News

  • Fondation Grameen

07.01.2011

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MicroWorld

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PPI: evaluate poverty to better fight against it

Evaluate microfinance’s clients level of poverty: this is the aim of PPI, the “progress out of poverty index”. Created by the Grameen Foundation, the PPI allows MFIs to know their impact on poor populations better.

At end 2010, the PPI was used in 27 countries by 73 MFIs. “The PPI is first used to check that the microfinance mission has been achieved”, explains the Grameen Foundation, an institution founded in 1997, that militates for a non profit microfinance. The question is to know if the service towards the poorest has been well operated.
Experienced in 2005 in the Philippines and Mexico, the PPI, literally the index of getting out of poverty, was drawn up in partnership with the research center CGAP and the Ford foundation. But it was in fact inspired by a model already used by the Grameen bank in Bangldesh.

More precisely, 10 criteria or “indicators” of poverty are chosen according to the available statistics in each country and the local environment. With a pre-conceived view: the criteria must be easy to observe on the ground, knowing that it is the MIFs who collect the information themselves.

Indicators easy to observe

Which criteria to evaluate poverty? The value of the house, the education level of the head of the family, the income, earth ground or cement... Among the crowd of available and relevant criteria, the creators of the PPI chose those that can be objectively observed. For example, the value of the house is not relevant because it doesn’t make sense in a village. On the other side, the lighting, the type of ground, the cooking means (wood, gas, electricity…) often allow to determine more precisely the living standard. Once the 10 criteria chosen, the decision belongs to the MFI credit agents who visit the households and interview their clients. The information collected is then given to the designers of the PPI who, through some clever calculation will translate into a function the national poverty line. At the end, the MFIs have a distribution of their clients by poverty level.


Use of the PPI to classify le clients by poverty level: example in Philippines

A tool for management and action

This cartography is particularly appreciated by the MFIs whose strategy aims at helping the poorest first. The PPI allows them to check if their choices are adapted and guides them to improve their offer. In the Philippines, NWTF, one of the first MFI to have used the PPI, then noticed that 41% of its clients were over the poverty line. Rather good or bad news? Yes, but NWFT’s mission is to help the poorest. The MFI then decided to modify its commercial strategy. Nowadays it aims at having 90% new clients among the poorest populations: the PPI questionnaire is its main tool to respect its goals.

If not a magic solution, the PPI is an interesting effort from microfinance to keep true to its aims. Since the end of 2010 the MFI who use the PPI can go farther by asking to be “PPI certified”. This certification must guaranty that the tool is correctly used, is made on the ground by the volunteers of “bankers without borders”. This approach is required mostly to limit the lack of rigor or information about this tool.
At long term the PPI will contribute to evaluate how many clients durably escaped from poverty. One more necessary information so that the MIFs can work in this sense and keep on obtaining the support that they need.

This article is part of the special report: