Literature Review on Poverty Reduction Strategies aimed at the Very Poor

Zahra Campbell-Avenell, Summer 2009

For the Poverty Outreach Working Group

Literature Review on Poverty Reduction Strategies aimed at the Very Poor

It might be worthwhile considering the importance of financial service provision to the poor as intrinsic value, irrespective of its promise as a poverty-alleviating tool. Viewed from such a vantage point, the challenge is placed on the design of suitable financial services that the poor would find useful

(Matin et al 2002: 288)

The failure of traditional poverty reduction programs in achieving deeper outreach to the very poor is a growing concern, as evidenced by the United Nation’s Millennium Development Goals (MDGs) which envision extreme poverty to be halved by 2015. Designing services to help the very poor often means taking into account the historic, sociopolitical and economic factors that contribute to the persistence of poverty. The very poor often lack even the most basic of services, such as food, healthcare, sanitation and access to clean water. In addition to economic development, programs aimed at the very poor need to focus on livelihood security and social protection, including microgrants, subsidies, cash transfers, etc. Financial services for the very poor include microloans, savings programs, and microinsurance; while non-financial services can range from “social intermediation” for functional literacy and social capital development and “business development services” (BDS) to develop entrepreneurship through business training, information, and market linkages (Parker 2002: 10). For the greatest inclusion of the poorest, organizations/practitioners need to assess what the needs of the poorest are and modify their programs accordingly. Programs tailored for the extremely poor may include provision of basic services such as health, nutrition, education and empowerment.

1. A hand up rather than a handout1: Viable business models for serving very poor people

Microfinance

Microfinance is not a silver bullet or panacea that can transport the poor out of poverty. Very poor clients tend to utilize financial services more for their "protective" role, i.e. to assist them in coping with periods of insecurity, than its "promotional" role, particularly as seed capital for income generation through microenterprises (Matin et al 2002: 275 - 276). The most important impact of microfinance for the poorest is reduction of vulnerability through expenditure smoothing and the creation of coping mechanisms through insurance, savings, and asset building (Simanowitz 2001: 7). Microcredit helps the poorest households with the following:

1 Sachs (2005: 64).

1. Income generationMicroloans enable households to enhance productive capital, take advantage of investment opportunities, and become less risk-averse.

2. Retaining better combinations of assets and liabilitiesMicrofinance provides enhanced credit access and savings products to households who no longer have to hold on to assets for precautionary or speculative purposes, and no longer have to sell them at low prices. It also reduces the amount of credit obtained from informal sources.

3. Increasing liquidityMicroloans can be used for immediate consumption requirements (Matin et al 2002).

Microfinance can be particularly valuable in assisting the very poor in meeting life-cycle needs, e.g. childbirth, marriage, and funeral expenses; reducing shocks created by emergencies, e.g. unemployment and natural disasters; as well as creating income opportunities, e.g. investment in a new business (Matin et al 2002: 276 - 277). Most importantly, the savings component of microfinance can assist in financial and social empowerment by helping the poorest create a buffer against vulnerability; additionally, through membership in savings groups, the very poor generate social capital where members can rely on each other for emotional and financial support.

Proponents of microfinance services have touted its ability to rapidly pull the poor out of poverty at a massive scale. Yet criticisms of microfinance abound, particularly because it has been demonstrated to reach only the upper fringes of poor people. Moreover, without the right enabling environment, such as in a post-emergency environment, in disadvantaged rural areas, for the destitute, or for People Living With HIV and AIDS (PLWHA), access to credit may push the poor further into poverty by adding debt to their existing burden (Parker 2002: 2). Some critics of microfinance also condemn the significant profits earned by some microfinance institutions while the poorest struggle to repay their debts at exorbitant rates – a cited example is that of Bancos Compartamos, the largest microfinance institution in Latin America, whose investors achieved over 100% compounded annual rate of return (Lewis 2008: 56).

Microfinance Plus, and Graduating the Poor into Microfinance

It is widely acknowledged that poorer households face difficulties in participating in, and fully reaping advantages provided by, traditional microfinance. A review of the literature suggests that microfinance alone cannot help the poorest; instead, “microfinance plus” – a synergy of interventions including nutrition, health, skills training, empowerment and education is a more viable option before the poorest can “graduate” to traditional microfinance. This approach requires that the basic needs of the very poor (food, shelter, healthcare, etc.) be addressed before microcredit or business training can be provided (Underwood 2007: 6 – 7).

