Ultra-poor programmes such as the ones run by microfinance institution Bandhan has had a significant impact on consumption, according to a recent study.
Conducted in six countries by The Abdul Latif Jameel Poverty Action Lab of the Massachusetts Institute of Technology department of economics, the study shows that the cost-effective impact on poor households lasted for a year after the end of implementation.
In India, where the model was implemented by Bandhan-Konnagar, the not-for-profit arm of Bandhan Financial Services, participants’ consumption was found to be 26 per cent higher by the end of the programme.
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The study experimented on 1,000 households in Murshidabad in West Bengal, half of which were covered under the ultra-poor programme and other half not covered.
Published in Science, the research tested the effectiveness of an approach known as the “graduation model” in six countries — Ethiopia, Ghana, Honduras, India, Pakistan and Peru, by following 21,000 of the world’s poorest people for three years.
Baring, Peru and Honduras, the results were positive. In India, where in the programme is run by Bandhan, the per-beneficiary cost of running it was approximately Rs 24,000. For every rupee spent in India under the programme, the benefit was Rs 4.33, the study said.
While, in Peru, the reason for negative returns is believed to be the high cost of employees, in Honduras, it is seen related to a chicken epidemic.
Under the ultra-poor programme of Bandhan, the poorest of poor in a village receive a productive asset like a goat or a chicken as a means of livelihood. Bandhan also gives a daily grant of Rs 21, followed by training on managing this asset and monitoring. In nearly two years, the beneficiaries are seen to be graduating into mainstream, self-sufficient borrowers for a sustained livelihood.
However, according to Abhijit Banerjee, professor of economics, MIT, and director, Abdul Latif Jameel Poverty Action Lab, at present, the programme is not suited for a large-scale adoption by a central government, though it can be experimented with by state governments at local level.
“We are working with several state governments for implementation of the programme. However, at present, it is not ready to be scaled up by a central government,” said Banerjee. He also said, in India, the programme was most cost effective, due to the high efficiency and low cost of Bandhan’s staff.
The programme is cost effective, with positive returns in five of six countries, ranging from 133 per cent in Ghana to 433 per cent in India that were sustained one year after the end of the programme, the study said.
