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Posts tagged “poverty

Index-a-thon

Since we bashed Transparency International’s Corruption Perception Index, it just wouldn’t be right if we ignored the brand new Human Development Report which is, it just so happens, chalk full of indices. Fortunately, it’s not all bashing this time.  (We have a love-hate relationship with statistics.)

Just which indices are we talking about here? The alphabet soup of HDR acronyms includes the well-known Human Development Index (HDI) and, this year, adds several others such as an Inequality-adjusted HDI and a Gender Inequality Index as well as a new Multidimensional Poverty Index.  The idea behind these measures is to look at aspects of poverty like education and health that can’t be seen through the lens of traditional income growth statistics.

Bear with us for a quick breakdown (or just skip ahead for some bashing):

The HDI includes three dimensions—health, education, and income—measured from life expectancy, school enrollment rates, literacy, and GDP per capita.  The new MPI expands upon this concept even further by combining health and education indicators like child mortality, nutrition, years of schooling, and child enrollment with standard of living measures such as access to electricity, drinking water, sanitation, flooring, cooking fuel and basic assets like a radio or bicycle.  The goal in all of this is of course to look at holistic deprivations, not just income poverty—recognizing that “people’s lives cannot be measured simply in terms of money or income.”

As we mentioned before, throwing a bunch of different ingredients together with arbitrary weights of importance can be a recipe for a completely muddled version of reality.  Because weighting (or giving importance to indicators) is pretty arbitrary, UNDP weighs everything equally and also has a website where anyone can build their own development index to assign their own weights to whichever indicators they want.

UNDP has also responded to past criticisms by providing disaggregations of the indicators.  For example, income can be the sole driver behind a country’s HDI improvement (which, by the way, is exactly the case for China this year).  Since this obviously doesn’t paint an accurate picture of what is happening, the report lists countries’ HDI improvements accompanied by gains from non-income HDI.  This emphasizes the point that indices are often misrepresentations of reality if taken at face value—but at least UNDP is trying to get that message out there, too.

The MPI is another story altogether.  It has come under more fire because it aggregates  even more poverty indicators.  The pros? MPI can add more nuance to the MDGs by showing overlap between different dimensions—that is, it can figure out in how many ways an individual is poor.  This is important for comparing inequality among regions and even within countries.  The cons? For starters, it compares “apples and oranges” while implicitly putting value equivalencies on human lives.  And the need for homogeneous data means the indicators were drawn from less rich data sets.  Looking at it this way means it amounts to no more than an intellectual exercise since the most useful part of the data, as is the case with the China example above, comes from when it’s broken down, not mashed together.

Kudos to UNDP for highlighting the complexities of poverty but, as always with statistics, proceed with caution.  Or, in other words: “Math may be the language of the Devil, but statistics proves that reality really is what you make it.” (Stephen Colbert)

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Can MFIs go commercial and stay pro-poor?

As you can tell, the team at Arrested Development has taken a little break ever since we picked up a terribly distracting hard drug habit had to return to the back-breaking grind of the real world.

In other news:

CGAP has a great series of posts on the recent release of Indian MFI giant SKS’s initial public offering (IPO). While this isn’t the first time an MFI has gone public (Los Compartamos got a lot of attention for it 3 years ago), it brings us to ask if the microfinance sector is going through mission drift. But more importantly, will this drift benefit the “bottom of the pyramid” that microfinance ostensibly serves?

By going public, an MFI gains access to vast amounts of capital and reduces their potential dependance on donors (although SKS is at this point well beyond the need for grants). At the same time, bringing in new share-holders necessitates a greater focus on short-term profits, which some might argue can be opposed to the needs of poor clients.

IPOs aren’t the only way MFI’s can commercialise. The more common route is for MFIs to offer more sophisticated financial products (individual loans for example) to comparatively richer clients. The new yields can either cross-subsidise more poor clients or help move the MFI closer to sustainability (or a commercial enterprise).
Commercial MFIs tend to have better profit focused results than their development-oriented counterparts. They achieve width (more clients) of financial inclusion. But do they have more depth (reaching poorer clients)?

Malawi provides an interesting case here. Around 2005, two of the largest MFIs, FINCA and OIBM began reaching out to richer clients by offering new savings and loan products marketed to the Malawian middle class. The other two major players, Microloan Foundation and Concern Universal kept the focus on poorer clients and continued to rely on donor subsidies to run low-yield, pro-poor loan programmes.

Two major changes happened within FINCA and OIBM. Their average loan size compared to GNI per capita rose and their ratio of female to male borrowers significantly decreased.

OIBM succeeded in widening financial access, jumping from 5,000 borrowers in 2005 to 45,000 in 2009. FINCA on the other hand actually experienced a decline in borrowing.
These charts are messy. But I really don’t give a shit. We apologize for this.

But did either achieve depth? Women, who are traditionally excluded from financial services in Malawi, certainly didn’t gain from commercialisation. Most of OIBM’s loan sizes were already too large for most of Malawi’s poor and commercialisation hardly made them accessible to the poor . Despite the volatility in loan sizes, balances continued to hover atleast 4 times higher than that of OIBM’s counterparts.

Commercialisation of MFIs can do wonders if your goal is to offer consumption credit to the middle class. But don’t expect it to increase access for the poor.