BRIEF Graduation Pathways: Increasing Income and Resilience for the Extreme Poor The graduation approach focuses on helping the poorest and most vulnerable households develop sustainable livelihoods, increase incomes, and move out of extreme poverty (see Figure 1). It consists of a carefully sequenced, multisectoral intervention comprising social assistance to ensure basic consumption, skills training, seed capital, and employment opportunities to jump-start an economic activity, financial education and access to savings, and mentoring to build confidence and reinforce skills. The interventions are time bound (generally 24–26 months) to preclude long- term dependence. The participating household’s trajectory, however, continues beyond the phase of the program interventions. Sustained progress rests on continued income earning and asset building and effective social protection systems to cushion against shocks. Given the Sustainable Development Goals’ (SDG) global focus on eradicating extreme poverty by 2030, the graduation approach should form an integral component of national social protection and poverty reduction strategies, along with social transfers, guaranteed employment, social insurance, and labor market support. While the share of the world’s population living in extreme nine-fold), and consumption (9 percent increase in per poverty has seen spectacular reductions since the 1990s, capita nondurable consumption) that are sustained after over 700 million people still live on less than US$1.90 a two years from the end of the intervention (four years day. Reaching SDG No. 1—eradicating extreme poverty after the asset transfer). Households not only earned by 2030—requires, among other strategies, targeted and saved more but also diversified their assets and interventions to help the poorest increase their standard income sources: the value of productive assets tripled of living.1 However, serving the poorest effectively is (Bandiera et al. 2016). Impacts were observed to be even expensive and difficult, because such populations are larger seven years after the asset transfer, and five years often geographically and socially isolated and because of after the end of the program (the change in spending the complex, multi-dimensional nature of poverty. Even on nondurables was 2.5 times higher after seven years when interventions do manage to reach the extreme than after four, and the increase in land access doubled). poor, they often have little lasting impact, with many Further, since CFPR/TUP targeted women in extreme households falling back into extreme poverty. poor households, it allowed for women’s increased control over household economic resources and greater The Graduation Approach power in decision making. for the Poorest To test whether the BRAC model could achieve similar results in other contexts beyond Bangladesh, CGAP and While there have been many attempts at developing the Ford Foundation launched a partnership in 2006 models for improving economic conditions of the to adapt and evaluate the approach through 10 pilot poorest, at least one model has proven to be highly programs in eight countries (Ethiopia, Ghana, Haiti, successful in building sustainable livelihoods and Honduras, India, Pakistan, Peru, and Yemen), largely in “graduating” people out of extreme poverty. Since rural settings. 2002, BRAC’s Challenging the Frontiers of Poverty Reduction/Targeting the Ultra Poor Program (CFPR/TUP) The graduation approach brings together several has supported over half a million very poor households components that have proven necessary for sustained to increase their income and assets in a sustained upwards economic mobility for the poorest and most fashion in Bangladesh. The 2016 follow-up to a vulnerable. It begins with consumption assistance randomized evaluation by Bandiera et al. (2016) finds (food and/or cash assistance), mindful that part of what positive impacts on employment, income (37 percent it means to be extremely poor is the food insecurity increase in earnings), assets (household asset value more that inhibits households from taking on any meaningful than doubled), savings (cash savings increased nearly longer-term livelihood strategy. This is typically offered 1 On 25 September 2015, countries adopted a set of goals to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. Goal No. 1.1 is to eradicate extreme poverty for all people everywhere by 2030. Extreme poor households are typically those living under US$1.90 a day in purchasing power parity. December 2016 2 Figure 1. The Graduation into Sustainable Livelihoods Approach: Integrated and Carefully Sequenced Extreme Sustainable Poverty Livelihoods MENTORING SEED CAPITAL / EMPLOYMENT TRAINING ACCESS TO FINANCIAL SERVICES CONSUMPTION ASSISTANCE MARKET / VALUE CHAIN ANALYSIS TARGETING Start Month 3 Month 6 Month 24 Month 36 through a pre-existing government safety net program and training is conducted). Impact assessments also (e.g., cash transfer, public works program). With these show that beneficiaries spent more time working, went basic needs met, participants then gain access to hungry on fewer days, experienced lower levels of financial services with basic financial education and stress, and reported improved physical health. New support in