Poverty & Inequality

Why some poverty-fighting programmes show no net impact

  • Blog Post Date 16 October, 2012
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Shamika Ravi

Brookings Institute, India Center

sravi@brookingsindia.org

An increasingly popular way to tackle acute poverty is ‘targeting the ultra-poor’. The scheme provides not only money but also training and support and has been hailed a huge success in its origin country Bangladesh. But this column evaluates a copycat scheme in southern India and finds that the gains are met by losses elsewhere and that, overall, the effect is minimal.

Traditional anti-poverty programmes guarantee a minimum-acceptable standard of living by providing households with a steady flow of funds over time, be it cash or some equivalent. The fund transfers are valuable but designed for survival, not economic advancement. The Bangladeshi NGO BRAC, one of the largest NGOs in the world, sought to improve on the standard safety net idea, and placed a bet that poorer households would do better if given a larger quantity of resources in a shorter period of time. BRAC coupled the money transfers with training and assets to use as a basis to create a new livelihood (Matin and Hulme 2003). The bet is on the possibility of ‘graduation’ from a life of ‘ultra’ poverty, into a life of economic self-sufficiency, an idea with roots in the economics of poverty traps (Bowles et al. 2006; Sachs 2005). BRAC’s idea is now being replicated as pilot programmes in India, Pakistan, Ghana, Ethiopia, Yemen, Haiti, Peru, and Honduras.1

Results from the SKS pilot

In recent research (Morduch et al. 2011), we present results from a ‘randomised trial’ of the programme in rural South India. We look at the programme implemented by the NGO arm of SKS, a large commercial microfinance institution, and compare communities that are chosen at random to receive the programme (treatment group) with similar communities that did not (control group). Our study can be compared directly with the randomised trial evaluation of a similar programme in Bangladesh implemented by BRAC (Bandiera et al. 2012) and in West Bengal implemented by the NGO Bandhan (Banerjee et al. 2011). These studies yield very different results, and together highlight the role of the context in determining the effect of a programme.

At an average cost of $357 for each beneficiary, poor women in the SKS programme received an asset with which to start a small enterprise, a stipend covering enterprise-related costs, and 18 months of peer-to-peer skills training, basic healthcare and incentives and support to help them start saving. Despite expectations that the intervention could be transformative (SKS 2011), a year after the intervention ended, we find no statistically significant net effects on average household income, consumption, assets, nor use of financial services when compared to a control group.

The question is why. The two most plausible explanations are:

1. programme failure (a failure to effectively turn programme inputs into outcomes), and

2. the displacement of other programmes or earning opportunities.

Taken on its own terms, the programme may have been imperfect, but it was not a failure. Participants were effectively identified as being among the poorest members of their villages (the ‘ultra-poor’): to be classified as ultra-poor their households could not include a male worker, nor could they own a productive asset or be part of an established microfinance institution. Participating households received the assets and services as promised, started new livelihoods, and proceeded toward meeting the criteria for ‘graduation.’ The graduation criteria included having children in school, being ‘food secure’ for at least 30 days, creating an income generating activity beyond wage labour, and accumulating more than $16 in savings (900 Rupees). Reflecting the programme’s holistic approach, household must also have gained knowledge about social and health issues, and become aware of any available government programmes.

Yet, overall, programme participants did no better than members of the control group, who met identical eligibility criteria but received no assets, training, or services from SKS. We find that the SKS anti-poverty intervention directly created income gains by promoting livelihoods in the livestock sector (almost 90% of participating households chose livestock rearing as their enterprise), but the gains from participation were offset by foregone wages from agricultural labour. Time constraints made it hard to both work fully as a wage labourer on other people’s farms and to take care of one’s own livestock: multi-tasking proved to be a challenge. On average, households that participated in the anti-poverty programme increased monthly per capita income from livestock by 53 Rupees more than control households (about $3.20 in when taking into consideration local prices, or 17% of the average monthly wage), but the control group increased monthly wage from agricultural wage labour by 52 Rupees more than the treatment group. In other words, the relative gain was undone by the relative loss.2

This kind of substitution, created by the success of a programme at the expense of participation in other economic activities, operates in the background of evaluations of microfinance, health, schooling, and similar interventions in which participating in one programme (or clinic or school) can reduce participation in another.3 In the same way, there can, in principle, be complementarity: a programme that is not as ambitious as this one, or one in an economic environment without strong competition from wage labour, might allow easier multi-tasking and thus show net gains. The version of BRAC’s programme implemented in West Bengal also showed large positive net benefits to livestock income and entrepreneurial activities, but there was no evidence of the income displacement that marked the SKS programme. One main factor, we suspect, is that in West Bengal just about half of the households cited wage labour as a main income source before the programme started, versus 90% in the SKS site (Banerjee et al 2011, Table 4).

