Statistical analysis used to determine the best two questions that TOGETHER strongly predicts poverty

Key Concept: The PPI is built indicator by indicator.

Once we determine the two questions with the best ability to predict poverty, we repeat the process starting with the best two and continue using statistical analysis to find the 3rd, then 4th , and so on until we arrive at 10 indicators -- all statistically linked together

Possible Options

BEST TWO

Viewing the PPI as a Whole

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Observation: PPI users struggle with viewing the PPI as 10 questions statistically linked together

Think of the parts of a car. By themselves, they are just components with limited value, but together they would make up a car. If I gave you only a wheel or car door, you can’t drive those things down the street. Each PPI indicator is a like a part. You need all the parts to drive the car. All 10 indicators together is what estimates the poverty rate of a group of clients.

Components of a carCar

≠

PPI: Tanzania

Use of HIES and PPI Data

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Practically every government uses house income expenditure surveys to understand the poverty levels of their citizens. The PPI uses the data framework (house income expenditure surveys) provided by governments to create a tool that is useful for MFIs and other poverty focused organizations.

HIES = Household income expenditure survey

Who Uses the PPI?

• MFIs and poverty-focused organizations

• National and/or regional associations

• Social investors, funders, and int’l NGOs

• Others (Governments, etc.)

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Direct PPI Data Collection from Partners

Oikocredit/Social Investor

Pa

rtn

ers/

Inv

es

tee

s

Each partner/investee collects PPI data and shares results with funder

Indirect PPI Data Collection from Partners

Funder/Social Investor

Pa

rtn

ers/

Inv

es

tee

s

Funder/Social Investor takes the lead and deploys interviewers to a sample of their portfolio to collect data

Vision for Poverty Outreach Data

Make client-focused decisions

Track outreach & movement over time

PPI MFI User: NWTF, Philippines

PilotCensus of one branch (Cauayan)

ImplementationIntegrated the PPI collection across all branches after pilotingCollected information on additional indicators to use as it refines its

outreach and its products and servicesCompared data by branch to understand what products and services are

most effective

OutcomesChanged its eligibility requirements for incoming clients by targeting 10

percent of clients above the poverty line Facilitated entry for the poorest clients by adjusting loan size, loan cycle

period and possible pre-payment options

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Resources

INDUSTRY

• Imp-Act Consortium: www.imp-act.org/

• Social Performance Task Force: Sptf.info

SUBJECT SPECIFIC

• Grameen Foundation’s PPI: Progressoutofpoverty.org

• Oikocredit’s Social Performance: oikocredit.org/socialperformance