saving money. Savings with a formal, or results from one of the CGAP–Ford Foundation sites community-based, financial institution are a vital tool in India almost six years after the end of the program for risk management. Regular savings help build assets, revealed even greater impact, with a doubling in per instill financial discipline, and strengthen cash and capita consumption compared with the three-year mark financial management skills. Participants also get simple (The Economist 2015). The RCTs tested the graduation technical skills training and seed capital grants (or approach as a package and generally did not assess in-kind assets such as livestock) to jump-start small the relative importance of each of the components. businesses. In some cases, especially in urban and peri- Additional research in Ghana compared the transfer of urban areas, participants are linked to employment assets alone (goats) to the receipt of the full package opportunities instead. Finally regular, intensive one- of graduation components; after three years, the value on-one mentoring over the program duration of 24 of the assets held by households that received the full to 36 months helps build participants’ confidence and package was significantly higher and more diversified the persistence necessary to stay on the trajectory of than for the goats-only households whose livestock improved social and economic well-being. value and total consumption did not increase. Strong Positive Impacts A Cost-Effective Approach Sustained over Time The total per household cost of the programs (including Rigorous impact assessments through randomized consumption assistance, seed capital, training, control trials (RCTs) were conducted at six pilot sites mentoring, staffing, monitoring, and office overhead), by Innovations for Poverty Action between 2006 and over the entire duration of the programs, ranged 2014. The researchers documented increased incomes from US$330 to US$700 in Bangladesh, India, Yemen, and household consumption at all but one graduation Ethiopia, and Pakistan to approximately US$1,250 in site (Banerjee et al. 2015b).2 Graduation programs Honduras and US$1,750 to US$2,500 in Ghana, Haiti, have statistically significant impact on consumption and Peru.3 (See Figure 2.) (7.5 percent increase in food consumption), beneficiaries’ productive assets (15 percent increase), and savings The cost-effectiveness of the program is high, with (96 percent increase) one year after the program ended annual household income gains as a percentage of (that is, three years after the assets are transferred total program costs ranging from about 7 percent 2 In the Honduras pilot, the livelihood component of the program did not pay off—the asset selected by most participants (a new chicken breed) failed to translate into sustainable livelihoods illustrating the importance of getting this component of the graduation approach right. 3 Differences stem mainly from program’s emphasis on each of the building blocks (e.g., size and duration of consumption support) and from local salary scales, population density, and status of infrastructure. 3 Figure 2. A Cost-Effective Model The graduation approach drives impacts across diverse indicators and has delivered high returns on investments with sustainable outcomes. Income Savings Food security Health Happiness Ethiopia Cost/HH: $884 Pakistan ROI: 260% Cost/HH: $864 ROI: 179% Bangladesh Honduras Cost/HH: $436 Cost/HH: $1,335 ROI: 540% ROI: -198% Peru Ghana India Cost/HH: $2,604 Cost/HH: $1,777 Cost/HH: $330 ROI: 190% ROI: 133% ROI: 433% Source: Innovations for Poverty Action, Abdul Latif Jameel Poverty Action Lab, London School of Economics, The Economist to 25 percent in the five sites where the program the Department of Social Welfare and Development’s had positive impact. At BRAC, the initial investment Convergence strategy in the Philippines. See Figure 3, of US$365 was estimated to yield total benefits which illustrates scaling of various graduation programs. of US$1,168 over a projected span of 20 years (the discounted sum of consumption and asset gains in 2007 These new programs typically share core characteristics U.S. dollars). This would amount to a benefit-cost ratio with and offer a similar package of assistance to that of of 3.2—or US$3.20 in benefits for every US$1 spent on BRAC and the CGAP-Ford Foundation pilots: the BRAC program.4 Sulaiman, Goldberg, Karlan, and • They are time-bound, household-level interventions de Montesquiou (2016) suggest that among programs deliberately targeting the extreme poor, either those that target the extreme poor (livelihood development, under the $1.90-per-day line and/or those identified lump-sum cash transfers, or graduation) and for which as the poorest and most marginalized. there is long-term evidence, the graduation approach • They are holistic in order to tackle the multifaceted has the greatest impact per dollar of cost, with positive constraints of extreme poverty. impact on economic indicators that persists over time • They offer a “big push” based on the idea that a (Sulaiman, Goldberg, Karlan, and de Montesquiou large investment to kick-start an economic activity 2016).5 will really make a meaningful change. • They include some form of mentoring to help Governments: