Integrating the Poorest into Microfinance: An Impact Assessment
By Jyoti Prasad Mukhopadhyay | Jyoti is a CMF research associate. He has been working with Bandhan on the Ultra Poor Project since August 2007. Prior to this project, he was managing a project to study financial needs of migrant workers.

Background
Over the last three decades, microfinance has emerged as a tool for the economic development of the poor across the globe. Nobel Laureate Muhammad Yunus's pioneering Grameen model has been adopted in different countries and microfinance has become a global movement. But who are microfinance clients after all? There has been a persistent criticism about the discrepancy between whom microfinance claims to target and whom it actually reaches. Whether microfinance has been able to provide credit to the poorest of the poor remains a debatable topic ¹. As a matter of fact, microfinance institutions (MFIs) generally neglect ultra poor households because they are extremely vulnerable to shocks and they are more likely to end up spending loans for consumption purposes rather than investing in productive activities. So even if an ultra poor household is interested in starting a petty business, it is often denied loans and hence such households find emancipating themselves from the shackles of poverty extremely difficult. They continue to face the tyranny of local moneylenders and other humiliations. Take the case of Basanti of Hazrapara in Beldanga, West Bengal. She is keen to start a micro-enterprise but she could not start one due to a paucity of funds. No MFI approached her to join a microfinance group because she belongs to an ultra poor household. Hence she thought that her dream would never turn into reality. This is the fate of many such “Basantis” who cannot afford a square meal everyday. To reinforce this, Morduch (1999) once opined that “poorer households should be served by other interventions than credit” (p.1600). One such intervention would be to uplift ultra poor households by providing income generating assets so that they can eventually participate in regular microfinance programs. With this objective, Bandhan started the “Chartering into Unventured Frontiers-Targeting the Hard Core Poor” (CUF-THP) program in 2006. This grant-based program is financially supported by the Consultative Group to Assist the Poor (CGAP) and draws inspiration and technical support from a similar program ² run in Bangladesh by the Bangladesh Rural Advancement Committee (BRAC).

Setting
Bandhan is an NGO-MFI based in Kolkata. Primarily focused on micro-credit, Bandhan started its operations in 2002. Within a span of five years, Bandhan became operational in five states: West Bengal, Tripura, Assam, Bihar and Jharkhand and was able to provide micro-credit services to more than 400,000 clients across these five states. Recently, Bandhan was ranked 2nd on the Forbes List of the World's Top 50 Microfinance Institutions ³.

Targeting Hard Core Poor (THP) Program at a Glance Identification:
The aim of the THP program is to provide income generating assets, such as livestock and other inventories for non-farm enterprises, to the poorest of the poor to assist them in starting businesses and eventually graduating into small scale entrepreneurs. To make this program successful, area selection and ultra poor targeting are of utmost importance. Bandhan selected Murshidabad for the intervention because the district performs poorly in terms of certain human development indicators compared to other districts in West Bengal ⁴. Once the village lists were finalized, Bandhan conducted Participatory Rural Appraisals (PRAs) to identify ultra poor households in each hamlet. Under a PRA, social mapping and subsequent wealth ranking using information from neighboring households help Bandhan identify the dwelling units of ultra poor households in a particular hamlet and determine their relative socioeconomic status. A few days after conducting a PRA in a particular hamlet, Bandhan administers a detailed questionnaire to verify the results of the PRA and also to identify the beneficiary of each household. Ideally, an able-bodied woman member of a household is the target beneficiary of this program. Subsequently, the THP program coordinator carries out the final verification of households identified as ultra poor through visual inspection and informal conversation. During the final verification, special attention is paid to the condition of the house, the health and nutritional status of the women and children, educational attainment of the children, and employment status of the women. One mandatory eligibility requirement is that the household must not be involved in any micro-credit activities and/or should not obtain “adequate assistance⁵” from any government aided program.

Methodology of the study:
CMF is currently undertaking a study led by Profs. Abhijit Banerjee (MIT), Esther Duflo (MIT) and Raghabendra Chattopadhyay (IIM-Cal) to assess the impact of the THP program through a randomized control trial. CMF is now conducting baseline surveys to identified households. After the completion of the survey, half of the identified beneficiaries (treatment) will be randomly selected for asset distribution. Subsequently, these selected beneficiaries will be asked by Bandhan to select the enterprise they would like to undertake. The other half constitutes the control group. In the initial phase of this intervention, assets worth $100 are given to each ultra poor beneficiary. In addition to grants, beneficiaries are also provided $2.27 (Rs. 91) per week as part of the operational costs to run the enterprise they selected. Prior to asset distribution, Bandhan will organize enterprise training for the targeted beneficiaries. After asset transfer, Bandhan will carry out monitoring and supervision of assets through regular household visits. The objective of this study is to assess the impact of grants given in the form of tangible assets and subsequent enterprise development on social and economic outcomes which include income, assets, school attendance of children, family health and food security. Further, this study will help us better understand the needs of the ultra poor households and will provide some evidence regarding the viability of “graduating” the ultra poor to microfinance programs.

Future plans:
18 months after the asset distribution and training, CMF will conduct a follow-up survey to gauge the impact of the asset distribution. These beneficiaries will then become eligible to participate in Bandhan's microfinance programs. CMF has also proposed a second-phase randomization to make the impact of access to microfinance clearly discernible. Finally, in 2009 an endline survey will be administered by CMF to assess the impact of the overall intervention.