Dunford (2001) suggests that the integration of complementary non-financial services such as education into traditional microfinance programs can be both sustainable and cost-effective, and they can actually improve the performance of microfinance clients. He advocates that at the very least, nonformal adult education techniques be utilized at regular group meetings to

promote behavioral change, disseminate information about health services and childcare, and improve clients’ business skills. He provides several case studies of linked, parallel, and unified service systems used by partner or individual organizations that have been successful in engaging individuals simultaneously with life-changing educational experiences along with financial services.

Offering ancillary services such as self-empowerment workshops are particularly important when working with extremely vulnerable groups, who are often stuck in a “culture of poverty.”

Oscar Lewis has described the “culture of poverty” thus:

The people in the culture of poverty have a strong feeling of marginality, of helplessness, of dependency, of not belonging. They are like aliens in their own country, convinced that the existing institutions do not serve their interests and needs. Along with this feeling of powerlessness is a widespread feeling of inferiority, of personal unworthiness… It is conceivable that some countries can eliminate the culture of poverty… without at first eliminating impoverishment, by changing the value systems and attitudes of the people so they no longer feel helpless2 (1998: 7-9, emphasis added)

The very poor often do not have the confidence or risk-taking ability to succeed as microentrepreneurs or take on the responsibilities of debt repayment. Several programs aimed at the very poor therefore include components to enhance empowerment and self-esteem among the target group. For example, the TCP program at SEF in South Africa encourages the poorest members of the community to participate in the project and provides training and support at each step (Maes and Foose 2006: 6). Similarly, ILO-sponsored projects for prevention of bonded labor inform their clientele about labor and human rights (Maes and Foose 2006: 6).

Very poor people have often faced discrimination, deception, and exploitation, and their trust must be rebuilt for their relationship to transform from a dependent to an independent one (Churchill and Guérin 2004). Social awareness initiatives provided to such groups can improve self-confidence, facilitate collective action, and reduce “unproductive expenditure” such as dowries and alcohol – all leading to empowerment (Churchill and Guérin 2004: 5). ILO’s partners for bonded laborers conduct “learning conversations,” which identify and help to solve community problems in a collective manner, thus improving cohesion within the community and improving their bargaining power (Churchill and Guérin 2004: 5). It has been acknowledged that beyond asset creation and accumulation, programs targeted at the very poor should seek to mobilize them as a group in order to transform the social relationships around them. They should include the very poor as “subjects in the process of transforming and recreating the institutions that regulate decision-making as well as the distribution and redistribution of assets… [and contribute to] the development of social capital and the transformation of the social relations between excluded groups and society at large” (Godinot et al 2006: 9).

2 Lewis, Oscar. "The culture of poverty". Society Volume 35 (2), p. 7.Piscataway: Jan/Feb 1998.

The Microcredit Summit Campaign also outlines the importance of integrating health education with microfinance as an effective poverty reduction strategy (Daley-Harris 2009: 13). Their project infuses microfinance services with weekly health trainings that cover topics such as HIV and AIDS prevention and care, childhood diseases, and women’s health; thus improving the clients’ health and improving participation in services. Similarly, projects led by BRAC, ARC, the ILO, W.O.M.E.N., and Freedom from Hunger provide healthcare services or education on health issues in addition to traditional microfinance products (Maes and Foose 2006: 6 – 7).

CHF uses a Sustainable Livelihoods approach to respond to “poor men’s and women’s vulnerabilities to different types of risks in order to develop a variety of relevant, realistic coping, reduction and mitigation strategies” (Alibhai and Capelazo). It enables very poor ethnic minority farmers in Vietnam to meet their subsistence needs by providing training for rice production in the form of Farmer Field Schools. The farmers are also provided with the know-how to utilize and manage assets (such as training on growing animal fodder before animals are provided). CHF then creates Household Investment Plans that encompass each household’s assets, and links them to the family’s aspirations to lift themselves out of poverty through Household Operational Plans. The participation of the poorest in decision making, coupled with a participatory targeting mechanism (the PRA wealth-ranking tool), assists CHF to meet the unique needs of the very poor.

Some programs aimed at the very poor have successfully integrated business and vocational skills training with microcredit to improve the entrepreneurial capabilities of the target population. For example, BRAC in Bangladesh provides training on poultry rearing, and CHF Vietnam provides technical assistance for rice production and animal husbandry (Maes and Foose 2006, Alibhai and Capelazo).

Grants-funded safety net “graduation” programs operate under the premise of providing nonfinancial as well as financial support to help the poorest move on to a level of poverty where they can become full-fledged clients of traditional microfinance institutions. A review of the case studies of this model demonstrates that appropriately structured programs can be a successful pathway to microfinance (Hashemi and Rosenburg 2006: 6). Programs that start with grants for immediate consumption needs and build up to asset building, training and savings services tend to be most successful in preparing clients for starting their own businesses. However, even in the best case scenario, one-fifth to one-third of all clients completing the graduation program require further subsidized support (Hashemi and Rosenburg 2006: 6).

