The world stands poised to reach two historic milestones in the coming years. First, the combination of decades of innovation in the delivery of financial services to lower income populations and new digital technologies for delivering money and information will make it possible for the financial system to reach every person on the globe with a set of basic services, such as savings, credit, payments, and insurance. If harnessed correctly, this first milestone can also help lead the way to a second more important accomplishment—the end of extreme poverty. We can create an economic system that provides every household with sufficient income to meet basic needs for nutrition, shelter, education, and health.
But to turn these lofty ideals into reality, we will need to find new ways of working together across the traditional divides of government, business, finance, and social services. And, we will need to go beyond plotting graphs that show the growth in number of people included—instead drawing maps that identify the locations of everyone still left out and the paths we will take to reach them.
In this report, we have sketched out six pathways that reach those living in extreme poverty with financial services:
- Addressing health needs
- Incorporating savings groups
- Extending graduation programs
- Expanding agricultural value chains
- Providing a conditional cash transfer program that builds financial inclusion
- Advancing digital finance
Each of these pathways asks financial service providers to strike alliances with other types of businesses, government agencies, or social service providers. Each pathway has proven powerful in creating valuable benefits to those who travel them. The power of these pathways gets multiplied, though, when combined in various ways.
We saw this firsthand last year, when we organized an “Innovations in Social Protection” trip. Government ministers and leaders of social protection programs from three African countries visited innovative programs in Ethiopia and Mexico that combined social protection and financial inclusion. In Ethiopia, we met with government officials, NGO leaders, technical assistance providers, and financial institutions that helped implemented the government’s Productive Safety Net Program (PNSP).
Determined to address the recurring droughts that had killed over a million of its people, in 2005, the Ethiopian government initiated PSNP. Designed to bring resilience to both the land and its people, PSNP works to provide food security for families in drought-prone areas, while also returning arid land to productivity and improving agricultural output. In so doing, it is already incorporating five of the six pathways and has also begun a pilot effort to see how they can incorporate the remaining pathway, digital finance.
Creating PSNP began with a map showing all of the communities affected by drought and the locations of all the households within those communities—more than 10 million people in total. For those unable to work, PSNP provides a regular stipend during the hungry season—the months just before harvest when the money and food from the last harvest have run out—providing enough money to keep the family fed. For those able to work, PSNP requires five days of work per month in exchange for the stipend. The recipients provide labor for public works projects, and each community decides what projects will most benefit the community. Some may choose to expand the local school, others may choose to build a health clinic, but most choose to invest their time in agricultural projects that will improve the productivity of the land.
PSNP is supported by a consortium of international aid organizations and financial institutions, and run by a coordinating body of government departments led by the Ethiopian Ministry of Agriculture. It reaches more than 8 million people in six districts of the country. Local NGOs, like the Relief Society of Tigray, help guide the agricultural projects, assist participants in terracing hillsides, build water retention ponds, and plant riverbeds to reduce run-off. Local microfinance banks, such as the Dedebit Credit and Savings Institute, provide accounts for the participants where they receive their government stipends, build savings, and qualify for credit.
Over the years, PSNP has added features and aligned with other government support initiatives, such as the Household Asset Building Program. Together, these programs incorporate many of our six pathways. A conditional cash-transfer program linked to a public works program, PSNP develops agricultural value chains in rural Ethiopia. Recently, the “R4” Program of the International Fund for Agricultural Development has added crop insurance to the program to protect against weather vulnerability. Dedebit and other financial institutions tied to PSNP are testing digital delivery of the government payments. CARE and other NGOs have begun organizing savings groups among PSNP recipients. REST and other NGOs have also implemented an ultra-poor graduation program for participants living in the most extreme poverty.
The result is a social protection and financial inclusion program that has reduced household vulnerability while bringing macro level change to the Ethiopian economy. Since 2000, Ethiopia’s extreme poverty rate (those living on less than $1.90 a day) has reduced from 56 percent to 31 percent of the population. At the same time, levels of health, education, and life expectancy have all improved. The greatest improvements have come in the poorest regions of the country, regions where PSNP works.
As a part of our trip, we went to Tigray to visit people who participate in the public works projects and the graduation program. We saw workers planting trees and grasses, women breaking stones and handing them down to men, who dug and lined the retention pond. We watched the people working together as we looked the hilltop to the valley below. Terraces lined every hillside. The sun reflected off the water in the retention ponds and reservoirs. We had arrived at the end of the rainy season and the land shone bright green, filled with plants bearing food.
This land, once ravaged by drought, was now bringing two and sometimes three harvests a year, bursting with life. The PSNP participants laboring at the top of the hill could look at their work and say, “Not only has life improved for me and my family, but my whole community is better off because of the work I have done.”
We all benefit when our economic systems include everyone. The six pathways not only provide ways to reach those living in extreme poverty with financial services but they also provide a channel for their energy, skill, and creativity to improve life for us all. By mapping this previously uncharted territory, we can find a world more vibrant, fruitful, and varied than we can now imagine.
In this report we have outlined six pathways for how financial inclusion can serve the goal of ending extreme poverty. We have sketched a few maps, and tried to show how they might connect together. We hope we have inspired you to get out and explore, to see how the work you do can be combined with others to reach lands we only dreamed of before.
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Table of Contents
- Executive Summary
- Where’s the Map?
- Global Data Show Diverging Paths
- Integrated Health and Microfinance
- Saving Groups
- Graduation Programs
- Agricultural Value Chains
- Conditional Cash-Transfer Programs
- Digital Finance
- Read the Full Report
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