Microenterprise development programs have been among the most promising forms of donor-sponsored poverty reduction programs in recent years, and they have improved the lives of millions of poor people. In 2000, the U.S. Congress passed the Microenterprise for Self-Reliance Act, which mandated that half of all USAID microenterprise funds reach the very poor. This legislation was amended in 2003 and now defines the very poor as those living on less than $1 a day, or those living in the bottom 50% below their country's poverty line. The lack of widely applicable, low-cost tools for poverty assessment, however, makes it difficult for USAID to determine whether it is meeting these mandated targets. Therefore, the law also requires USAID to develop and certify at least two tools for assessing the poverty level of its microenterprise beneficiaries.  To implement this work, USAID's Microenterprise Development Team has selected the consortium led by the IRIS Center under the Enabling Environment component of AMAP. 

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USAID is required to verify to Congress that at least 50% of resources invested in microenterprise development benefit the very poor. The objective of this project is to develop and test tools that can be used by practitioners to report on the proportion of very poor clients receiving services. Because it is important that practitioners find the recommended tools to be effective means of evaluating the poverty level of their clients, this project’s priority is to recommend tools that can accurately predict poverty in a practical and cost-effective manner.

 

Field testing of the tools took place between 2004 and 2006. In the first phase of testing—the tests of accuracy—households in four countries across the four main USAID regions were surveyed to test the predictive capacity of a variety of poverty measurement indicators. The tests, held in Bangladesh, Peru, Uganda, and Kazakhstan, were completed by the end of December 2004.  In each country, data was collected in both urban and rural settings and across samples of microenterprise clients and non-clients. Analysis of the data shows which groups of indicators are most effective in predicting poverty, and which degrees of accuracy they achieve.

 

In the second phase of testing—the tests of practicality—local microenterprise practitioners apply the selected shortcut tools.  They then provide information about a variety of criteria, especially cost (time, money, infrastructure, etc.) and process/implementation issues.  This also brings to light possible challenges in implementing the shortcut tools, stemming from, for example, staff inexperience in data collection, difficulties in combining data collection with other duties, variations in transport and data entry arrangements, etc.  To view Activity Reports from January 2004 to the present, please visit the Poverty Assessment Tools Project Updates page.  For more information on the project methodology, visit the Poverty Assessment Tools Field Tests page. To see the reports on the accuracy of the tools, see the Acuracy Results section of the Project Documents page.

 

As practitioners are well aware, a number of complex issues are involved with testing these types of tools.  Thus, a listserv has been built through which ongoing discussions are conducted with the microenterprise community. Discussions on participatory tools, implementation issues affecting business development services programming, measuring intra-household distributions of poverty, and determining the cut-off point for national poverty lines take place there.  More information about the Developing Poverty Assessment Tools project can be found in the documents below and at the project website:  http://www.povertytools.org.