Social Protection and Social Assistance ( Subsidies/ Cash Transfers/ Microgrants)

Social protection is defined as “a broad concept describing all interventions from public, private and voluntary organizations and social networks, to support communities, households and individuals in their efforts to prevent, manage and overcome vulnerability” (Scott 2008: 2).

Social assistance (also known as social transfers) refers to “a component of social protection that addresses poverty and vulnerability directly, through transfers, in cash or kind, to poor households. Transfers can be unconditional, as with most pensions and disability or child

grants, or conditional on certain behavior, such as regular attendance of school or local health centers, or participation in public works” (Scott 2008: 2).

Critics of traditional market development programs argue that they do not serve the needs of the poorest and tend to romanticize the plight of poverty-stricken people (Karnani 2009). These critics contend that it should be the state’s role to provide basic services such as health and education. There is also an emerging consensus around the idea that social protection is an appropriate response to poverty in developing countries, and an integral component of domestic and international development strategies (Barrientos and Hulme 2008). Social protection has evolved from its initial focus on short-term safety nets to larger scale programs that target poor and poorest households, including a combination of cash transfers with basic service provision, employment assurance and asset building (Barrientos and Hulme 2008: 2, 19). The main role of social protection has been variously identified as “lifting the constraints to human and economic development posed by social risk…ensuring the satisfaction of basic needs, and…implementing a rights-based approach to human development (Barrientos and Hulme 2008: 4-5, emphasis in original). Cash transfers can also “help trigger or enhance savings activity by providing a reliable and regular source of additional income” and thereby help the poor escape poverty traps (Carpio and Riemenschneider 2008: 2).

In order to avoid over-reliance on subsidies, microgrants should be used strategically: targeting those who traditional microfinance cannot help; including a “graduation” process to traditional microfinance products; carefully implementing and monitoring the program; and supplementing the microgrant with training and savings programs whenever possible (Parker 2002: 8). Additionally, well-designed subsidy programs can simultaneously deepen poverty outreach while attracting donor funds by being transparent, rule-oriented, and time-bound (Murdoch 2006: 11).

Microgrants represent a “safety net” that can be utilized to assist the poor on a one-time basis, such as those affected by natural disasters; or over a longer period, such as people afflicted with HIV & AIDS (Parker 2002: 6). The first group can benefit from a one-off payment to ease their newfound position of vulnerability, and the second will inevitably use funds for basic subsistence or health needs. Microgrants can help extremely poor populations to invest time in learning new skills and building assets. For instance, BRAC’s Income Generation for Vulnerable Groups Development (IGVGD) program, targeted at extremely poor rural women, provides 18 months of free food and healthcare to participants while engaging them in skills training, savings schemes, and income generating programs. Over the course of ten years, over a million participants have been able to move from dire poverty to economic self-sufficiency (Parker 2002: 7).

Measures that enable the very poor to deal with periods of shock and vulnerability such as cash transfers, fee vouchers, and welfare programs can play an integral role in overcoming poverty traps by:

Addressing their insecurity and vulnerability and improving human capitalSuch assistance enables people experiencing extreme poverty to recover from shocks by preventing forced asset sales, removal of children from school, and reduction of basic consumption levels.

Developing a social compact in developing countriesVery poor people seldom have political representation, but social protection can facilitate the creation of a social compact by changing the way the poor are treated by society; increasing their asset base, which increases their individual and collective agency; and improving their political participation. Social protection can also change exploitative relationships “by altering the bargaining power of recipients. For example, cash transfers to landless labourers in India have been found to transform the conditions of otherwise exploitative clientelistic relationships, by decreasing the beneficiaries’ need for such arrangements and thereby improving their bargaining power. Similarly, cash transfers in Ethiopia have enabled poor households to renegotiate contractual sharecropping and livestock arrangements with richer households” (Scott 2008: 3)

Contributing to pro-poor growthSocial protection can enable the poor to protect and accumulate assets better, improve resource allocation, and increase access to new economic opportunities (Scott 2008).

Health and the Very Poor

The relationship between extreme poverty and ill-health is significant since illness can impact poor households’ livelihoods by reducing productivity, adding to workload, and increasing expenditure; this in turn can lead to a vicious cycle where the likelihood of overcoming health problems is further diminished. Moreover, because many of the world’s poorest people earn a living through manual labor, sickness can compound the incidence and severity of poverty (Karnani 2009: 41). The Millennium Development Goals (MDGs) articulate a global vision for reducing the burden of disease and prioritizing maternal and infant mortality. However, critics have noted that concentrating efforts on average mortality and morbidity to achieve the MDGs may lead health systems to focus their efforts “on the ‘easier’ groups and neglect the very poor or those most excluded from services [because it] may be costlier to achieve the same health improvement for people living in remote locations or who are otherwise excluded from routine health services” (Bloom 2005: 2).

In very poor communities afflicted by communicable diseases, illness-related vulnerability can be widespread, putting pressure on informal coping arrangements, as is the case with HIV & AIDS, malaria, etc. (Bloom 2005: 5). Response to the shock must therefore integrate health measures in the form of subsidized care with economic recovery measures (Bloom 2005: 5). The needs of the very poor in particular must be taken into account since they are often excluded from healthcare due to geographic isolation, lack of education, and lack of funds to pay for health services.

Bloom identifies preventative, mitigating, and coping strategies that can be used to help the very poor (2005: 7). Such measures aim to improve performance of existing, but poorly-

functioning health systems; extending access to affordable, high priority health services and provide a buffer against the financial impact of severe illness (Bloom 2005: 7).

Type of Protection Type of Intervention

PreventionPrevent large unexpected shocks

Early warning and capacity for rapid response Rules for open information enforced Compensation for adverse impacts on poor

Prevent adverse health consequences of major shocks

Investment in competent and accountable government systems to build resilience

Relief programmes with a strong health componentPrevent health-related shocks Legal right to a minimum standard of essential public

health measures Effective preventive programmes

MitigationMitigate impact of small health-related shocks

Subsidise government health services or providedtargeted benefits to the poor

Improve quality of organised services for the poor Community health insurance (with government or

donor subsidies) Reduce useless and dangerous medical practices

(regulation, training and provision of information on drugs)

Mitigate the high cost of hospitalization

Subsidise public hospitals Hospital insurance Health safety net for the poor Increase availability of credit Control quality and cost of hospital services

CopingCope with the high cost of chronic disease

Improve capacity to treat these diseases Entitlements to specific treatments at subsidised cost Financial transfers to specific groups such as elderly,

disabled (cash or vouchers)Cope with the cost of caring for a severely ill or disabled family member

Community support or nursing homes (withgovernment subsidy)

Cash transfers to specific groupsCope with the impact of major illness event

Special support for survivors Assistance in reconstruction of livelihoods

Source: Bloom 2005, p. 14

Providing health-related services for the poorest is more expensive than for the population as a whole, but these higher costs may in some cases be offset by the possibility of greater overall impact by meeting the health needs of the poorest (Waddington 2005).

2. Enterprise development needs & access to markets for very poor people

Value Chains

Value chain development is increasingly recognized for its ability to address livelihood constraints faced by the world’s poor. The value chain is defined as “the full range of activities required to bring a product or service from conception through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to the final consumer, and final disposal after use” (Kaplinksy and Morris, cited in USAID 2007). There is an established consensus that market-based interventions tend to favor the most innovative, better educated, upwardly mobile, confident, risk-taking people in a community, who are generally already better off (Peppelenbos 2006: 7). However, with effective targeting, market-led mechanisms can be harnessed to alleviate extreme poverty, as evidenced by USAID’s Market-led Livelihoods for Vulnerable Populations (MLVP) Project in Ethiopia. This project selected 5 value chains to develop in extremely poor areas, with different end-markets (local, regional, national, and international). The targeted households gradually moved from deficit, having exhausted all of its assets and opportunities for food security; to a period of safety net transfers assuring food security; and finally to self-sufficiency in which the households are food-secure and have a small asset base.

Value chain development is particularly suitable for very poor smallholder farmers who often try to sell what they have already produced rather than responding to the demands of an identified market. Agricultural value chain development involves a series of processes: upgrading individuals as value chain actors by creating crop specialization and market orientation among farmers; adding value through vertical integration by training farmers in processing and marketing to add value to the product; developing value chain partnerships by building alliances with buyers; and developing ownership over the chain through direct linkages with consumers (Peppelenbos 2006: 149). In order to improve smallholder efficiency and competitiveness, farmer organizations are an effective means through which to obtain market information, pool resources, access credit, access skills-development services, produce sufficient volume to meet market demand, standardize and control quality standards (which can also demand higher prices), and produce a consistent supply of produce in both volume and quantity (Peppelenbos 2006: 4).

For very poor and vulnerable populations, microenterprise development may be less suitable than stimulating businesses in the small, medium, and large private sector, thus providing stable employment instead of the risk associated with owning and operating a small enterprise (Mayoux 2003). Value chain analysis can contribute to learning in enterprise development in the following ways:

analyzing value “chain governance” and interrelationships between different actors;

examining the power relations at different levels and enabling a more sophisticated understanding of the direct and indirect positive and negative effects of interventions;

representing the relationships in the chain through clear visual depictions which are accessible cross-culturally and even to the very poor and disadvantaged;

facilitating dialogue and mutual accountability; promoting equity and empowerment of the most vulnerable and disadvantaged

members of the chain; and providing a focus for developing sustainable systems for continual impact assessment

and accountability (Mayoux 2003: 7).

Entrepreneurship, Markets, and Self-Employment for the Very Poor

The informal sector, comprising small-scale and micro-enterprises, is a source of employment for a large proportion of the world’s poorest people. These enterprises are extremely heterogeneous, but most share certain characteristics like being independent and owner-operated, requiring low levels of skill and technology, and operating in low-income, low-productivity activities (Harvie 2003: 2 - 3). The relationship between poor households and the small enterprise economy is multifaceted: the poor are entrepreneurs, workers,household members dependent on poor workers and entrepreneurs, the unemployed who may be able to reduce their poverty through participation in a small enterprise, and, finally, poor consumers who purchase goods from small enterprises (Vandenburg 2006: 10). The ILO contends that each of these categories of poor people can benefit from small enterprise development. Small enterprises have the potential to alleviate poverty by simultaneously offering employment opportunities as well as affordable goods and services to the very poor. However, it is important to recognize that microenterprise promotion as a poverty alleviation tool has its limitations. There may not be enough microenterprise opportunities for all because of market demand constraints and lack of skills held by the poor. Moreover, microenterprise development can never be a substitute for social sector programs (Harvie 2003: 10).

Goods and services produced by small enterprises need to be demanded in the market. Low demand is usually caused by “a poorly performing economy generally; too many suppliers competing for too few customers; and, the difficulty of MSEs to adequately innovate and market their products and services” (Vandenburg 2006: 30). Moreover, the constraints experienced by the very poor are different from those by the poor: “strategic interventions such as microfinance that may have significant induced impacts …may be extremely costly for the chronic poor who may not have the kinds of reciprocity based resources enjoyed by other categories of the poor” (Matin 2003: 19). It is essential, then, to bridge the gaps that prevent the extreme poor from participating in poverty alleviation programs. Microenterprise promotion, when coupled with appropriate microfinance services aimed at the very poor, can simultaneously be successful in achieving effective poverty alleviation, women’s empowerment, employment creation, and private sector enterprise development (Harvie 2003: 8).

The Productive Safety Nets Program (PSNP), implemented by the Government of Ethiopia, supplemented traditional food aid with a constructive asset-building program that includes access to credit and a choice of skills training from 20 possible programs for economic

development, such as livestock husbandry, apiculture, and irrigated cash crop production (USAID 2007). Similarly, USAID’s Market-led Livelihoods for Vulnerable Populations (MLVP) program is aimed at enabling the very poor to overcome poverty traps by engaging in market-led activities. MLVP’s success can partially be contributed to its careful examination of the market and very poor households, and its selection of products that were both relevant to the capability of the target population and demanded in the marketplace . The formation and strengthening of marketing groups, coupled with capacity building and enhanced market information and introduction of quality control, enabled farmers to demand a higher price for their products. By providing farmers with access to new production and processing technologies, as well as an appreciation of marketing, market linkages, and value chains, the clients found empowerment through improved self-confidence.

Targeting very poor and vulnerable populations explicitly as beneficiaries is an effort to “make markets work for the poor” 3. By creating market opportunities in which the very poor can fully participate, and by improving their bargaining power in the market, value chain development is a market-based approach that has a lot of promise for sustainably improving the livelihoods of the very poor.

Private Sector Involvement

Without the private sector, sustainable development will remain only a distant dream. We are not asking corporations to do something different from their normal business; we are asking them to do their normal business differently.

(Kofi Annan, 2002; cited in Wheeler and McKague 2002: 1)

The poor, and particularly the extremely poor, remain outside traditional market systems – a fact that identifies an enormous need as well as an incredible opportunity in untapped markets. Recently, there has been a plethora of literature touting private investment as the key to help the very poor while simultaneously increasing profits (Martin and Zedillo 2004, Hammond and Prahalad 2004, Samans and Nayyar 2009). Research commissioned by the UNDP suggests that business with the poor can be profitable and simultaneously drive long-term growth by developing new markets, driving innovation, expanding the labor pool, and strengthening value chains (Davis 2008: 4). Businesses can also help the poor meet basic needs like water and sanitation, enable them to become more productive, increase incomes, and, in doing all of the above, empower them (Davis 2008: 5).

