The poverty line is the minimum level of income deemed adequate in
a given country. The poverty line is usually determined by finding the total
cost of all the essential resources that an average human adult consumes in one
year. At its most basic, the poverty line is a statistical exercise, an attempt
to track poverty over time and across specific geographies. It can be used to
assess progress in the fight against poverty. The common international poverty
line has in the past been roughly $1 a day. In 2008, the World Bank came out
with a revised figure of $1.25 at 2005 purchasing-power parity (PPP).
However, increasingly this exercise of assessing poverty is
courting controversy as governments have been blamed for fudging data to suit
their perspectives. If a reformist stance needs to be communicated, the line is
lowered so more people seem better off. And if an international donor is being
wooed, the line is raised so that more people seem worse off and in need of
aid.
This branch of economics related to the measurement of poverty is anyways
one of the most esoteric, and taps into a statistics realm beyond the grasp of
most except the most technically savvy.
So what measure should the development world rely on….especially in
microfinance….disbursing funds to the poorest of the poor? How does one assess
the eligibility, the genuineness and most importantly evaluate the impact of
lending?
I have come across this relatively simpler and more accurate tool
that measures the poverty levels of groups and individuals called the Progress
out of Poverty IndexTM (PPI™) during my stint here at Grameen
Foundation Indonesia.
The PPI is based on an approach developed by Mark Schreiner of Microfinance
Risk Management, L.L.C. It is a user-friendly tool that estimates the
likelihood that clients’ fall below the national poverty line or the international $1/Day/PPP
and $2/Day/PPP poverty lines.
Using the PPI, Micro Finance Institutions can better determine
their clients’ needs, the programs that are most effective, how quickly
clients’ poverty get alleviated, and what elements help them to move out of
poverty faster. Each country has a specific PPI that, while retaining a
universal methodology, is based on a country's best nationally representative
income and expenditure household survey.
Consultative Group to Assist the Poor (CGAP), the Ford Foundation and the Grameen Foundation endorse the
use of rigorous poverty assessment tools and believe the PPI is a highly
effective tool for those institutions interested in measuring the likelihood of
client poverty.
For each country, the process starts with a nationally
representative income and/or expenditure survey. The data from the survey is
analyzed to rank indicators that strongly correlate with poverty. These
indicators are then tested and vetted with local MFIs and their
representatives. The results of the PPI allow an MFI to make informed decisions and improve their processes.
By
using the PPI over time, MFIs can:
- Improve
mission adherence
- Improve
scrutiny and selection of target clients
- Improve
products and programs that are better suited to their target clients
- Increase
their competitive edge, profitability, and ability to retain clients by
responding more quickly and effectively to changes in their communities
- Provide timely and accurate information to their investors
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