Over the last decade around the globe, the microfinance sector has seen cycles of tremendous boom and bust. Alongside, the sector has had more than its fair share of controversies, affected as it is by political machinations in countries like India and Bangladesh. Starting from allegations of unbridled commercialisation to that of unethical practices contributing to borrower suicides, it has been a rocky ride for microfinance and microfinance institutions (MFIs) in recent years. While we await the fate of the Microfinance Bill that has been introduced in the Parliament, this article looks at a small, but significant side story – the evolution of the graduation models. In this column, I describe the essential features of these graduation models and the promising results that these pilots have shown so far.
The graduation model was initiated by a Bangladeshi development organisation, BRAC (Bangladesh Rural Advancement Committee) in 2002. BRAC is a pioneer in southern development sector. It is no accident that BRAC now operates in multiple Asian and African countries and is in itself, an unusual, but fine example of a southern NGO expanding globally. The graduation model is premised on the belief that the poorest of the poor lack the wherewithal to participate in microfinance – either as a borrower or a saver. These are people who are desperately poor, have little or no assets and are food insecure.
The model targets the ultra-poor and initiates a multi-pronged intervention with them, typically comprising mandatory savings, a subsistence allowance, transfer of a productive asset (usually livestock), health and livelihood trainings, etc. The basic idea is to provide the ultra-poor a safety net and an opportunity to start thinking of savings and investment in some form of productive livelihood activities. The graduation model also aimed to show an impact within two years, setting itself a time-bound target which is important for an intervention that attempts to influence social protection policies in developing countries.
Indeed, the basic motivation for MFIs that tried out the initial pilots might have been expanding their client-base; and to engage in a grant-based development model in parallel to their typical micro-credit offering that involved high interest rates. In the following years, the graduation pilots have taken a life of their own and have been replicated in multiple sites around the world, as an intervention to reach out to the poorest of the poor with a time-bound investment aimed at providing a social safety net and building their productive capacities.
Supported by the Consultative Group to Assist the Poor (CGAP) and the Ford Foundation, the graduation model spread to ten sites in eight countries – Ethiopia, Ghana, Haiti, Honduras, Pakistan, Peru, Yemen and India (three sites). In these sites, communities and agencies involved in the implementation of the graduation model are experimenting with a variety of inputs and approaches, adapted to the local contexts.
One of the laudable features of these graduation pilots have been their openness to rigorous research and evaluation. The good news is that the early results have been encouraging, although we still have lots to learn about the cost-effectiveness of these interventions and their sustainability across geographies. For instance, the pilot in West Bengal, implemented by Bandhan was studied by the Abdul Latif Jameel Poverty Action Lab (JPAL), MIT. The researchers report a set of highly impressive findings – per capita food consumption increased 15%; per capita income increased 20%; income from livestock and agriculture showed significant gains, etc. Overall, they compute a rate of return on 27% on the programme investments. These are indeed impressive results from an intervention that seems to truly target and reach the poorest of the poor.
If these graduation models live up to their early promise, we could be looking at a breakthrough for safety nets for vulnerable communities. The evidence generated also comes at a time when social sector spending in India is under pressure. As we wait for more results from the other graduation pilot sites, we can be hopeful.