All poor people are consumers, but their access to markets can be limited, and they often pay a ”poverty penalty,” by often paying more for goods and services than their richer counterparts. The private sector can improve access by expanding the market, as well as capturing market share and a loyal customer base. Inclusive business models include the poor both on the demand side as consumers and clients and on the supply side as employees, producers, and business owners (Davis 2008). Successful businesses develop inclusive models by responding to local conditions. In order to overcome constraints, businesses can adapt products and processes; invest to remove market constraints; leverage the strengths of the poor; combine

3 This phrase was first coined by the Department For International Development (DFID) in 2005.

resources and capabilities with other organizations and engage in policy dialogue with governments (Davis 2008: 6 – 9).

While the private sector can create jobs and economic growth and enable poor people to procure goods and services that they could not afford previously, profit-seeking corporations also have the potential to be exploitative. Products marketed to people at the “base of the pyramid” can include potentially harmful and unnecessary ones like alcohol and tobacco, which are seldom accompanied with appropriate warnings, advertising restrictions, and prohibition of sale to minors in the weak institutional environments associated with many developing countries; and skin-lightening creams that purport to “empower” consumers (Karnani 2009: 42).

3. Understanding extreme poverty & very poor households

Governments around the world committed to MDG 1 (Millennium Development Goal), which aimed to reduce extreme poverty by half between 1990 and 2015. While the use of US $1/day PPP (adjusted to $1.25 PPP as of 2009) as the poverty line to identify the “very poor” is useful for inter- and intra-group comparisons, many analysts (Carter and Barrett 2006, Moore et al 2008, Ludi and Bird 2007) have argued that this is not sufficient to encapsulate the nature or magnitude of extreme poverty. There is no simple, all-encompassing way to define the very poor, particularly because they comprise a heterogeneous group, and are sometimes difficult to analyze because of their very marginality (Moore et al 2008). The very poor often suffer from multiple deprivations in education, employment, resources, healthcare, political agency, and empowerment, which may complement and reinforce each other. These handicaps may contribute to social isolation, as do intrinsic challenges such as geographical distance and cultural and social exclusion/marginalization. However, without understanding the very poor, it is difficult to distinguish between the merely poor and the poorest of the poor.

Defining (and including) the Poorest

An empirical review of four distinct approaches (monetary, capability, social exclusion and participatory) to the definition and measurement of poverty has found that each identifies a different set of the population as being poor, which has implications for policy and implementation of poverty reduction programs (Ruggeri Luderchi et al 2003). Far from reaching a consensus on the definition of the “very poor”, no common language exists for describing this population, who are alternatively known as the extreme poor, the ultra poor, the hardcore poor, the poorest of the poor, the highly vulnerable, the destitute, the bottom billion and the Base of the Pyramid. Understanding them is crucial due to documented evidence suggesting that aid tends to reach only the richest segments of the poor, and the very poor remain left behind. However, while attempts to better define poverty may help to improve measurement, targeting and monitoring, they also “represent a problematic process of labeling that stigmatizes, erodes dignity, delegitimizes voice, ignores creativity and agency, undermines solidarity, and obscures heterogeneity” (Moore and Braunholtz 2007: 4).

Multidimensionality of PovertyThe poorest typically experience multiple deprivations in the form of lack of access to resources needed to fulfill basic needs such as healthcare, education, nutrition, sanitation; and they often suffer from social marginality and feelings of vulnerability and low self-esteem. The Capability Approach uses Amartya Sen’s definition of poverty as “capability deprivation”, which refers to the lack of freedom, or inability, to live a long life, to participate in economic and political activities, to have good health, etc. (cited in Tiwari 2007: 173).

Depth (or severity) of PovertyThe incidence of severe poverty is often measured by relative positioning along an absolute income poverty line, such as the international poverty line of US $1/day; or a particular country’s poverty line. This indicator, however limited and reductive, is useful for comparative purposes. Some theorists (Beverly et al 2008, Shepherd 2007) also include lack of assets as an important determinant of the depth of poverty, because assets can act as a buffer against contingencies, prevent vulnerability and determine political participation.

Duration of PovertyThe Chronic Poverty Research Center argues that the length of time spent in poverty is an equally important aspect of understanding poverty, particularly at its worst, when it can mean passing on poverty to subsequent generations, also known as intergenerational poverty (Moore et al 2008). The movement in and out of poverty over time – the chronically poor, the transitorily poor and the never poor – is also valuable in the study of poverty (Carter and Barrett 2006: 180).

The multidimensionality, depth and duration of poverty often overlap, are interrelated, and reinforce each other. There are also multiple other determinants of extreme poverty, including being female, living in remote rural areas, city slums or conflict-affected areas; belonging to a marginalized ethnic, religious or caste group; being from an indigenous population; being disabled or ill, particularly people afflicted with HIV/AIDS (Moore et al 2008: 7).

