Progress out of Poverty Index December 2007 Progress Out of Poverty Index™ Grameen Foundation

Progress out of Poverty Index December 2007 What is the PPI? An objective client poverty assessment and targeting tool, which: Provides social performance data Enables MFIs to manage social performance An inexpensive and easy to collect scorecard Derived from representative national household income and expenditure surveys Comprised of simple, non-financial indicators An objective client poverty assessment and targeting tool, which can be used to measure client poverty levels and influence management decisions - Provides social performance data Likelihood an individual or portfolio falls above or below poverty lines ($1/day/PPP, $2/day/PPP and/or the national poverty line) - Enables MFIs to manage performance by understanding their clients’ poverty status An inexpensive and easy to collect scorecard Derived from the most recent representative national household income/expenditure surveys Comprised of simple, non-financial indicators. Household and housing characteristics (such as cooking fuel and type of floor) Individual characteristics (such as age and highest grade completed) Household durable goods (such as electric fans and telephones) Strongly Correlated with Poverty Likely to Change over time with change in poverty status Grameen Foundation

Global Rollout of the PPI Progress out of Poverty Index December 2007 Global Rollout of the PPI Middle East/ North Africa Palestine Morocco – on hold Yemen Coming 2009-2010: Tunisia Egypt Syria Jordan Latin America Mexico Haiti Bolivia Peru Ecuador Coming 2009-2010 Colombia Nicaragua Honduras Dominican Republic El Salvador Guatemala Asia Philippines Pakistan Bangladesh India Indonesia Vietnam Nepal Coming 2009-2010 Cambodia China Sri Lanka Sub Saharan Africa Nigeria Kenya Malawi Mali Ethiopia Senegal South Africa Tanzania Uganda Ghana Rwanda Cameroon Namibia Many other organizations are piloting and implementing the PPI around the world. We are also speaking with social investors (like Oikocredit), social raters (Microfinanzas, M-CRIL/Micorate, Planet Rating will incorporate data into social ratings), national/regional networks (MENA, Asia, and Latin America), government institutions (USAID, NRSP in Pakistan), CGAP, and large funders (Ford Foundation) are part of the wide variety of PPI supports. Grameen Foundation

Progress out of Poverty Index December 2007 The PPI in Context Grameen Foundation

Progress out of Poverty Index December 2007 The Reason for SPM SPM Information Needs Tools/ Process Improve Products/ Design Achieving Mission Grameen Foundation

Progress out of Poverty Index December 2007 The Reason for SPM Serving Poor Better Better Information Better Decisions More Accountability Better Management Grameen Foundation

Progress out of Poverty Index December 2007 Objectives of PPI Use Understand poverty levels of clients… …And change in those levels Measure outreach Use poverty level data to improve products and services “…to measure the achievement of the social goals as in the mission statement and to design and deliver better products and services to our clients.” Grameen Foundation

What can the PPI do for MFI management? Progress out of Poverty Index December 2007 What can the PPI do for MFI management? Inform management decisions about processes, programs, products, and provision of services Target clients for specific products and services Help in responding to competitive pressures, by understanding the balance of financial and social returns Market to investors with a social bottom line -Identify the poverty level of clients within certain programs. An organization can also identify the poverty levels of clients leaving programs. -To target clients an organization can set cut off PPI score. -Being transparent both financially and socially. Grameen Foundation

What can the PPI do for the Industry? Progress out of Poverty Index December 2007 What can the PPI do for the Industry? Allow investors to better target investments Better, more transparent segmentation of the microfinance market Reliably demonstrate poverty outreach Provide timely and accurate social performance information to regulatory bodies, social investors, donors, and rating agencies Grameen Foundation

Progress out of Poverty Index December 2007 What is the PPI? Grameen Foundation

Construction of the PPI All 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. National Survey 100 indicators Using both statistics and expert judgment, a 10 indicator scorecard is constructed. First step, uncertainty coeficient. Logit regression to build the scorecard. After all indicators are tested, each indicator is selected based on several factors. The factors that contribute to the indicator selection include the: (used when conducting expert judgment process) - Ability to improve accuracy - Likelihood of acceptance by users (determined by simplicity, cost of collection, and “face validity” in terms of experience, theory, and common sense) - Ability to change values as poverty status changes over time Capacity to contribute to question variety (in comparison with other indicators already in the PPI) - Ease of observation/verification 10 indicators PPI 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.

