From Microfinance to Livelihoods?

From Microfinance to Livelihoods?

Microfinance has been used as a tool to alleviate poverty for over 30 years.  Its principal mechanism to meet that objective has been microcredit.  However, recent studies have shown that microcredit is insufficient to tackle poverty and that the poor also need a range of financial services for their economic empowerment, resulting in microfinance.  While microfinance has produced benefits, it is not enough as it has failed to reach the poorest of the poor — an estimated 150 million microcredit clients.

To reach this marginalized population, it perhaps needs a holistic approach to achieve sustainable livelihoods.  Several innovative approaches have been implemented that address livelihoods issues.  Their overall objective is to enhance incomes, expand assets (human, social natural, physical and financial capitals), provide food security, as well as access to technology and market linkages. By integrating financial services with technical assistance and organizational support, the goal is to provide opportunities that are not typically available to the extremely poor.

In a 2011 CGAP-Ford Foundation evaluation intervention programs that use a ‘graduation’ model that addresses livelihoods were examined. Included in the evaluation were BRAC and Fonkoze Haiti (highlighted below). We have also included BASIX which offers similar livelihood programs.

BRAC – Bangladesh Rural Advancement Committee

Founded in Bangladesh in 1972, BRAC is the world’s largest development organization that has pioneered different ways to tackle poverty. With operations in 10 countries (in Asia, East Africa, and Haiti, with 33,000 offices in Bangladesh alone), BRAC’s involvement with livelihoods initiatives dates to 1985 when they organized women into groups focused on poultry production.  Since the women did not qualify for microcredit, BRAC provided training, food transfers (monthly grain allowances), and a savings scheme. A subsequent study found that following the training, three-quarters of the women then qualified to become microfinance clients.

By 2010, BRAC had reached 300,000 ultra poor households in Bangladesh, with 75% of these becoming food secure and managing sustainable economic activities. BRAC recently announced that it will provide adolescents in Uganda with skills to make a living through training in photography, tailoring and embroidery, poultry and livestock and beauty care.

In addition to offering microfinance, schooling, healthcare, legal services, finance and enterprise development, and marketing facilities, BRAC also operates social enterprises that are strategically connected to their development programs.  This approach provides “value chain linkages which increase the productivity of their members’ assets and labor, and reduce risks of their enterprises”.

Fonkoze – Haiti

Founded in 1994, Fonkoze is the largest microfinance institution in Haiti, serving over 56,000 women borrowers.  In 2006, Fonkoze set up the Chemin Levi Miyo project as an intervention to tackle extreme poverty.

This multi-pronged livelihood project is a protection and promotion scheme. Using a comprehensive package of inputs, it relies on five pillars:  1) building sustainable livelihoods with cash stipend provisions and productive assets; 2) access to health services and savings, to

reduce vulnerabilities; 3) skills building, providing enterprise training, advice and moral support; 4)  improving social conditions (e.g. housing renovations, schools uniforms, water filters); and 5) strengthening social networks through village leaders.  Using a graduated approach, Fonkoze provides life skills for social networks.  After six months, members are trained in microfinance disciplines, and upon graduation are encouraged to focus on commerce and building enterprises. The livelihoods program typically provides chickens, goats and small trade to the extreme poor combined with training in these selected activities. Additionally, participants receive consumption support of $5.50 per week to ensure their food security, and are set up with individual savings accounts at Fonkoze.

Upon graduation from this program, participants can then qualify for Fonkoze’s microcredit and other financial services offerings.  Fonkoze’s tiered ‘pathway out of poverty’ approach has successfully graduated 75% of participants into the small credit program.

BASIX – India

In a paper entitled “Livelihood Finance”. Vijay Mahajan, CEO of BASIX, posited that poverty alleviation and attendant economic growth should include financial services, agricultural and business development as well as institutional development services.  Founded in 1996, Basix Group is an Indian entity that provides poor people of its member institutions a range of products and services that include  microfinance, mobile payments, health insurance and agricultural and business development services. The organization introduced a “livelihood promotion” institution as a model to serving the extreme poor — the first of its kind in India.  In addition to research and development in livelihood promotion, the organization also designs and develops financial products for extending credit, distribution channels and systems for service delivery that includes accounting and MIS. As a value-chain model, BASIX  helps farmers increase their productive yield through inputs, seeds, irrigation, and skills building.  It works with over a 3.5 million customers, over 90% are rural poor households and about 10% are urban slum dwellers.

Examples of their livelihood schemes have included mushroom cultivation and groundnuts farmers that were organized into cooperatives and supported with technical assistance. Additionally, in 2007, BASIX and PepsiCo India launched a potato growers’ initiative, where BASIX organized the farmers and provided microcredits for the inputs. PepsiCo purchased the crop for its potato chip production in India. Adverse weather conditions in 2007 and other factors, however, forced the program to terminate.

Summary:   Graduation programs for livelihoods models rely on 5 pillars: targeting, consumption support, savings, skills training and regular coaching; and asset transfer.  Research on various livelihood schemes has shown that programs have to be well-sequenced, intensively monitored, and provide various support services for consumption, training, enterprise development, etc. But, such programs do no work for everyone or everywhere.

Microfinance has been used as a tool to alleviate poverty for over 30 years.  Its principal mechanism to meet that objective has been microcredit.  However, recent studies have shown that microcredit is insufficient to tackle poverty and that the poor also need a range of


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