Urban microfinance clients move out of poverty faster than rural

Microfinance Focus, October 22, 2011: Rural microfinance clients are both poorer on average than urban clients and urban clients advance out of poverty at a relatively faster rate (26%) then rural clients (21%). These are the findings from a report released by Grameen Foundation that analyses the data collected by Grameen Koota using Progress out of Poverty Index (PPI).

Grameen Koota (GK) has analyzed the data for more than 48,000 clients who have at least two PPIs. The results show that poverty levels of GK clients with data from two PPIs have improved consistently across all poverty brackets for the duration of the loan. 23% of the clients who were below the $1.25/day/PPP line and 9% of the clients who were below the $2/day/PPP line during the first PPI dataset have moved above their respective poverty lines.

When PPIs were collected across loan cycles, it was found that poverty rates decreased with the increasing number of loan cycles and that a similar reduction in poverty rate occurred during each loan cycle. PPI data analysis cannot rationalize this finding, and there could be several reasons, such as clients benefiting from the loan or loans becoming larger to attract and retain relatively better off clients as the number of loan cycles increase. Therefore, further research is necessary to understand this finding more fully, the report says.

Grameen Koota financed pilot loans to fund the purchase of water/sanitation devices and more efficient cooking stoves. Based on the data from these clients’ PPIs, it was found that clients with loans for water and sanitation had lower poverty rates than general credit clients, and were able to move up the economic ladder in significant numbers.

Grameen Koota is a division of Grameen Financial Services Pvt. Ltd, a microfinance institution operating in India. It is the first fully certified user of Grameen Foundation’s PPI in India. In December 2008, GK began collecting the poverty status data of its clients using PPI. It collects PPI data from its clients at client intake, each time the client renews an income generating loan, and at drop-out, if the client leaves the MFI. Once collected, the PPI data is stored in the Mifos platform, which GK has tailored to meet its specific information needs.