56722 BRIEF Creating Pathways for the Poorest: Early Lessons on Implementing the Graduation Model People at the very bottom of the economic ladder are often excluded, or exclude themselves, from microfinance. Their income is usually too low and unreliable to permit repayment of loans or investment in anything but basic food consumption. In some countries the very poor are served by safety net programs, which usually take the form of cash transfers, food aid, or guaranteed employment schemes. Starting in 2006, CGAP and the Ford Foundation have been exploring how a "graduation model" can create pathways out of extreme poverty, adapting a methodology developed by BRAC in Bangladesh. The graduation model targets the "ultra poor"-- contexts, and cultures. The pilots are implemented people who have no assets and are chronically through partnerships among financial service food insecure. Safety nets usually help these very providers, nongovernmental organizations (NGOs), poor people survive but don't allow them to build and government safety net programs.1 Several of up assets. The graduation program combines the pilots are measuring the program's effect on support for immediate needs with longer term people's lives through rigorous randomized impact investments in training, financial services, and evaluations and qualitative research. business development so that within two years ultra poor people are equipped to help themselves The graduation model is holistic and intensive, move out of extreme poverty. This Brief discusses demanding a high level of concerted effort. early lessons from the implementation of the The key is careful sequencing of development graduation model. services, along with close monitoring and regular interaction between program staff and participant households. The Model Careful client selection is critical to ensure only The term "graduation" refers to participants moving the poorest households are being selected. out of safety net programs and "graduating" into Community-level participatory wealth rankings income-earning activities that let them sustain and simple household surveys identify the poorest. themselves without external subsidies. The In addition, household visits by senior managers graduation approach was originally developed have proved necessary to avoid participation by by BRAC in Bangladesh. Over the past five years better off people. Since the model is based on BRAC's Specially Targeting the Ultra Poor program household-level economic activities, only people has reached 800,000 households--over 70 percent who are physically or mentally able to manage of them are currently food secure and managing enterprises can be included. sustainable economic activities. Soon after participants are selected into the Since 2006, CGAP and Ford Foundation have program they start receiving consumption adapted BRAC's experience to other contexts. support in the form of a small cash stipend or Nine graduation pilots are underway, in Ethiopia, goods in kind. This support gives them "breathing Haiti, Honduras, India, Pakistan, Peru, and Yemen, space" by stabilizing their consumption. It can be involving diverse institutional forms, economic offered through a pre-existing safety net program. 1 The pilots in India are implemented by SKS, Trickle Up, and Bandhan. Fonkoze is running a pilot in Haiti, Odef and Plan in Honduras, Associacion Arawiwa and Plan in Peru, Relief Society of Tigray in Ethiopia, and Social Fund for Development and Social Welfare Fund in Yemen. The pilot in Pakistan is implemented by the Pakistan Poverty Alleviation Fund through five partners (Aga Khan Planning and Building Services Pakistan, Badin Rural Development Society, Indus Earth Trust, Sindh Agricultural and Forestry Workers Coordinating Organization, and Orangi Charitable Trust). December 2009 2 THE GRADUATION MODEL MARKET REGULAR SUSTAINABLE ANALYSIS MONITORING LIVELIHOODS · Health Support · Social Messaging ACCESS TO CREDIT Poverty Line Extreme Poverty Asset Transfer Skills Training Savings Services Client Selection Consumption Support 0 MONTHS 3 MONTHS 6 MONTHS 21 MONTHS 24 MONTHS Discussing the amount and duration of the support activity. To identify sustainable livelihood options with participants builds trust and helps them plan in value chains that can absorb new entrants, ahead for when the support stops. support services and market infrastructure must be thoroughly analyzed beforehand. Once several Once people's food consumption stabilizes, options have been identified, the participant they are encouraged to start saving, usually in chooses from a menu of assets, based on an individual account at a microfinance institution preferences and past experience. To mitigate risks, (MFI). In addition to building assets, regular savings households need to engage in multiple activities; instills financial discipline and familiarizes potential short-term and long-term assets should be mixed; participants with the MFI. Most pilot sites have and if the asset chosen is livestock, it should be felt the need to teach participants about cash and disease-resistant and easy to care for. financial management. The crucial part of the model is the regular Participants receive skills training on caring for an monitoring and coaching of participants by asset and running a business. While rudimentary, dedicated staff. Ultra poor people generally lack such training is essential in managing successful self-confidence and social capital. The skills-training small businesses. The training also provides builds up expertise and confidence, but it's usually information on where to go for assistance and not enough to boost self-confidence. Weekly services (the vet, for example). household visits by staff allow for monitoring but even more so for "coaching" over the 18 to 24 A few months after the program starts, each months of the program. During these meetings, participant receives some form of subsidized staff help participants with business planning and asset transfer to help jump-start an economic money management, along with social support 3 and health and disease prevention services. In Chemen Lavi Miyo, the pilot implemented by several instances, linking up with a health care Fonkoze in Haiti reached graduation in early service provider--either government clinics or 2009. The 150 program participants were drawn nongovernmental options--has proven critical. from the poorest, most food-insecure, and most Peer support in group meetings and self-help vulnerable households in Haiti in terms of lack of groups also builds confidence. Several pilots have kinship