Can microfinance propel the poorest out of poverty?

In the 1970s, microfinance presented a cost-effective solution to economically empower millions of poor people left out by the banking system. However, microfinance, which traditionally consists of small or ‘micro-’ loans, failed to reach millions of people living in extreme poverty. After decades of providing microfinance to poor rural women in Bangladesh, BRAC realized that credit and savings were not an option for a sub-segment of the population. This group, known as the ‘ultra poor,’ were missing out.

BRAC launches how-to guide on cost-effective extreme poverty reduction.

Typically, these were landless, illiterate women, living hand-to- mouth, who often failed to be caught by social safety net programs. BRAC spent years developing a multifaceted ‘graduation approach’ to specifically target and economically uplift this population. The 24-month program combined aspects of microfinance – financial literacy training, savings, and either soft loans or an asset-transfer – with hands-on coaching, food and cash stipends, health care and social integration for participants. Unable to benefit from traditional microfinance before the programme, the idea was that this two-year initiative would put them on a pathway out of extreme poverty. For some, BRAC’s microfinance program could be their next step.

Evaluations have shown that the initial investment in this 24-month program pays off. Four years after the program ends, 95 percent of participants stay on an upward economic trajectory with increased earnings, savings, and productivity. New research published last December from the London School of Economics shows that seven years after the program ended in Bangladesh, household savings increased nine fold, the value of participants’ household assets doubled and spending on non-durables increased 2.5 times. Since 2002, BRAC has graduated 1.6 million women into sustainable livelihoods, with participants meeting a number of criteria based on consumption, health, and household income.

A Global Solution

This remarkable success is not limited to Bangladesh. Results from Randomized Control Trials (RCTs) on graduation pilots in six countries conducted by researchers at the Abdul Latif Jameel Poverty Action Lab (J-PAL) and Innovations for Poverty Action (IPA) were published in Science magazine last May. Among other positive outcomes, researchers found statistically significant gains in household income and consumption one year after the program ended.

Today ultra-poor graduation enjoys widespread recognition for being a solution to extreme poverty that can be adapted around the world. With the number of institutions adopting the approach growing, the graduation approach could play a key role in achieving sustainable development goal one to end all forms of poverty everywhere.

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To scale knowledge of ultra-poor graduation, BRAC has launched a step-by- step guide called PROPEL that breaks down the components of the graduation approach with tools, lessons, and best practices learned through nearly 14 years of implementation and technical assistance. This guidebook outlines the full-fledged graduation model, allowing implementers to tailor the components for the context in which they’re working. It also includes adaptations, outstanding questions as well as possible solutions for various cost- recovery models, such as a soft-loan model.

To help scale this program in Bangladesh, BRAC created a cost-recovery adaptation in which about two thirds of participants received a soft loan variation that covered a major portion of the asset required to start their enterprise. For example, if a household were set to receive a cow and ten chickens, the credit-based approach would provide ten chickens as in-kind support with a soft loan for the cow. The loans were slightly cheaper than microfinance loans with a built in grace period for repayment.

The soft-credit adaptation illustrates that the extreme poor can be credit-worthy when a loan is accompanied by other inputs such as training, coaching and financial literacy. Members of the program who received the loan were borrowing with a 23 percent interest rate, which is nearly industry standard in Bangladesh.

What happens after participants graduate is even more compelling. Anecdotally, our program team analyzed that it’s not the first business that participants develop during the program (e.g. selling the dung from the cow) that fuels the household’s economic growth in the long term. Rather, it’s actually the secondary business that the woman starts after the program has completed that can dramatically change her household’s income. Since participants have received coaching on how to reinvest and diversify their income, they are more prepared to take risks with their second businesses. These risks often require more capital, making it the ideal entry point for taking on microfinance loans.

BRAC is in the process of designing several research initiatives to measure the long-term economic activity of program participants who received soft loans. Multiple implementers, including BRAC are also trialing adaptations to make the approach more cost-effective.

Just as with microfinance, graduation programs are not silver bullets for eliminating extreme poverty. But as BRAC and others continue to adapt, we hope that sharing our experiences and models through PROPEL will help other MFIs, NGOs and governments transform the lives of the poorest on a global scale.

To learn more about BRAC’s graduation approach and view the PROPEL guidebook visit

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