The above estimations of poverty have all been constructed by the development community, and recently, there has been a movement to use definitions of poverty as identified by the poor themselves (Ludi and Bird 2007: 2). This movement aims for research “with”, not “on”, the poorest, for a better understanding of what works for the poorest; as well as to include artistic and cultural products such as theatre, music, poetry and novels into literature about the poor, all of which have a greater potential to reach and move people than academic articles and reports (Moore and Braunholtz 2007). Practitioners have echoed this assertion, stating that “apart from academic knowledge, we need to listen to the knowledge of the poor themselves, as well as to the knowledge of those who are engaged with them on a daily basis to fight poverty” (Godinot et al 2006: 2). This commitment was reflected in a World Bank seminar in 2005 on extreme poverty which included very poor participants, their testimonies and life stories, as well as their input on how to improve their current situations. Inclusion of the very poor in decision-making is important because it has been noted that definitions of what constitutes “the poor” and “the poorest” has far-reaching policy implications.

Targeting the Very Poor

An effective poverty targeting strategy should ideally be a combination of identifying the poor, reaching the poor, attracting the poor, and discouraging the non-poor (Mathie 2001). Targeting involves both explicitly identifying the poorest group, and addressing its particular disadvantages. Programs that aim to reach the very poor may use a variety of targeting methods including:

Geographic (focusing on poor areas), Advantage: Easy to focus program in a small geographical area; cost-effectiveDisadvantage: May rely on unreliable data; May be difficult to implement programs in conflict-prone areas such as slums

Social (focusing on particularly vulnerable groups, e.g. PLWHAS, women, socially excluded or indigenous communities)Advantage: Likelihood of reaching very poor people is increasedDisadvantage: Identification problems (part. with Indigenous people); Issues with mobility (part. Women and PLWHAS); may still exclude some members of the very poor in the community

Economic (using an absolute or relative income or consumption scale). This would also include the PAT and PPI. Advantage: Facilitates easier comparisons due to objectivity and uniformity; makes evaluation more objective due to quantitative scoring; ReplicableDisadvantage: High administrative costs (creation of surveys, information collection and verification); PAT/PPI not available for all countries

Relative community perception (use of participatory methods such as the PWR to identify the poorest within a community)Advantage: Less information collection is required; may help to better define a locally relevant definition of the “poorest” Disadvantage: Subjective nature may exclude marginalized groups; may also be inaccurate

It is widely acknowledged that income measures such as the $1/day poverty indicator may not be adequate to identify the very poor, particularly in very poor areas. Evaluating the depth of poverty by assessing multiple deprivations can be useful in identifying and targeting the most vulnerable groups (Notten 2008: 30). A study of 122 targeted anti-poverty social programs in 48 countries revealed that targeting is more successful in reaching the poorest households in richer countries; in countries with greater income inequality; and in countries with more accountable governments (Van Domelen 2007: 17). The study also discovered that employing more than one targeting method is associated with greater outreach to the target group, with each additional method improving performance by 15% (Van Domelen 2007: 17). Some programs have been successful in reaching the poorest segments of society simply opening their programs up to them. One such example is Jamii Bora in Kenya, which provides microloans

to beggars, prostitutes, thieves and others who are traditionally excluded from microfinance (Daley-Harris 2009: 7). Moreover, its staff consists exclusively of existing and former clients. Difficulties with targetingThe main challenges in effectively targeting the poorest segments of the population are defining the target population, and designing an effective targeting instrument to reliably target this population (Hurrell 2009). In order maximize the number of beneficiaries from the target population, the definition of the poorest must be explicit, aim to reduce inclusion errors (the number of beneficiary households that do not belong to the target population) and exclusion errors (the number of households in the target population not benefiting from the program (Hurrell 2009).

In extremely poor regions such as parts of Sub-Saharan Africa, where the economic conditions of a population do not differ significantly, social transfer programs often rely on indicators such as minimum basic caloric consumption to target the poorest segments of the population (Ellis 2008). This may be problematic because inevitably, programs will enable some people to improve their nutritional and consumption level over that of other, excluded people, leading to social conflict within communities. Moreover, it has been noted that the target of halving the number of people living in extreme poverty will inevitably exclude many ‘deserving’ people who are also very poor (the other half). Some argue that the situation of the first half may very well be improved at the expense of the other half that may be impoverished [and if] this were to happen worldwide, increasing the already large gap between the very poor and mainstream society, it would be a disaster” (Godinot et al 2006: 27).

Unique Needs of the Very Poor

In order to reduce the effects of shocks, poor households employ two strategies:

1. Income smoothing (protection before risk): achieved through conservative production, diversifying economic activities, etc.