support. To graduate from the program, created "village assistance committees," which Fonkoze determined that participants had to meet the following criteria: a secure supply of food at typically include local community leaders, such least once a day, a solid roof over their head, at as the clergy, teachers, or village elders. These least two income-generating activities, assets committees support participants during the program worth at least $150, and a plan for the future. Of and can continue to help after the program is over. the 150 participants, 95 percent met these criteria Committees offer participants close support and and graduated from the pilot project. Of these, 70 percent immediately went on to borrow a first $25 integrate isolated people into the community loan, a stepping stone to Fonkoze's standard loan without overburdening program staff. products. The pilots are highly structured, with graduation in sustainable livelihoods as the end goal. Programs Bandhan, in West Bengal, there has been a 97 adopt a contractual approach, setting clear targets percent graduation rate, and the organization has for participants. While the overarching goal across already started scaling up in urban and rural areas. all pilots is to help people escape extreme poverty, At Trickle Up, also in West Bengal, participants the individual programs set their own context- faced major challenges from the beginning, driven criteria for graduation. Achieving food including bird flu, other diseases, floods, and security, stabilizing income, accessing healthcare, a severe cyclone, but 258 out of the 300 pilot and having a plan for the future are key elements participants graduated in October 2009. They each of moving out of extreme poverty. In some cases, had assets worth US$150, savings over $20, and program participants will become full-fledged diversified sources of earnings. SKS, in Andhra microfinance clients, using savings services and Pradesh, is graduating participants in batches--360 borrowing and repaying loans. participants out of 426 graduated by October 2009. SKS expects that, after the fourth batch, it The nine CGAP­Ford Foundation pilots are at will have a 97 percent graduation rate. different stages of development--four have reached graduation while five are in the process It remains to be seen whether the graduation of being implemented. Fonkoze, in Haiti, model has a long-term effect on poverty or if graduated 143 participants out of 150. A majority participants fall back without ongoing support. of nongraduates lived in an area with competing The CGAP­Ford Foundation impact research will post-cyclone aid interventions, and Fonkoze has continue to monitor the results, which can be seen chosen not to expand operations in that area. At only over the long term. When Bandhan in West Bengal, India, started its pilot it did not have a "village assistance committee" Partnerships as BRAC did. But in a couple of cases program participants had their livestock stolen by young Few organizations have the capacity to offer all people from neighboring villages. In both cases of the components of the model effectively. The village elders helped track down the thieves and collected compensation for the beneficiaries. This program is typically a collaboration among three prompted Bandhan to start village committees in partners: a financial service provider (often an MFI), each village. Such committees now ensure security a livelihoods promoter or provider (often an NGO), of the participants, provide advice to them, and and a health services provider. Additional partners, even mediate in cases of domestic violence and such as an agricultural extension program, may also alcohol abuse. be useful depending on the livelihoods pursued by Conclusion December 2009 What percentage of program households Financial Service manage to graduate and stay above extreme All CGAP publications Provider poverty? What do such programs cost? What are available on the · MFI or other provider are the benefits of the program in terms CGAP Web site at with strong social mission www.cgap.org. of employment, creation of new economic activities, and improvements in nutrition CGAP and education? What are the savings to the 1818 H Street, NW government if people move out of safety net MSN P3-300 Livelihoods programs and incur lower healthcare costs? In Washington, DC Health Services this first phase of the CGAP­Ford Foundation 20433 USA Provider Provider graduation program, we are looking at how · Offers training · Located in the Tel: 202-473-9594 and/or an in-kind the model works in different contexts and vicinity of the grant for income Fax: 202-522-3744 beneficiaries with different institutional arrangements. In generation activities the next phase, we will expand this to include Email: costs and benefits of this model, comparing it cgap@worldbank.org to livelihoods and safety net interventions that © CGAP, 2009 are done as standalone programs. participants. The model is usually led by a champion organization, most often the financial services provider or the livelihoods provider, but these References champions cannot achieve results on their own. CGAP and Ford Foundation. 2009. Graduation Graduation programs need long-term soft Program handout, May. http://www.cgap.org/ funding from a donor or a government. While gm/document-1.9.37512/CGAP%20Ford%20 the model ultimately aims to move social Foundation%20Graduation%20Program%20 assistance recipients into becoming sustainable Handout%202009.pdf; www.cgap.org/ entrepreneurs or independent wage earners, the graduation targeted participants will need subsidies for a time, as will most of the service providers. In particular, Hashemi, Syed, and Richard Rosenberg. 2006. MFIs must understand that a graduation program "Graduating the Poorest into Microfinance: will not produce net income for them. MFIs Linking Safety Nets and Financial Services." Focus participating in the pilots view their engagement Note 34. Washington, D.C.: CGAP, February. as a form of corporate social responsibility in the short term and a potential source of new clients in Matin, I., M. Sulaiman, and M. Rabbani. 2008. the medium to long term. In a few cases, MFIs see "Crafting a Graduation Pathway for the Ultra Poor: reaching out to the extreme poor as a clear part Lessons and Evidence from a BRAC Programme." of their mandate but recognize the need for this Manchester, United Kingdom, Chronic Poverty segment of their activities to be subsidized. Research Centre, March. www.bracresearch.org AUTHORS Mayada El-Zoghbi and Aude de Montesquiou, with Syed Hashemi