Measuring Microfinance Impact

As ACCION Ambassadors, our mission is to document the impact of microfinance.

Let me share with you what my first week in Fundación Paraguaya taught me. I’ll shed a light on some other experiences I had in other places as a microfinance consultant.

“Fundación en Acción”

For our readers already familiar with the Fundación, I’ll be brief on what they do.

Fundación Paraguay is a 25-years old NGO, conducting 3 main programs: microfinance, self-sustainable agricultural schools, and youth business education. I’ll only discuss here the microfinance part. I will even narrow it only to its village banking part (making the bulk of clients: 70%). The village banking consists of women committees of 10-15 entrepreneurs each. There are over 2,000 committees, representing 32,000 clients. Women receive loans, starting from 100,000 Guarani’s ($25), up to 1,200,000 Guarani’s ($300) after a few loan cycles. FP also provides them with training (ranging from financial and business education, increasing your sales, business plans to interpersonal relations). Women are required to save money in order to educate them to do so. Unfortunately that’s not a service of the Fundación itself, as it is not a regulated bank enable to take savings, but a NGO.

The traffic light (Semaforo)

Last year, Fundación Paraguaya, -like many organizations maturing-, started feeling the need to measure their impact on client’s lives and to document it. A true impact study takes time (up to 2 years) and money, and results are often disputed. FP decided to develop its own tool to assess results on clients. They developed the “Traffic light” (Semaforo in Spanish), a clear and colorful picture of a client poverty level, through 50 indicators grouped in 6 dimensions. Poverty is not only assessed through incomes generated by the client, but also through education, health, housing, participation, and motivation. 3 colors are used (green, yellow and red) to clearly identify right away areas of improvement for the client and for the group.

FP has indeed used this tool to design a new program aimed at increasing revenues for 6,000 families   by the end of 2011.

Measuring the results of your policies and social objectives on clients, is part of what microfinance usually calls “Social performance”. Although microfinance has existed for over 35 years -or 50 in the case of Acción-, measuring its benefits on clients to prove they are moving out of poverty, is something relatively “new” to the field (10 years old though). Social performance is usually referred to as “the effective translation of an organization’s social objectives into concrete actions”. If you say you’re targeting the poor: 1) How do you effectively do it? 2) How do you measure the effects of your actions on clients?

Measuring the processes implemented by an organization to reach social goals and measuring the results on clients are 2 arms of social performance. Many tools have been developed over the past 5 years to measure it. One can name Social Performance Indicators from Cerise,- measuring processes of MFIs and currently used by over 400 MFIs -, and Progress Out of Poverty (PPI) from Grameen Foundation, -measuring poverty at client level and changes over time- (currently used by over 100 MFIs).

A customized tool

FP chose to develop its own tool, as there was no PPI for Paraguay, and it was looking for a more thorough picture of poverty than the 10 indicators of PPI, mostly focused on type of housing and comfort level.

FP is not the first organization to develop its own tool to measure microfinance effects. Fonkoze for instance in Haiti has developed its own scorecard, used to adapt its product and services to its clients’ poverty levels (training and savings only for the poorest, then a gradual access to credit).

Those tools give picture of poverty and its evolution over time, to determine how effective an organization is to improve its clients’ lives and help them progress out of poverty.  Yet, there are not to be misinterpreted as impact measures. They will not show you poverty is eliminated, only improvements in client’s lives.

In the case of FP, they “took a picture” of poverty in June 2010 for some groups, and are currently taking another one of the same groups to monitor changes.

Jewellery making

Jewellery making

I had the chance to visit the Fortaleza group, Maria discussed in her blog earlier this week. A year ago,

Petronilla's kiosk

they were doing rather poorly in stable employment, trash disposal, unspoiled environment, physical security. But mostly, their revenues were below the poverty line: 5 of them in extreme poverty, 9 in poverty and only 4 above the poverty line. Fundación Paraguaya developed the already mentioned program to increase revenues and trained them how to increase sales through making jewellery, handicrafts, and taking advantage of every opportunity they see. They have also worked on programs to enroll women to clean the neighborhood and teach others to do so. I could see myself how Rosa and Cristina are doing better and have improved their revenues. Rosa was even able to purchase sewing machines for her daughter. Petronilla was able to add a kiosk to her food business to increase her sales. The complete results for the 50 indicators are not yet available, but changes are very likely to be seen.

Stay tuned for more stories from clients to document the impact on women’s lives as I visit groups on their 3rd, 4th, 5th loan cycle and can visually see the (positive) effects of microfinance as done by FP.

Aurélie Dagneaux is an ACCION Ambassador with Fundación Paraguay. She’s French and works as a microfinance consultant. She’ll be staying September and October 2011 with the Fundación and work on causes leading women to not being able to repay their loans, while documenting the impact of microfinance in the field for ACCION.

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