Earlier this month, I had the opportunity to attend the launch event for Vulnerability: The State of the Microcredit Summit Campaign Report, 2013. What struck me most about the conversation among the panelists from USAID, CGAP, the Center for Financial Inclusion, and the Center for Global Development at the event wasn’t actually the headline news that came out of the report. If you’ve seen anything about the report, it’s probably this: that for the first time since the Microcredit Summit Campaign began collecting data in 1998, the total number of microfinance borrowers and the number of poorest borrowers declined. This is a critical story, and one that the report delves into further.
And while there were certainly contentious issues between the panelists (as described by Larry Reed in this blog post), I was most impressed by what I perceived as a point of agreement amidst the debate. That is, pro-poor microfinance programs must ensure they are client-centered and are truly working toward the outcome of moving clients out of extreme poverty. And there is increasingly good data that shows what works.
To some, that might seem self-evident.
As an advocate seeking to improve U.S. foreign assistance, however, it was a helpful reminder that we must work harder to ensure that the critical public funding the United States government provides for microfinance programs around the world keeps up with latest thought leadership and evidence in the field.
RESULTS, the organization I work for, is a nonprofit grassroots organization that empowers citizens around the United States to advocate to our Congress and the Administration, including the U.S. Agency for International Development (USAID), to improve policies and increase funding for poverty-focused foreign aid programs in developing countries around the world. Our work focuses on global health, education for all, and economic opportunity. For years, RESULTS has worked to improve the U.S. government’s approach to microfinance abroad.
The U.S. Congress passed a law in 2004, for which RESULTS had heavily advocated, that requires that half of all U.S. global microfinance and microenterprise resources target clients who are very poor. Since then, we have worked to hold our government accountable for reaching this target.
In its 2011 annual report, USAID claimed that approximately 38% of its microfinance funds reached the very poor. While still far from reaching the 50% mandated by law, these numbers are actually an improvement over past years’ numbers. But there’s a catch – USAID’s Poverty Assessment Tool, used to determine if clients are indeed very poor, isn’t actually widely used. In fact, the tool was only applied to 41% of all participants in 2011, meaning that we don’t have data for 59% of all microfinance clients funded by USAID.
The intent of the U.S. law isn’t just to track the percentage of funds going to the very poor. It’s so we can be sure that USAID is targeting their programming to clients most in need and to interventions that will help clients lift themselves out of extreme poverty. As the report mentions, oftentimes, MFIs and others providing microfinance services think they’re serving the very poor, but the results are different when they actually and accurately measure. Mandating that USAID develop Poverty Assessment Tools (PAT) and have their partners use the PAT to assess their success in targeting the very poor was a step toward ensuring that the U.S. government’s microfinance programs are effectively reducing poverty.
Years after the law was introduced, we are still working with Congress and USAID to implement it. Measurement still falls short. In 2011, RESULTS worked to help draft and introduce two bills in Congress (S. 2027 in the Senate and H.R. 2524 in the House of Representatives). Both contained provisions that provided means and incentives for USAID to direct substantially more microfinance and microenterprise resources to the very poor (along with other provisions working to improve U.S. microfinance programs writ large).
With a new congressional session just getting started, we have substantial work to do to with our allies in Congress to reintroduce this legislation this year and push USAID toward stronger measurement, targeted programming, and a true devotion to empowering clients to lift themselves out of extreme poverty.
To learn more about RESULTS and find a grassroots chapter in your area, click here.
 In the law, Public Law 108-484, “very poor” is defined as: those individuals (A) living in the bottom 50 percent below the poverty line established by the national government of the country in which those individuals live; or (B) living on less than the equivalent of $1 per day (as calculated using the purchasing power parity (PPP) exchange rate method).