Asset-based poverty scheme leads to more consumption: J-PAL

A study conducted in six countries by the The Abdul Latif Jameel Poverty Action Lab (J-PAL), a centre in the Department of Economics at the Massachusetts Institute of Technology (MIT), shows that ultra poor programme similar to that run by microfinance institution, Bandhan, in India, has led to statistically significant, cost-effective impacts on consumption. The impact on the poor households lasted at least a year after the implementation ended, the study said.

In India, where the model was implemented by Bandhan-Konnagar, the not-for-profit arm of Bandhan Financial Services, participants' consumption was seen 26 per cent higher by the end of the programme. The study experimented on 1000 households in Murshidabad, half of whom were covered under the ultra poor programme, and other half were 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 four countries. In India, where in the programme is run by Bandhan, the cost of running the programme per beneficiary was approximately Rs 24000. 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 at the (MIT) and Director of 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 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 percent in Ghana to 433 percent in India that were sustained one year after the end of the programme, the study said.