Fighting Poverty with Assets, Capital, Know-How and Mentoring

An article in the Economist discussed a 2004 book by Banerjee and Duflo, “Poor Economics”, which outlined some of the shortcoming of traditional aid programs in developing countries and the daunting hurdles that those living in those countries must overcome in order to escape the extreme poverty in which they normally live.  In addition to obtaining sufficient funding, prospective entrepreneurs in developing countries must also work without basic “know-how”, functional institutions and faith in their own ability to be successful.  Banerjee and Duflo emphasized “that much more skill, willpower and commitment” is necessary for the poor in developing countries to make last improvements in their lives.

The article mentioned some of the more popular adjustments that had been made to aid programs in developing countries and pointed out that these programs have by no means become universal solutions and generally only work for some people, some of the time and under conditions that are difficult to reliably replicate among the large group of developing countries with their own socio-economic environment and cultural norms and values.  For example, while “microcredit” programs have achieved a high level of visibility, the fact of the matter is that they are best suited for the relatively small slice of the needy in developing countries with a strong spirit of enterprise, a trait that is hard to find among those who are among the very poorest.  Other programs have tied aid to local initiatives to increase school attendance; however, the article noted that such conditions make little sense in the many developing countries that have yet to create and maintain working educational systems. 

Having recognized and explained some of the difficulties in providing sustainable help to the poorest people in developing countries, Banerjee, Duflo and others embarked upon a study that spanned seven years, six developing countries (Ethiopia, Ghana, Honduras, India, Pakistan and Peru) and more than 10,000 poor households in those countries to determine whether a new anti-poverty strategy could provide consistent success.  Their results indicated that it might well make sense to embrace what has been called a “graduation program”, first developed by BRAC, which is a large NGO that has been operating in Bangladesh.  As describe in the article, the program has three stages:

  • The first step is to “hand out assets”, which were distributed as a “one-off gift” at the beginning of the program and often took the form of livestock (e.g., cows, goats and/or chickens) that the poor recipients could use to generate income through the sale of milk or eggs.
  • Recipients also received “several months of cash transfers” to provide them with sufficient funds to purchase food for the chosen “asset” (e.g., enough money to buy a kilo of rice each day for a year) and funds that could be used to purchase food for their own consumption to fend off any temptation to eat the assets they had received to stave off hunger.
  • Finally, recipients were provided with “as much as two years of training and encouragement” including training on how to maintain and exploit the assets and support on improving their own standard of health and well-being.  Participants received regular visits from program personnel to reinforce the initial training, bolster their confidence and provide them with information on how to save their earnings. 

The logic and composition of the program—assets, capital, know-how and support/mentoring—is compelling: providing one, but not all, of the elements of the program is useless and fails to empower the recipients to develop and maintain on their own a sustainable level of income that can be used to support their family and immediate social network and perhaps, in some cases, become the basis for growing a business that can provide value to other parts of the local community.  Banerjee et al. found that participants increased their consumption of food and household income and that asset values increased.  In addition, participants began investing more time in working than their peers who were not included in the program.

The article pointed out that while the costs associated with providing the assets and other supported associated with the program appeared to be high they actually compared favorably with traditional anti-poverty efforts since the program costs were “one-off” rather than the seemingly endless stream of aid grants that have been relied upon with limited success in the past.  In addition, as more experienced is gained with the program it will become easier to identify strategies for reducing costs (i.e., a study of a similar program in Uganda found that more follow-up visits did not necessarily return additional benefits, which means that ongoing support costs may be reduced without materially undercutting the chances of success for participants). 

Source: “Graduating from destitution: A multi-country study comes up with a universal method to help the very poor”, The Economist (August 1, 2015), 67.

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