Key to Scaling Up participants overcome not only their economic and Adapting Graduation Programs constraints but also the many social barriers they face. Nearly 60 “second generation” graduation programs • They facilitate access to a wider social protection are now being implemented. Approximately one-third regime (health, education, etc.) and formal or semi- of these are being carried out by governments, typically formal financial services as a way to build resilience, as part of their national social protection strategies. deepen economic inclusion, and continue upward While a handful of programs are small, there are mobility. several large programs designed to serve hundreds of thousands and even millions of households: Ethiopia’s The graduation approach is expected to grow in scale Productive Safety Net Program, Pakistan’s Benazir and influence, with strong demand from governments Income Support Program, Indonesia’s Kelompok Usaha to create nationally scaled programs. Governments Bersama Program and Keluarga Harapan Program, and and other implementers are showing keen interest 4 US$1,363 total cost (in purchasing power parity) for the CFPR/TUP program in 2007, covering the cost of assets, training, and program administration. 5 For example, in Sri Lanka, Ghana, and Kenya, studies show positive impacts from cash transfers on consumption, assets, and food security, but preliminary evidence in Kenya suggests that the impacts may dissipate relatively quickly (Sulaiman 2016). 4 December 2016 All CGAP publications Figure 3. Graduation Programming Growing Rapidly: 58 projects are available on the CGAP Web site at ongoing in 37 countries (September 2016) www.cgap.org. CGAP 1818 H Street, NW MSN IS7-700 Washington, DC 2 3 6 20433 USA 2 2 2 5 3 Tel: 202-473-9594 2 Fax: 202-522-3744 2 2 Email: cgap@worldbank.org © CGAP, 2016 BRAC Bangladesh (1) – Since 2002 CGAP-Ford Foundation Pilots (10) – 2006–2014 NGO-implemented (30) – Since 2010 Donor-implemented (7) – Since 2010 Government-implemented (20) – Since 2010 in innovations to (1) adapt the approach to additional Banerjee, Abhijit, Esther Duflo, Nathanael Goldberg, Dean vulnerable segments, such as refugees, extreme poor Karlan, Robert Osei, William Pariente, Jeremy Shapiro, Bram urban households, or disadvantaged youth; (2) expand the Thuysbaert, and Christopher Udry. 2015a. “Building Stable Livelihoods for the Ultra-Poor.” New Haven, Conn.: Innovations range of income-earning options beyond rural livelihoods; for Poverty Action, September. http://www.poverty-action.org/ and (3) improve cost-effectiveness through measures publication/building-stable-livelihoods-ultra-poor such as digitization of transfers and financial services or group-based delivery of coaching and social support. . 2015b. “A Multifaceted Program Causes There is widespread interest to build from the graduation Lasting Progress for the Very Poor: Evidence from Six experience and explore other promising economic Countries.” Science, May. http://science.sciencemag.org/ inclusion interventions that target vulnerable populations content/348/6236/1260799 and provide holistic support to households and individuals de Montesquiou, Aude, and Tony Sheldon. 2014. “From to strengthen income earning and asset building. Extreme Poverty to Sustainable Livelihoods: A Technical Guide to the Graduation Approach.” Washington, D.C.: CGAP and CGAP is now actively exploring options for a dedicated the Ford Foundation, September. http://www.cgap.org/ platform to support demand from governments and publications/extreme-poverty-sustainable-livelihoods others for interventions for the economic inclusion of those currently left behind—a vision where Dharmadasa, H., S. Hashemi, S. Samaranayake, and L. improved economic participation, income gains, and Whitehead. 2015. “PROPEL Toolkit: An Implementation Guide increased and diversified assets lead to sustained to the Ultra-Poor Graduation Approach.” New York: BRAC USA, December. http://www.microfinancegateway.org/library/propel- upward mobility for the poorest households and most toolkit-implementation-guide-ultra-poor-graduation-approach vulnerable groups. The Economist. 2015. “Extreme Poverty: Leaving It Behind. How to Rescue People from Deep Poverty—and Why the Best Resources Methods Work.” The Economist, 12 December. http://www Balboni, Clare, Oriana Bandiera, Robin Burgess, and Upaasna .economist.com/news/international/21679812-how-rescue- Kaul. 2015. “Transforming the Economic Lives of the Ultrapoor.” people-deep-povertyand-why-best-methods-work-leaving- IGC Growth Brief Series 004. London: International Growth it-behind?utm_source=12%2F14%2F15+newsflash&utm_ Centre, December. https://www.theigc.org/wp-content/ campaign=newsflash_12_8_15&utm_medium=email uploads/2015/12/IGCJ2287_Growth_Brief_4_WEB.pdf Sulaiman, Munshi, Nathanael Goldberg, Dean Karlan, and Bandiera, Oriana, Robin Burgess, Narayan Das, Selim Gulesci, Aude de Montesquiou. 2016. “Eliminating Extreme Poverty: Imran Rasul, and Munshi Sulaiman. 2016. “Labor Markets and Comparing the Cost-Effectiveness of Livelihood, Cash Transfer, Poverty in Village Economies.” Quarterly Journal of Economics. and Graduation Approaches.” Forum. Washington, D.C.: CGAP. AUTHORS: Syed M. Hashemi and Aude de Montesquiou, with Katharine McKee