Progress Out of Poverty Index An Overview of Fundamentals and Practical Uses Social Performance March 2008
What is the PPI? Progress Out of Poverty Index Overview 2
What is the Progress Out of Poverty Index? An objective client poverty assessment and targeting tool, which: Provides social performance data Enables MFIs to manage social performance An inexpensive and easy to collect scorecard Derived from representative ti national household h income and expenditure surveys Comprised of simple, non-financial indicators Progress Out of Poverty Index Overview 3
What Does Social Performance Data Do? Provides management with the ability to: Divide clients into distinct poverty bands Integrate financial and social indicators Correlate product offerings and distribution channels to poverty levels Track movement of clients across the poverty lines Assess how well a social mission i is translated t into action Progress Out of Poverty Index Overview 4
How Does the PPI Relate to Social Performance as a Whole? The PPI within the Social Performance Framework 1 Social Performance Framework Supports the intent of a social mission Intent/Design PPI Assesses translation of mission into action Activities Output Monitors economic improvement over time Impact 1 As defined by the Social Performance Task Force. Progress Out of Poverty Index Overview 5
Where does the PPI fit? Objective Poverty Assessment Progress out of Poverty Index USAID / IRIS Poverty Assessment Tool Targeting Progress out of Poverty Index Cashpor Housing Index Participatory Wealth Ranking Customer Satisfaction Focus Groups/ Satisfaction Surveys Audit USAID SPA Tool Cerise SP Indicators Initiative (Can incorporate PPI Data) M-Cril Social Audit Template (Can incorporate PPI Data) Progress Out of Poverty Index Overview 6
What Can the PPI Do for Management? Inform management decisions about processes, programs, products, and provision of services Target clients for specific products and services Help in responding to competitive pressures, by understanding the balance of financial and social returns Provide timely and accurate social performance information to regulatory bodies, social investors, donors, and rating agencies Progress Out of Poverty Index Overview 7
How is the PPI Created? Start with a representative national income/expenditure survey Analyze the data to rank indicators that strongly correlate with poverty Indicators are tested and vetted with local MFIs and representatives ti Results are highly accurate. With 90% confidence, most PPIs are: Accurate within +/- 2% for groups Accurate within +/-10% for individuals id Progress Out of Poverty Index Overview 8
Construction of the PPI National Survey All indicators on the national household survey are ranked according to how strongly they predict poverty levels. The full list of 400-1000 indicators is narrowed to the 100 most powerful ones. 100 indicators Using both statistics and expert judgment, a 10 indicator scorecard is constructed. 10 indicators PPI Each possible response is assigned point value based on the original national survey responses. The total score (summing from 0 to 100) is then linked to probabilities of falling above or below the poverty lines. Progress Out of Poverty Index Overview 9
What Does the PPI Look Like? 1 2 3 4 5 6 7 Indicator Response Points Do all children ages 6 to 17 attend school? What is the household's main source of drinking water? Does the household own a refrigerator or freezer? What type of toilet is used by the household? Does the household own a cooking stove? How many household members have salaried employment? Does the household own any type of land? 8 Does the household own any buffaloes? 9 10 Does the household own a scooter or motorcycle?, or 5 or more children, 3 or 4, 2 children, 1 child children children 0 10 15 20 23 Hand pump, open well, closed well, pond, canal, Piped, motorized pump, or tube well river, stream, spring, other, or no data 0 5 0 15 All others Flush connected to pit Flush connected to public sewerage 0 7 10 0 9 ne One Two or more 0 3 9 0 8 Rural, no buffalo Urban, with or without buffalo Rural, buffalo 0 1 3 0 11 Does the household own a radio or cassette player? 0 6 Total Progress Out of Poverty Index Overview 10
PPI Fundamentals Progress Out of Poverty Index Overview 11
PPI Fundamentals: Basic Use Indicators Indicator Response Points 1 Do all children ages 6 to 17 attend school?, or 5 or more children, 3 or 4 children, 2 children, 1 child children 0 10 15 20 23 10 2 3 What is the household's main source of drinking water? Does the household own a refrigerator or freezer? Hand pump, open well, closed well, pond, canal, Piped, motorized pump, or tube well river, stream, spring, other, or no data 0 5 Client Response Weighted Numeric Value 0 15 0 0 Numeric Value Progress Out of Poverty Index Overview 12
PPI Fundamentals: PPI Score 1 2 3 4 5 6 7 Indicator Response Points Do all children ages 6 to 17 attend school? What is the household's main source of drinking water? Does the household own a refrigerator or freezer? What type of toilet is used by the household?, or 5 or more children, 3 or 4 children, 2 children, 1 child children 0 10 15 20 23 Hand pump, open well, closed well, pond, canal, Piped, motorized pump, or tube well river, stream, spring, other, or no data 0 5 0 15 All others Flush connected to pit Flush connected to public sewerage 7 0 7 10 Does the household own a cooking stove? 0 9 How many household h members have ne One Two or more salaried employment? 0 3 9 Does the household own any type of land? 0 8 Rural, no buffalo Urban, with or without buffalo Rural, buffalo 8 Does the household own any buffaloes? 1 0 1 3 9 10 Does the household own a scooter or motorcycle? Does the household own a radio or cassette player? 0 11 0 6 PPI Score Progress Out of Poverty Index Overview 13 10 0 0 0 0 8 0 0 Total 26
PPI Fundamentals: Poverty Likelihood PPI Score Below the Poverty Line Bottom Half Below National Poverty Line Top Half Below National Poverty Line Total Below National Poverty Line Total Above National Poverty Line 0-4 61.3% 26.0% 87.3% 12.7% 5-9 55.8% 21.4% 77.1% 22.9% 10-14 44.5% 24.6% 69.1% 30.9% 15-19 45.7% 21.6% 67.3% 32.7% 20-24 27.3% 30.4% 57.6% 42.4% PPI score of 26 25-29 14.8% 19.8% 34.5% 65.5% Poverty Likelihood 30-34 13.2% 22.9% 36.2% 63.8% 35-39 14.3% 10.3% 24.6% 75.4% 40-44 3.9% 14.0% 17.9% 82.2% 45-49 7.6% 6.0% 13.5% 86.5% 50-54 5.2% 3.0% 8.2% 91.8% 55-59 1.4% 6.4% 7.8% 92.3% 60-64 1.0% 0.0% 1.0% 99.0% 65-69 3.3% 0.5% 3.8% 96.2% 70-74 74 00% 0.0% 05% 0.5% 05% 0.5% 99.6% 75-79 0.0% 8.7% 8.7% 91.3% 80-84 0.0% 0.0% 0.0% 100.0% 85-89 0.0% 0.0% 0.0% 100.0% 90-94 0.0% 0.0% 0.0% 100.0% 95-100 00% 0.0% 00% 0.0% 00% 0.0% 100.0% 0% Source: Microfinance Risk Management, L.L.C. based on 2001 Pakistan Integrated Household Survey (PIHS). Progress Out of Poverty Index Overview 14
PPI Fundamentals: Portfolio Analysis For example, an MFI has 3,000 clients 1,000 clients have scores of 10 1,000 clients have scores of 22 1,000 clients have scores of 33 Poverty Likelihood PPI Score Below the Poverty Line Bottom Half Below National Poverty Line Top Half Below National Poverty Line Total Below National Poverty Line Total Above National Poverty Line 0-4 61.3% 26.0% 87.3% 12.7% 5-9 55.8% 21.4% 77.1% 22.9% 10-14 44.5% 24.6% 69.1% 30.9% 15-19 45.7% 21.6% 67.3% 32.7% 20-24 27.3% 30.4% 57.6% 42.4% 25-29 14.8% 19.8% 34.5% 65.5% 5% 30-34 13.2% 22.9% 36.2% 63.8% 35-39 14.3% 10.3% 24.6% 75.4% 40-44 3.9% 14.0% 17.9% 82.2% 45-49 7.6% 6.0% 13.5% 86.5% 50-54 5.2% 3.0% 8.2% 91.8% 55-59 1.4% 6.4% 7.8% 92.3% 60-64 1.0% 0.0% 1.0% 99.0% 65-69 3.3% 0.5% 3.8% 96.2% 70-74 0.0% 0.5% 0.5% 99.6% 75-79 0.0% 8.7% 8.7% 91.3% 80-84 0.0% 0.0% 0.0% 100.0% 85-89 0.0% 0.0% 0.0% 100.0% 90-94 0.0% 0.0% 0.0% 100.0% 95-100 0.0% 0% 0.0% 0% 0.0% 0% 100.0% 0% Source: Microfinance Risk Management, L.L.C. based on 2001 Pakistan Integrated Household Survey (PIHS). Progress Out of Poverty Index Overview 15
