This story is one of 24 outstanding entries selected as finalists in the Long-Term Capitalism Challenge, the third and final leg of the Harvard Business Review / McKinsey M Prize for Management Innovation.
Progress out of Poverty : Business intelligence for those in the business of helping the poor.
Whether it's a fair trade social enterprise, a microfinance institution, or an agricultural co-op, any business that makes the claim that it helps the global poor must be able to objectively measure client poverty. This helps the business communicate with stakeholders, improve its products and services, and track clients’ level of poverty over time. Managed by Grameen Foundation, the Progress out of Poverty Index® (PPI®) is a survey and scoring system that uses quality-of-life indicators to estimate a client's level of poverty against an internationally-recognized poverty line. Any business or organization that works with the poor can easily embed this tool into its operations.
People take their performance more seriously when it is measured. The PPI proves that we can measure performance on social goals – even when the issue is as vast and subjective as global poverty. When we trade our rhetoric for data, we can do better at doing good.
The developed world sees the global poor through sympathetic eyes, and they are motivated to help because it is the right thing to do. When we, Grameen Foundation, work with the global poor, we see their potential to help themselves while also making the global economy more robust and diverse. Each individual below the poverty line is kept from making his or her unique contribution to society – and but put together, global poverty represents the human failure fire on all cylinders. Imagine how strong the global economy could be with 1.29 billion more people exercising their talents instead of searching for their next meal. Giving the world’s poor the chance to be economically productive is the ultimate stimulus package.
Capitalism can engage the poor, business just has to adapt. You may have heard about the ‘double bottom line’ - where a business values its social and financial performance equally. We believe that in the future, capitalism will adopt this principal so thoroughly that it will not be charitable to manage a business this way - it will be expected. Businesses can convert damaging negative externalities into positive and sustainable opportunities. Imagine: instead of defending against "bad press" for sweatshop practices, a corporation could pro-actively use their out-sourced manufacturing to improve the lives of the workers through employment.
We realize that this vision for global business will only materialize when there are objective and reliable management tools specifically designed around social performance. The Progress out of Poverty Index® (PPI®) was developed to meet this need for businesses with a mission to help the global poor.
The PPI® is a simple, inexpensive and accurate tool that poverty-focused businesses can use to estimate and track the poverty rates of those they serve. The PPI allows a business to do the following:
- Divide their clients into poverty bands along recognized poverty lines and build products for those groups for a stronger product-client fit
- Understand which branches and employees are reaching poor customers
- Respond more quickly and effectively to changes in their communities.
- Provide timely and accurate information to investors and other stakeholders.
- Ultimately, over time, assess if their clients are moving out of poverty.
Why is this necessary?
It is usually not possible for a business to simply ask clients to report their incomes or if they live above or below a poverty line. Most of the world’s poor live and work in what are known as ‘informal economies’, where household income is often small, irregular, undocumented, and involves trade. The PPI effectively translates a client's quality of life into a likelihood that they are living above or below an internationally-recognized poverty line.
The PPI was commissioned by Grameen Foundation in 2005 in partnership with CGAP and Ford Foundation. It was originally developed for microfinance institutions (MFIs), but there is nothing microfinance-specific about it. Today, PPI users include social enterprises, NGOs, and investors in addition to microfinance institutions.
Microfinance and the PPI
The microfinance industry grew rapidly since the turn of the century, largely in part to an influx in funding and a rise in popularity within the international development community. In 2010, the microfinance industry served over 168 million clients.* This rapid growth was both good and bad - it greatly expanded the reach of beneficial microfinance services, but it also invited tension between socially-minded practitioners and stakeholders who were only motivated by financial gain. When growth really started to accelerate in 2005, Grameen Foundation recognized that an objective, reliable way to measure client poverty was necessary in order to keep the industry on-mission.
*Microfinance Information eXchange (MIX) Market annual MFI data
How does it work?
The PPI is a set of 10 verifiable questions that a field agent can ask their clients in 5 to 10 minutes. The questions are simple – “What material is your roof made out of? How many of your children are in school?” The scored answers will tell the organization the likelihood that the survey respondent is living below the national poverty line or one of the internationally-recognized poverty lines. The PPI is country-specific. There are PPIs for 45 countries, covering 90 percent of the people in the world who fall under $1.25/day 2005 PPP.
PPI Scorecard for the Philippines
PPI Look-up Table for the Philippines
World Map Indicating PPI Countries
Businesses who decide to use the PPI usually make a small, up-front investment in training before they integrate the tool into their operations. The training period teaches the business how to correctly sample its client base if it will not conduct a census, how to correctly administer the survey, why survey questions should not be altered, how to use results to calculate poverty outreach, etc. These concepts are relatively straight-forward. Once learned, the business starts administering the survey and collecting data.
Most businesses that work with the global poor can find an opportunity to ask their clients 10 questions, but each organization may choose a different point in the client-business relationship. For example, a microfinance institution may administer the PPI to a client at the time that they take out a loan and again at the end of the loan cycle. Other businesses that offer services on an annual subscription basis may administer the PPI at each renewal.
The key innovation behind the PPI is that it allows organizations to collect client-level poverty data without sacrificing too much time or money. Compared to other methods, the PPI is exceptionally low-cost.
The PPI benefits organizations and businesses working with the poor in three primary ways:
- The organization or business can measure and communicate its poverty outreach in standard, easily-understood terms to internal and external stakeholders.
- The organization or business can segment clients by poverty level and identify how products and services can be modified to best meet the needs of the poor. Furthermore, if such a modification is too costly to apply across all clients, the business can apply that modification to only the clients who need it.
- Ultimately, over time, the organization or business can track client poverty rates.
(It is important to note that the PPI, even when used over time, does not measure impact on poverty. It may show that clients are moving out of poverty, but on its own, the PPI cannot definitively determine the cause of that movement.)
Types of PPI users
- Businesses that want to help the poor through products, services, or employment
- Non-profits or non-governmental organizations (NGOs) that work with the poor to improve prosperity, health or education
- Investors who want to judge their investees by social performance metrics
- Networks of poverty-focused organizations that benefit from a standard poverty measurement and management tool
- Businesses that offer technical assistance to other organizations and offer the PPI as a service
Plans to scale
Today, almost 160 organizations use the PPI. Most of those organizations are microfinance institutions, but the PPI is becoming increasingly popular with other types of organizations and businesses. Grameen Foundation is committed to taking the following steps to increase PPI usage:
- Be tech-savvy: Grameen Foundation is now planning the next big innovation, which sits at the intersection of social performance and technology. Scheduled for release in 2013, the PPI management application will allow PPI users to administer the PPI survey on their smartphone. Data will be aggregated and stored on the cloud, where it can be accessed from anywhere to generate real-time reports. This new tool will revolutionize the way that poverty-focused organizations understand their clients.
- Build more tools that contain the PPI: Grameen Foundation is currently planning the development of a suite of business tools designed for organizations that work with the poor. Just like the PPI management application, these tools will use modern cloud and mobile technology for optimal efficiency. When applicable, these tools will have the PPI embedded in them.
- Work with influential partners: Investors, associations, government agencies, and inter-governmental organizations all work with many other businesses and organizations at once. Many have already seen the benefit of encouraging or supporting PPI use by their partners, investees, and members.
The following case studies are examples of how organizations working with the poor have used the PPI to strengthen their business and better serve their clients:
How an impact investor uses the PPI to monitor and support its investees.
Oikocredit is one of the world’s largest sources of private funding to the microfinance sector, as well as a lender to trade cooperatives, fair trade organizations and small-to-medium enterprises (SMEs) in the developing world. Oikocredit believes firmly in the principal of the double bottom-line; its website states, “We offer a dual return to our investors: financial and social. In addition to earning modest financial returns, investors are secure in the knowledge that their money is being used to fight poverty, promote fair trade and respect our planet’s natural resources.” As of March 2012, Oikocredit had € 508 million (or close to $631 million) total capital outstanding and 878 partners.
Oikocredit is committed to providing a social return to its investors, and so it is no wonder that Oikocredit is a leader in social performance management and a particularly strong advocate of the PPI. Oikocredit stresses the importance of poverty measurement to its investees and in many cases is willing to fund training and education activities to make it easier for the investee to adopt the tool. Most notably, Oikocredit even goes so far as to offer better terms and conditions on loans to “preferred partners” who use the PPI and demonstrate consistently that they are focused on reaching the poor.
How mobile technology and the PPI are collecting real-time data about the wellbeing of workers in a supply chain.
Once seen as a luxury, the mobile phone is now a very common possession worldwide, even in developing countries. This basic technology connects people to each other, to employment, and to their assets. Laborlink, an initiative of Good World Solutions, leverages this pervasive technology for sharing and collecting data from supply chain workers. Using the PPI, Laborlink has built a virtual platform for viewing poverty and change in poverty over time across multiple factories.
First, workers receive a card with instructions on how to participate written in the local language. Workers then dial a local number using their mobile phone and reply to multiple-choice questions with their keypad. Laborlink aggregates the information it collects from workers through these mobile surveys and conducts analysis for participating companies. Messages can also be delivered back to the workers on topics such as good health practices, education, employee rights, and so on. This system allows companies to monitor working conditions between audits, measure worker satisfaction, and track social impact. Workers benefit because their wellbeing is being systematically accounted for. Visit their website to see the PPI in action in India.