The possibilities for substitution between programmes and opportunities are growing in India. India’s recent economic growth has brought overlapping programmes rolled out by banks, NGOs, and the government. Of particular note is the ambitious Mahatma Gandhi National Rural Employment Guarantee scheme (known as MNREGA), which swept through our study region, guaranteeing (on paper) 100 days of employment per year per household, paid 115 Rupees per day on average (Ministry of Rural Development of the Government of India 2011). At the time our study began, 34% of all households in our sample (across treatment and control groups) participated in the MNREGA scheme; by the end of our study, 81% did.

The substitution that we find is not with MNREGA participation directly but with participation in the agricultural labour market broadly. At a national level, the National Sample Survey Organization (NSSO) data reveal a 27% increase in real wages for casual labour in rural India, between 2004 and 2010. The wage increase aligns with a broader shift out of self-employment and into paid labour. The NSSO calculates a drop in self-employment from 56.4% of the labour force to 50.6% between 2004 and 2010, while casual labour rose from 28.3% to 32.8% and wage labour rose from 15.4% to 16.6%. The SKS ultra-poor programme, which was designed to promote self-employment in a population dominated by wage labour, can be seen as fighting against these trends.

Conclusion: Context matters

The balance of the evidence suggests that while the programme opened possibilities for families, it failed to meet its promise. Taken as a whole, the study shows the need to interpret evaluations in the context of the economic opportunities faced by families and their ability to re-optimise their livelihood strategies. Because of substitution of economic activities in the face of competition from the labour market, even a well-implemented intervention can deliver resources as intended but yield no net effect. In another setting, however, the same intervention could generate important positive effects.

The two scenarios – failure vs. displacement – lead to different conclusions about what the SKS programme achieved and what it might contribute elsewhere. Even as efforts proceed to make evaluations more central in development policy, it’s unclear what should be considered a ‘proven impact.’ Here, the ultra-poor programme failed to make a mark, but a similarly-implemented programme might have generated a much larger net effect had the possibilities for displacement been smaller. The converse is true as well: evidence of a strong effect is more likely to arise in contexts with fewer alternatives to the intervention being studied.

Notes

  1. http://www.cgap.org/about/programs/cgap-ford-foundation-graduation-program
  2. The market exchange rate at the baseline (October 2007) was 39 rupees per US$1. At the endline (October 2010), it was 44 rupees per US$1.
  3. Das et al (2011), for example, document how households re-optimise their educational spending to offset grants for schooling, such that anticipated increases in school funding fail to yield significant improvements in students’ test scores.

Further reading

  • Bandiera, Oriana, R. Burgess, N. Das, S. Gulesci, I. Rasul and M. Sulaiman (2012), “Can Basic Entrepreneurship Transform the Economic Lives of the Poor?
  • Banerjee, Abhijit, Esther Duflo, Raghabendra Chattopadhyay, and Jeremy Shapiro (2011), “Targeting the Hard-Core Poor: An Impact Assessment”, MIT, Department of Economics.
  • Morduch , Jonathan, Jonathan Bauchet, and Shamika Ravi (2011), “Failure vs. Displacement: Why an Innovative Anti-Poverty Program Showed No Net Impact”, NYU Wagner Research Paper No. 2134779
  • Bowles, Samuel, Steven Durlauf, and Karla Hoff (eds.) (2006), Poverty Traps, Princeton, Princeton University Press.
  • Das, Jishnu, Stefan Dercon, James Habyarimana, Pramila Krishnan, Karthik Muralidharan, and Venkatesh Sundararaman (2011), “School Inputs, Household Substitution, and Test Scores”, NBER Working Paper No. 16830.
  • Krishna, Anirudh, MeriPoghosyan, and Narayan Das (2012), “How Much Can Asset Transfers Help the Poorest? Evaluating the Results of BRAC’s Ultra-Poor Programme (2002-2008)”, Journal of Development Studies, 48(2):254-267.
  • Mallick, Debdulal (2009), “How Effective is a Big Push for the Small? Evidence from aQuasi Random Experiment”.
  • Matin, Imran, and David Hulme (2003), “Program for the Poorest: Learning from theIGVGD Program in Bangladesh”, World Development, 31(3):647-665.
  • Ministry of Rural Development of the Government of India (2011), “The Mahatma Gandhi National Rural Employment Guarantee Act 2005”.
  • SwayamKrishiSangam (SKS) (2011), “Annual Report: 2010-11”, Hyderabad, Andhra Pradesh.
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