PPI Fundamentals: Portfolio Analysis The poverty distribution for the MFI of 3,000 clients is: 1,000 x (69.1% + 57.6% + 36.2%) 3000 3,000 = 54.3% of the 3,000 clients are below the poverty line Poverty distribution of the MFI portfolio = Average of the individual poverty likelihood percentages Progress Out of Poverty Index Overview 16
PPI Fundamentals: Case Study Negros Women for Tomorrow (NWTF) in the Philippines is one of the largest MFIs in the Grameen Foundation network, with more than 70,000 000 clients Integrated the PPI collection across all branches after piloting two years ago Collected information on additional indicators to use as it refines its outreach and its products and services Compared data by branch to understand what products and services are most effective Outcomes Changed its eligibility requirements for incoming clients by targeting 10 percent of clients above the poverty line Facilitated entry for the poorest clients by adjusting loan size, loan cycle period and possible pre-payment options Progress Out of Poverty Index Overview 17
PPI Fundamentals: Case Study NWTF Results from a Census PPI Implementation Poverty Likelihood by Loan Cycle 0.6 0.5 0.4 0.3 Very Poor Poor Above Poverty Line 0.2 0.1 0 1 to 3 4 to 6 7 to 9 10 to 23 Number of Cycles Progress Out of Poverty Index Overview 18
PPI Summary Easy-to-use, inexpensive, transparent, objective Estimate likelihood that a person is poor: Use policy cut-offs for targeting Take average to get portfolio poverty rate Track over time for progress out of poverty Practicality and accuracy One page, few indicators, simple weights Field workers can compute scores on paper in real time (no software required) Valid for any program serving the poor, not just microfinance Progress Out of Poverty Index Overview 19
Questions Progress Out of Poverty Index Overview 20
Appendix: The Methodology to Identify Indicators All indicators are ranked using Logit regression analysis. Of the complete original set of indicators 150 indicators are chosen for additional analysis according to their power of predicting poverty. Of those 150 indicators the final selection of 10 indicators is made according the following criteria: Likelihood of acceptance by users (determined by simplicity, cost of collection, and face validity in terms of experience, theory, and common sense) Inexpensive to collect Easy to ask and answer quickly Ease in which to observe and verify Variety vis-à-vis other indicators already in the PPI Ability of the indicator to change values as poverty status changes over time Strong correlation with poverty Indicator chosen can be grouped into the categories: Household and housing characteristics (such as cooking fuel and type of floor) Individual characteristics (such as age and highest grade completed) Household durable goods (such as electric fans and telephones) Frequently, many indicators are found to be similar in terms of their link with poverty. For example, most households who have a television also have electricity. If a PPI already includes has a television, then has electricity is superfluous. Thus, many indicators strongly link with poverty are not in the PPI because similar indicators are already included. The selected indicator is then added to the PPI, and the previous steps are repeated until 10 indicators are selected. Finally, the responses are weighted and scores are derived such that the lowest possible score is 0 (most likely poor) and the highest is 100. Progress Out of Poverty Index Overview 21