How a Haitian MFI used PPI data to evaluate disaster recovery products
Fonkoze is Haiti's largest, most innovative microfinance institution. Fonkoze is recognized throughout the microfinance industry as exceptionally dedicated to its mission to help poor Haitians build a better economic future for themselves. An early adopter, Fonkoze has been using the PPI since 2006.
In 2008, Fonkoze developed the Hurricane Loan Program in response to a string of storms that destroyed the livelihoods of 14,000 clients. This one-time program swiftly put fresh capital into the hands of clients and provided reduced interest and flexible repayment terms to help them re-establish their businesses. Fonkoze collected baseline PPI data on more than 300 hurricane victims in six branches who participated in the program, and re-interviewed them one year later. Results yielded from PPI data showed that the sample of hurricane-affected clients moved out of poverty at the same rate as non-hurricane-affected clients over the same time period. This information was critical to Fonkoze's evaluation of the program.
About one year later, the catastrophic earthquake hit. Lessons learned from the Hurricane Loan Program allowed Fonkoze to act quickly and with confidence that they had the power to make a difference in the lives of those who lost their homes and their livelihoods. The services they provided in that time shaped the development of Kore Fanmi Fonkoze, a micro-insurance product.
How PPI data improved governance and influenced product design for an Indonesian social enterprise
PT Rekan Usaha Mikro Anda (Ruma), which translates to mean “Your Microbusiness Partner,” is an Indonesian social enterprise that targets those living on less than $2.50 per day with pre-packaged small businesses, or microfranchises. Ruma's main microfranchise involves clients selling mobile airtime from their cell phone, but Ruma also provides training and mentoring services.
Ruma is unique because, from the start, its leadership has made reaching the poor a priority; Ruma’s founding articles state that at least 80 percent of new clients should be likely to live below the $2.50/day/PPP poverty line. The bylaws also state that no shareholder will receive a dividend, should there be any profits from the business, unless the company meets its social targets. In its first year of operations, Ruma measured its poverty outreach using the PPI and found that it was well below its target - only 69 percent of clients were classified as poor, opposed to 80 percent.
Ruma then segmented its client base to focus on the traits and behaviors of its poorest clients. Ruma was able to identify the right product modifications for meeting the needs of the poor. And while these modifications may have been costly if applied to the whole portfolio, they were cost-effective when applied only to clients classified as poor by their PPI score. In this way, the PPI is a valuable measurement and management tool.
So you have the data… now what do you do with it? This is the trickiest part for most organizations and businesses. The following are some lessons we would like to share.
- Be prepared to deal with data that you don’t like. Grameen Foundation advocates against using the PPI solely to impress stakeholders or generate good PR, because PPI data may reveal that your business is not reaching as many people below the poverty line as you expect. PPI users must be prepared to embrace the data even if it is disappointing, and proactively use the data to find solutions. In other words, PPI data belongs in management meetings, not on display or hidden under the rug.
- Change the way you think about managing. Adopting the PPI is more than a technical or logistical exercise. Management has to learn to analyze and form strategies around new data points. Successful PPI users learn to think differently about how they manage their organization and their social goals.
- Start with the end in mind. Organizations and businesses need to start the process of should be sure that it is collecting the most valuable information it can, and to do that, it needs to begin by asking itself, “What do I want to know?” Poverty data might be an important piece of the puzzle, but it is likely that the business will need to collect other types of information as well to answer the questions you have.
The PPI is designed and created by Mark Schreiner of Microfinance Risk Management, L.L.C.
John Kyriazoglou (firstname.lastname@example.org)
John Kyriazoglou, CICA, B.A (Hon-University of Toronto),
International IT and Management Consultant (with over 35 years of experience),
Editor-in-Chief for the Internal Controls Magazine, www.theiic.org
Author of several books:
(1) ‘IT Strategic and Operational Controls’, Publisher: www.itgovernance.co.uk
Direct Link: http://www.itgovernance.co.uk/products/3066
(2) ‘Addendum to IT Strategic & Operational Controls’
This book contains over 60 of IT audit programs and checklists in all IT audit areas.
Direct Link: www.itgovernance.co.uk/products/3143
(3) ‘Corporate Strategic and Operational Controls’, Publisher: www.theiic.org
with Dr. F. Nasuti and Dr. C. Kyriazoglou.
Direct Link: http://www.theiic.org/publicationsbookstore/bookstore2.html
(4) ‘Implementing Management Controls for Small and Medium-Size Companies’
AMAZON Kindle Books:www.amazon.com
Direct Link: http://www.amazon.com/dp/B007Z1WTOM
(5) ‘Business Management Controls: A Guide’, Publisher: www.itgovernance.co.uk
Expected to be published within 2012
(6) ‘Pearls of Wisdom of the 7 Sages of Ancient Greece’
AMAZON Kindle Books:www.amazon.com
Direct Link: http://www.amazon.com/dp/B007YNPR8Q
SSRN Free Publications: http://ssrn.com/author=1315434
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