2. Consumption smoothing (protection after risk): saving, borrowing, utilizing assets and insurance (Matin et al 2002: 286).

Understanding these protective mechanisms is imperative when designing programs to assist the very poor. Programs that are tailored for the needs of the very poor can be very successful in supplementing and augmenting the existing methods that the poor have devised in order to make ends meet. The Household Economy Approach (HEA), devised by the Food Economy Group and Save the Children UK, is a tool for analyzing poor people’s access to food and non-food resources, and is based on the assumption that a better understanding of how poor people survive is key to creating programs that strengthen, rather than destabilize, their existing strategies for survival (USAID 2007).

Survival of the Poorest and Recovery from Poverty Traps

If the poorest are not able to procure even the barest minimum of their nutritional requirements, how do they survive? Researchers (Bhattacharya et al 1991, Collins et al 2009) concur that despite having limited resources, even the poorest members of the population have significant daily cash inflows and outflows, and that caloric consumption alone is not an accurate determinant of poverty. The poorest take advantage of social capital to access loans and meals when cash or food supply is low (Bhattacharya et al 1991: 377). During periods of vulnerability, both expected and unexpected (such as unemployment, death, marriage, disability, conflict, natural disasters or illness) informal social protection can be harnessed through members of kinship networks. However, in the absence of formal social protection, social capital formation can be negative, when people experiencing poverty may be forced to rely on security afforded by patrons who in turn serve to keep them poor – an example of “adverse incorporation” (Shepherd 2007: 53). This reinforces the social exclusion of very poor people, whose social capital is constrained further by their limited choices. It is increasingly recognized that beyond a “household level resource based understanding of poverty and deprivation, transforming socio-political relationships at various levels that perpetuate poverty will have to be considered by [poverty reduction programs]” (Matin 2003: 20).

People experiencing extreme poverty may inexplicably be willing to pay very high interest to moneylenders rather than access formal microfinance institutions. Collins et al (2009) argue that this is because the poor often need access to short-term loans, and annualizing the interest rates charged by moneylenders distorts the actual cost of the loan. A study of the SANASA project clients in Sri Lanka suggests that the poorest clients use more of their savings than credit services; and are more likely to use small, high-cost emergency loans than larger, low-cost investment loans. This is because the poor often need immediate access to small amounts of cash for ‘income smoothing’; a service seldom provided by traditional MFIs.

Evidence from studying the ‘financial diaries’ of poor people reinforces the idea that the poor have complex financial behaviors, and utilize a “portfolio” of financial tools to meet their needs (Collins et al 2009). Unlike traditional ‘snapshot’ studies of the poor, which tend to underestimate cash flows in a household over a period of time, this seminal research demonstrates how the poor cope with the “triple whammy” of irregular, unpredictable incomes and a lack of appropriate financial instruments to manage uncertain cash flows. The poor take advantage of an array of informal (e.g. family, moneylenders, etc.) semi-formal (e.g. savings clubs, burial societies, etc.) and formal (e.g. microfinance) financial tools to meet their needs. This study echoed findings of other research that determined that the poor need access to microcredit for needs that extend far beyond microenterprises. They need access to “accelerators” such as loans that bring in cash immediately and “accumulators” such as savings clubs that bring in money over a period of time (Collins et al 2009).

Research indicates that households with less resilience to shocks, whether predictable or unpredictable, are more likely to remain poor, which means that the poorest are more likely to be caught in poverty traps (Barrientos 2007: 5). Moreover, the poorest households may engage in behaviors that effectively serve to keep them poor, such as spending less on education and

more on immediate consumption requirements. Findings on education expenditure by the poor corroborate this assertion:

“the poor require relatively higher returns to increase expenditure on education, so that they invest in education smaller shares of their income than the rich…[therefore] persistent inequality is characterized as a situation where the poor are locked in to the lower tail of the human capital distribution forever (the poverty trap)” (Ceroni 2001: 204).

It has also been noted that while some people experiencing extreme poverty are able to overcome it, others remain “stuck in ‘poverty traps’, or structurally positioned so that escape is difficult or impossible without significant changes” (Shepherd 2007: 48). Such households respond to increasing vulnerability with behaviors that in effect, keep them poor – such as reducing quantity and quality of meals, delaying healthcare, removing children from school, and participating in informal employment (Barrientos 2007: 2). In order to assist the very poor in recovering from shocks, one of two broad categories of social responses may be appropriate: disaster relief in response to major shocks affecting large numbers of people, and social protection, which concerns more frequent events with a localized impact (Bloom 2005: 2). Further, positive social capital (such as that created by membership in a savings group) can be harnessed as a potential exit strategy from poverty traps.