Dianne Calvi, President and CEO of Village Enterprise, was extremely honored to be invited to speak on the first of October at the Harvard Center for International Development Speaker Series. In her talk, she discussed entrepreneurship, innovation, and evidence to drive poverty alleviation.
Great progress has been made in alleviating extreme poverty. According to the World Bank, the number of people living in extreme poverty dropped significantly from 1.9 billion people in 1990 to 689 million in 2017. But due to the Covid-19 pandemic, that progress has stalled for the first time in 25 years.
What does the evidence point to as possible solutions to this problem? The evidence suggests that entrepreneurship and innovation play important roles in driving poverty alleviation. Identifying and scaling up the most cost-effective, evidence-based solutions have never been more urgent as the Covid-19 pandemic, climate change, and sociopolitical conflict could push hundreds of millions of people into extreme poverty. Microcredit, cash transfers, and poverty graduation programs are three different approaches to providing people living in extreme poverty with a pathway out.
In the 2000s, these approaches underwent rigorous evaluations using randomized controlled trials (RCT) to generate evidence about the effectiveness of each approach. However, it wasn’t until 2019 that Michael Kremer, Abhijit Banerjee, and Esther Duflo were recognized as Nobel Laureates in Economics for recommending that we solve the problem of extreme poverty by using evidence to drive policy decisions and the allocation of funding.
In 2006, Muhammed Yunus was awarded the Nobel Peace Prize along with the Grameen Bank for their approach to eradicating poverty through microlending. However, the results of the RCTs demonstrated a less than impressive impact that microcredit has in increasing the income of those living in poverty: while microcredit did lead to some increase in small business ownership and business activity, it did not lead to increased income or profits, investments in children’s schooling, or substantial gains in women’s empowerment. Without increases in overall income, the loans did not lift people out of poverty for the most part.
In more recent years, there has been more interest in scaling up cash transfers to people living in extreme poverty. Cash transfers are efficient to distribute using mobile technology and provide people living in poverty with the flexibility and agency to decide how to allocate the funds. But the evidence on the effectiveness of cash transfers is mixed, and most of the evidence on cash transfers focuses on shorter-term results. While cash transfers can be impactful, they fail to address all the challenges households face beyond just capital constraints. We believe the variance in households that are ready to productively use cash transfers and variances in the amount, duration, recipient, conditions of cash transfers are the key drivers of the mixed effectiveness seen in the evidence base.
This leaves us to discuss the effectiveness of poverty graduation programs like the one Village Enterprise uses. Community-based and locally-led, the Village Enterprise poverty graduation program equips Africans living in extreme poverty with a cash transfer, training, and year-long mentoring by a local business mentor to start and successfully run group-based income-generating businesses and savings groups. Digital technology and a group-based approach make this more scalable and cost-effective. The advantage of poverty graduation programs is that they address multiple poverty traps: cash transfers address the lack of money; new businesses address the lack of economic opportunities; training addresses the lack of skills and knowledge; mentoring addresses the lack of confidence, know-how, and empowerment; savings groups address the lack of access to financial institutions; and more recently, digital tools tackle the lack of access to—and knowledge of how to use—technology.
One of the most important things we have done as an organization is to invest in research. When we wrote our strategic plan back in 2010, we included the priority to do an independent randomized controlled trial to develop the evidence for our new model. RCTs are now considered the gold standard for evaluating programs but this was quite a novel approach for a nonprofit with a small budget. While similar to the BRAC model that was evaluated in six countries under the CGAP, Ford Foundation research, Village Enterprise’s model had some important differences: a cash transfer rather than an asset transfer, the cash transfer given to a group of three individuals who self-select to run a group business, and training and mentoring at the group level rather than the household level and a one-year duration rather than a two to three year. These differences made our model significantly less expensive than the other graduation programs evaluated.
The independent randomized controlled trial results showed the Village Enterprise program generated one of the highest returns in overall consumption and household expenditure per dollar invested. Six of the seven randomized controlled trials of the poverty graduation approach, including Village Enterprise’s, generated positive results across multiple poverty indicators and important subjective well-being indicators like mental health, women’s empowerment, agency, and standing in the community. The evidence also demonstrated increases in income, consumption, savings, assets, food security, and nutrition. These results validated our theory of change, which posits that the ultra-poor households we serve face multiple barriers to leaving extreme poverty, and so cash or asset transfers must be complemented with other contextually relevant interventions such as financial and business training, mentoring and coaching, savings groups and so forth to help them productively invest the capital and launch their journeys out of poverty. As this evidence has emerged, funders, policymakers, and governments have begun to recognize and prioritize the poverty graduation approach.
If you are interested in learning more, please view Dianne’s video talk and/or podcast interview (see below), where she explored the evidence behind these different approaches, the latest innovations that could increase their impact, and the most promising approaches to scaling up the most effective solutions.