Graduating the Poorest Into Microfinance: Linking with Financial Services on the Model of BRAC’s TUP in PakistanPDF version
Access to productive resources provides the opportunity to exit poverty, yet many of those living in extreme poverty lack the capital input necessary to receive higher education or buy productive assets. Small loans can help the poor build cottage industries and pull themselves out of poverty. In the past, microfinance institutions have been successful in reaching poor and low income households, but a growing body of evidence suggests that reaching the ultra poor is more problematic. Studies in countries such as Peru, Kazakhstan, and Uganda show that microfinance customers who earn less than one dollar a day represent 15 percent or less of the total clientele of microfinance institutions. This suggests that the poorest of the poor need additional support and training to participate successfully in regular microfinance programs.
Poverty in Pakistan is a growing concern—almost one third of the county’s 170 million inhabitants live in poverty, an increase of almost 13 percent since the1990s,1 and there are currently 3.2 million people displaced by wars.2 Pakistan is home to a large feudal landholding system, where numerous poor tenants are indebted to landowners. Lacking access to formal credit, poor tenants are bonded to their impoverished condition and are often exploited for their labor. Estimates suggest that 5.6 million poor households in Pakistan stand to benefit from microfinance services, but current MFI services reach less than 5 percent of this population.3
The program, "Targeting the Ultra Poor" (TUP) is aimed at supporting, training and preparing the ultra poor so that they can successfully access and benefit from microfinance opportunities. Approximately 1,600 households will participate in the experiment. The treatment group comprises 800 households selected through a public lottery, each of which will be provided with assets and training. The remaining 800 households serve as the comparison group.
The program will be undertaken by three NGOs (Birdes, Aga Khan Planning and Development Services and Indus Earth) and two microfinance institutions (SAFWCO and OCT) in rural areas of southern Pakistan. The basic components of the program are asset transfer, entrepreneurial training, financial education and an introduction to saving practices. The goal of the program is that participants will eventually "graduate" (after 18 months) into a standard microfinance program.
Results forthcoming.
1 AusAID, Australian Government, “Pakistan”, http://www.ausaid.gov.au/country/country.cfm?CountryId=11.
2 Hani, Faez and Seri Begawan, Bandar, “3.2m Pakistanis displaced by war against Taliban need urgent aid,” The Brunei Times, (May 30, 2009).
3 Asian Development Bank Institute, “Overview of Microfinance in Pakistan,"
http://adbi.adb.org/conf-seminar-papers/2005/09/27/1381.khushhali.microf....
