Interview with:
Diego Fernandez Concha, Director, Microfinanzas PRISMA Peru
Jeff Toohig, Deputy Director of PPI Deployment, Grameen Foundation
When Grameen Foundation developed its Progress out of Poverty Index™ (PPI™) for Peru in 2007, PRISMA was among the first MFIs trained in its use. In an interview with the Microfinance Information eXchange (MIX), Dr. Fernandez Concha and Jeff Toohig, Deputy Director of PPI Deployment at Grameen Foundation, share their experiences with developing and implementing the PPI.
MIX: Why did PRISMA decide to implement the PPI to monitor the poverty levels of its clients? What was PRISMA’s experience with this poverty assessment tool?
Dr. Fernandez Concha: Measuring poverty levels of our clients is an essential part of PRISMA’s efforts to measure and manage our institution’s social performance. The PPI relates to the social performance framework on multiple levels, as it helps assess an institution’s social goals, evaluates how the mission is translated into practice, measures the poverty likelihood of clients, and monitors clients’ economic improvement during a timeframe.
My background is in the public health sector, where everything is measured and evaluated. Client poverty assessment was something that we lacked at PRISMA because while we claimed that we worked with the poor, we couldn’t measure the poverty status of our clients. The PPI has taught us how to do so.
The PPI is an easy, inexpensive, and simple tool that consists of ten questions or “indicators” of poverty for a specific country. It is both an assessment and a decision-making tool, as it allows a MFI to better meet the needs of its clients by assessing the poverty likelihood of clients at entry and change in this status over the course of time. It is based on a standard methodology that is internationally valid, respected, and auditable. It allows for information transparency, which permits us to compare ourselves with other poverty intervention organizations.
The cost of the implementation of the PPI was minimal, the main cost being the client and loan officer’s time in conducting the interview each time the client receives credit. Moreover, we view it not as a cost, but as an investment.
MIX: How were the PPI indicators selected for the Peruvian context? And, more generally, what does the PPI training consist of?
Mr. Toohig: The PPI is based on a universal methodology that is applied on a country by country basis. This methodology was developed for Grameen Foundation by Mark Schreiner [Director of Microfinance Risk Management] with support from CGAPand the Ford Foundation. Following the design methodology, the process for indicator selection in Peru was much the same as it is for every new country PPI.
[For each PPI], we start with a nationally representative income or expenditure survey, in this case the 2007 Encuesta Nacional de Hogares Condiciones de Vida y Pobreza [National Household Survey on Living Standards and Poverty] conducted by Peru’s Instituto Nacional de Estadística e Informática. All of the indicators from that survey are then statistically ranked according to their correlation with poverty level. The top 50 or so indicators are then filtered according to their verifiability, ease of understanding, and likelihood to change as poverty status changes. For these reasons, we favor indicators like “What is the main material of the floors?” and don’t use indicators like “How much money did you earn last month?”
The resulting draft PPI is then screened by local microfinance professionals, like Dr. Fernandez Concha, to make sure that local cultural and other considerations are accounted for. The result is a PPI made up of 10 questions, which is scored in a range of 0-100. The points, like the indicators themselves, are derived from the underlying national survey.
The score is then associated with a likelihood of falling above or below certain poverty lines. In Peru, the PPI is calibrated against two different national poverty lines - the standard National Poverty Line and the “Food” Poverty Line- as well as against three international poverty lines – $1.25 PPP, $2.50 PPP, and $3.75 PPP, where PPP stands for purchasing power parity. Any institution using the PPI can report and manage data according to whichever poverty line or lines are most useful. This is part of the strength of the PPI – it can be used equally well for internal management purposes as well as for external reporting to the industry at large.
Training generally consists of group training, frequently facilitated by some local or regional network. We worked closely with Oikocredit in Peru for instance. The next step is generally a pilot test of the PPI, which leads to a clear implementation plan. Grameen Foundation works both directly with practitioners as well as through intermediaries like Oikocredit and Catholic Relief Services (to name just two examples) to provide ongoing technical assistance to PPI users, ensuring a smooth and rewarding experience.
MIX: What are the major lessons that you’ve learned from using the PPI?
Dr. Fernandez Concha: We conducted the first pilot of the PPI in March 2008 in two of our branches and on March 2009 we extended the study to all of our 12 branches. We selected two samples in 2009: 357 new clients and another 377 from the total population. [In March 2009, PRISMA served 21,699 clients.]
The 2009 results showed that 35% of new clients are below the poverty line, while 32% of total clients are below the national poverty line. We observed that the poorest clients (both new and total clients) are the ones living in rural areas (45% of our clients live there) and that among new clients, women present a higher poverty level while among our total client base, men show higher poverty levels. What this seems to imply is that the women have reinvested more of their loans or that they have better diversified their economic activities and have a lesser poverty likelihood as a result in the long run.
What we are now planning to do is to implement the PPI once per year on both new and more mature clients in order to monitor both their poverty likelihood and progress out of poverty. This will be realized during credit renewal and the concession of credit to new clients.
MIX: You have been training many MFIs around the world on the use of the PPI. What are the main lessons you learned about challenges faced by the MFIs using the tool? How can these mistakes be avoided?
Mr. Toohig: The first consideration is to simply understand what the PPI does and does not do. There are so many frameworks and tools available that frequently organizations are confused as to benefits and limitations. We are careful to point out, for instance, that the choice is not between the PPI and a social rating. Rather, the PPI will help inform the social rating and make it more robust. The PPI should be used within a context of a larger social performance management process and is just one piece of the puzzle. The efforts of MIX are a good example of this: the social indicators MIX collects vary from institution level to client level, the latter being the type of information the PPI provides. An institution reporting all of these indicators can describe its overall efforts more clearly.
Additionally, as with any new assessment policy, successful PPI implementation requires that the organization has thought through the effect the PPI will have on all aspects of the organization. Frequently, the PPI is relegated to the New Initiatives Department, for instance, but the real value comes when operational field staff, middle management, training departments, new product decisions, and overall leadership are well informed of PPI results. PRISMA’s example is a good one here. Clearly Dr. Fernandez Concha is using PPI results in combination with all of his other information sources to improve his decision making.
We encourage organizations to incorporate the PPI into their overall client assessment process as much as possible. An organization that carefully considers what its information needs are and how the PPI results will help advance its activities will be a successful user of the PPI.
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For more information about the PPI, visit www.progressoutofpoverty.org.
To review other social performance indicator data reported to MIX by PRISMA, visit http://www.mixmarket.org/node/12089.
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