To End Extreme Poverty? Focus on Integrated Services

> Posted by Jeffrey Riecke, Communications Associate, CFI

Last week the Microcredit Summit Campaign released their 2014 State of the Campaign report, sharing insights and exemplary initiatives that support the global goal of resilience for all. Resilience outlines where the microfinance industry stands in its mission to end poverty, and how synergies with other services and sectors, like healthcare, mobile phones, and social relief payments, are key to achieving even greater impact.

Worldwide, 1.2 billion people live in extreme poverty. One in eight people go to bed hungry and one in six children under the age of five are underweight. Every few years between 10 and 30 percent of the poorest households around the world work their way out of poverty, while roughly the same number fall below the poverty line. Several of these statistics, all highlighted in Resilience, come from the 2013 Millennium Development Goals report. In that report, it’s noted that in terms of the MDG to eliminate poverty, the world is about five years ahead of schedule, though of course progress around the world hasn’t been uniform. In one of the regions that has lagged, Sub-Saharan Africa, so too does financial inclusion. About 85 percent of those in the region don’t have a formal savings account, compared to 77 percent of the world’s poor globally. Even fewer individuals have access to formal credit or insurance products.

Nevertheless, the growth numbers of the microfinance industry for the past decade and a half are encouraging. In 1997, global client outreach totaled 13 million. By 2010, it grew to 205 million. After a dip in 2011 resulting from a loss of 15.4 million clients in India, industry outreach rebounded in 2012.

Resilience breaks down these numbers by income level, revealing an important trend. According to the statistics, during the past decade, for the first time the gap between total client outreach and the total number of clients who are among their country’s lowest income group has widened. At first glance, the numbers may be interpreted as suggesting that MFIs have become more interested in serving wealthier clients. The reality, however, is that more MFIs are adopting accurate benchmarking tools for assessing poverty, such as the Progress out of Poverty Index. It turns out, many MFIs’ previous estimates of their outreach to the very poor have been inaccurate – overestimating how effectively they are serving this client segment.

The most common financial shocks to cause the more vulnerable to slip below the poverty line are health related emergencies. Other common factors are crop failures and livestock deaths. The body of evidence demonstrating the efficacy of linking microfinance and health services is growing, Resilience reports. The distribution networks of MFIs offer cost-effective opportunities for health providers to deliver health education, products, and services. In turn, good health boosts the amount of time microfinance clients are able to work and grow their businesses.

In India, Microcredit Summit Campaign and Freedom from Hunger partnered in creating the Health and Microfinance Alliance, which supports the dissemination and implementation of integrated health and microfinance services. The Alliance, as of January of this year, has partnered with 38 MFIs and self-help group promoting institutions.

Research from the World Savings Banks Institute (WSBI) indicates that in the poorest countries, those in lower income groups can only afford to spend on average about 60 cents a month on bank services fees. Additionally, WSBI estimates that people are typically only willing to walk up to two kilometers to access formal savings. Resilience reiterates how mobile-based and other digital financial services can help make the smaller and less frequent payments from those in rural areas more economical, cutting down transaction costs – by roughly 90 percent. WSBI calculates that the distance individuals are willing to walk to cash-in/out facilities, like those associated with mobile money payments, is about five kilometers – which in the case of Kenya covers about 85 percent of the population.

Resilience showcases several initiatives melding mobile phone services with financial services. In Kenya, CARE, Equity Bank, and Orange Money are linking savings and loan groups with mobile money accounts. In Ghana, Airtel Ghana, with support from MicroEnsure, has found it cost-effective to offer free health insurance via Enterprise Life as a loyalty perk because it’s been shown to help retain customers. Rolled out first as a pilot, then offered nationally, customers can receive life, permanent disability, and hospitalization coverage based on the amount of monthly airtime used. MicroEnsure is now working in Tanzania, Senegal, Pakistan, and Bangladesh to implement similar services.

National social relief payments in the form of conditional cash transfers (CCTs) have increased from just three countries in 1997 to over 40 today. In Latin America, CCTs serve about 25 million poor families, or roughly 110 million people. Linking social payments to formal bank accounts has shown promise as an effective on-ramp to greater financial inclusion. Integrating CCTs and “graduation models” that incorporate additional services to provide a pathway out of poverty has also demonstrated great success. In Bangladesh, BRAC adopts a graduation model that combines the elements of social payments and microfinance as well as mentoring, financial capability training, skills development, and a social network of support. Ninety-five percent of the BRAC program participants “graduate” from safety nets, and the timeline for receiving CCTs is shortened.

To read more on Resilience, which also covers opportunities for regulators, policymakers, and commercial and social businesses, click here.

This post was modified from its original version on July 2, 2014.

Image credit and infographic credit: Microcredit Summit Campaign

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