What does the PPI look like? Progress out of Poverty Index December 2007 What does the PPI look like? SAMPLE The scorecard is simple an easy to read. The indicators are on the left, answers and assigned values in the middle and the responses are totaled on the right. Simple and intuitive. Organizations can attach the PPI to a loan application or the exit interview process Source: Microfinance Risk Management, L.L.C. based on Schedule 1.0 of Round 62 (July 2005 to June 2006) of India's Socio-Economic Survey (SES) conducted by the National Sample Survey Organisation (NSSO, 2005). Can be used with or without the numeric weights Grameen Foundation

Progress out of Poverty Index December 2007 PPI in Action Grameen Foundation

PPI Fundamentals: Basic use Progress out of Poverty Index December 2007 PPI Fundamentals: Basic use Indicators Client Response Points 8 Indicators are listed on the left. Questions are asked precisely as written and answered by the client. Once staff receives an answer they circle the response and place the corresponding value/points in the right hand column. Grameen Foundation

PPI Fundamentals: PPI score Progress out of Poverty Index December 2007 PPI Fundamentals: PPI score 8 5 2 The PPI score can be used for targeting purposes and to determine the poverty likelihood. It is important to understand that the PPI score of 27 does not mean the poverty likelihood is 37.5% ($1/Day/PPP). The score is applied to a simple look up table to determine the poverty likelihood level of the client. 9 24 Grameen Foundation

PPI Fundamentals: Poverty likelihood Progress out of Poverty Index December 2007 PPI Fundamentals: Poverty likelihood The client interviewed has a 54% likelihood of falling below the national poverty line and a 46% likelihood of being above it. PPI score of 24 Poverty Likelihood Grameen Foundation

PPI Fundamentals: Portfolio analysis Progress out of Poverty Index December 2007 PPI Fundamentals: Portfolio analysis For example, an MFI has 3,000 clients 800 clients have scores of 10 1,000 clients have scores of 30 1,200 clients have scores of 50 Poverty Likelihood Grameen Foundation

The PPI Fundamentals: Portfolio analysis Progress out of Poverty Index December 2007 The PPI Fundamentals: Portfolio analysis The poverty distribution for the MFI of 3,000 clients is: [(800*66%) + (1,000*44%) + (1,200*27%)] 3,000 = 43% or 1292 of the 3,000 clients are below the national poverty line We will cover change over time during our analysis discussion. Poverty distribution of the MFI portfolio Average of the individual poverty likelihood percentages = Grameen Foundation

The PPI Fundamentals: Portfolio analysis Progress out of Poverty Index December 2007 The PPI Fundamentals: Portfolio analysis Total Clients 3,000 Year 1 Year 2 43% 35% Portfolio Poverty Distribution 1292 1050 # Clients Below the Poverty Line 8% Change in Poverty Distribution (%) 242 # Clients Cross the Poverty Line 19% Change in Poverty Levels (%) Tracking changes over time Suppose the same group of clients, from the previous example, is re-tested one year later and the portfolio likelihood is 35% below the national poverty line. Grameen Foundation

Progress out of Poverty Index December 2007 How are PPI data used? Grameen Foundation

Progress out of Poverty Index December 2007 PPI Case Study: NWTF Negros Women for Tomorrow (NWTF) in the Philippines Integrated the PPI collection across all branches after piloting two years ago Collected information on additional indicators to use as it refines its outreach and its products and services Compared data by branch to understand what products and services are most effective Outcomes Changed 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 NWTF results for their pilot implementation. Other indicators: age, type of business, number of entrepreneurial activities, rural or urban setting Grameen Foundation

Progress out of Poverty Index December 2007 PPI Case Study: NWTF NWTF results from a census PPI implementation NWTF results for their pilot implementation. Grameen Foundation

PPI Case Study: Fonkoze Progress out of Poverty Index December 2007 PPI Case Study: Fonkoze Products tailored for clients at different levels means there is a need to differentiate those clients Collect PPI as part of “Evaluation Card” from all clients Use “Social Impact Monitors” to track 20% of clients over time Outcomes Clear poverty level distinctions for each product type. Ability to track client poverty level changes over time. Improve product design and targeting to serve its clients better. NWTF results for their pilot implementation. Other indicators: age, type of business, number of entrepreneurial activities, rural or urban setting Grameen Foundation

PPI Case Study: K-Rep Pilot Project Progress out of Poverty Index December 2007 PPI Case Study: K-Rep Pilot Project PPI has assisted K-Rep in: monitoring changes in client poverty levels for purposes of management  decision making and reporting; identification and development of innovative products and services which target specific market nitches; understanding of clients’ socio economic conditions before, during and after our credit intervention and how well K-Rep is achieving its social goals of reducing poverty, reaching the poor and the vulnerable and in promoting community development NWTF results for their pilot implementation. Other indicators: age, type of business, number of entrepreneurial activities, rural or urban setting 24 Grameen Foundation 24

Progress out of Poverty Index December 2007 PPI Summary Easy-to-use, inexpensive, transparent, objective Estimate likelihood that a household is poor: Use policy cut-offs for targeting Take average to get portfolio poverty rate Track over time for progress out of poverty Practicality and accuracy One page, few indicators, simple weights Field workers can compute scores on paper in real time (no software required) Valid for any program serving the poor, not just microfinance Grameen Foundation

Progress Out of Poverty Website Progress out of Poverty Index December 2007 Progress Out of Poverty Website Grameen Foundation