Frequently Asked Questions
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What is the Progress out of Poverty IndexTM(PPITM)?
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How does the PPI work?
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What is Social Performance?
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How does the PPI relate to Social Performance?
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What does it mean to have a Social Performance Management System?
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How is the PPI constructed?
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Where do the PPI indicators come from?
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Why should my organization use the PPI?
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What is the cost of implementing the PPI?
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What are the benefits of working with the PPI?
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What are the technical requirements for PPI implementation?
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What types of organizations use the PPI?
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What does the PPI do for my organization?
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How does the PPI tell me about poverty movement over time?
What is the Progress out of Poverty IndexTM (PPITM)?
The PPI is a simple, accurate and practical tool to assist organizations, such as microfinance institutions (MFIs), in measuring client poverty levels and determining how these poverty levels change over time. It can be used for targeting, internal learning and external reporting.
How does the PPI work?
The PPI is a unique composite of easy-to-collect, country-specific, non-financial indicators such as family size, the number of children attending school and the type of housing. Each country-specific PPI draws information from either that country’s national household survey (e.g., Mexico’s INEGI database or Pakistan’s Integrated Household Survey), or the country-specific World Bank Living Standards Measurement Survey, depending upon which dataset has the most complete information. The resulting PPI then serves as a baseline from which client poverty movement is measured. By using benchmarks and standards of measurement that produce reliable information, managers can build client profiles and track the change over time.
In the PPI, each indicator response is assigned a value. The sum of these values (the PPI Score) is matched with a corresponding poverty likelihood score – the probability that a household falls above or a below a certain poverty line. To determine portfolio averages, individual likelihoods are averaged.
For example, suppose a microlender or organization had three clients on Jan. 1, 2006, who, by your country’s PPI, had scores of 20, 30, and 40, corresponding to poverty likelihoods of 81percent,62 percent, and 33 percent. The poverty rate in this portfolio is the clients’ average poverty likelihood, that is, (81 + 62 + 33) ÷ 3 = 58 percent. Ideally, this would be done on a portfolio of clients rather than three individual clients. An organization takes an average of all the client poverty likelihood percentages to come up with the average poverty likelihood for the entire portfolio.
What is Social Performance?
Social Performance is defined as “the effective translation of a microfinance organization’s social objectives into practice” . The end goal is to assist organizations in the accomplishment of their stated social objectives, and not merely the reporting of clients’ poverty levels. For instance, an integrated social performance system can enable an organization to more effectively identify specific market niches and target services.
In an increasingly competitive microfinance industry, Social Performance Management (SPM) can result in client-focused products and services that benefit clients and the communities in which they live and work. SPM should enhance an organization’s understanding of its clients, their product and service needs, and how they use and benefit from the organization’s products and services.
How does the PPI relate to Social Performance?
The PPI is an integral part of Grameen Foundation’s industry-wide effort to assist organizations in managing social performance. The PPI helps an organization to monitor the poverty status of its clients, which allows for better matching of products and services to different groups of clients. Matching poverty levels to loan repayments or the introduction of new products may also help to determine the effectiveness of programs, how quickly clients leave poverty, and what helps them move out of poverty faster.
What does it mean to have a Social Performance Management System?
Social performance management (SPM) is a practical approach for MFIs to achieve their social goals and be socially responsible. It's a process that enables MFIs to align their systems to a deeper understanding of client capabilities and and vulnerability. More broadly, because MFIs work with poor and vulnerable communities, they have a responsibility not to harm their clients eg. through protect over-indebtedness, as well as to treat both staff and clients with respect and dignity. SPM has three components:
- Setting clear social objectives and creating a deliberate strategy to achieve them
- Monitoring and assessing progress towards achieving social objectives
- Using social performance information to improve overall organisational performance
Grameen Foundation sees the PPI as the center point of a system that will allow organizations to understand their progress in meeting their poverty alleviation goals. The PPI collects information at the output level and can assist management in making decisions at each level of the organization. A Social Performance Management System includes not just social data collection but decision-making based on those data.
How is the PPI constructed?
The PPI is created by Mark Schreiner for Grameen Foundation, CGAP and the Ford Foundation. Indicators in the PPI are derived from the most recent country-specific national level surveys of expenditure or income.
Indicator selection criteria include:
- Inexpensive to collect, easy to answer quickly, and simple to verify
- Liable to change over time as poverty status changes
- Strongly correlated with poverty
After the first stage of analysis, the potential poverty indicators are grouped into the following categories to undergo more analysis:
- Household and housing characteristics (such as cooking fuel and type of floor)
- Individual characteristics (such as native language and highest grade completed)
- Household durable goods (such as electric fans and telephones)
Each indicator’s ability to predict poverty is then tested. From the original indicators, a selection is identified for further analysis.
After all indicators are tested, one is selected based on several factors. These include the improvement in accuracy, the likelihood of acceptance by users (determined by simplicity, cost of collection, and “face validity” in terms of experience, theory, and common sense), the ability of the indicator to change values as poverty status changes over time, variety vis-à-vis other indicators already in the PPI, and ease of observation/verification. The selected indicator is then added to the PPI, and the previous steps are repeated until 10 indicators are selected.
Finally, the responses are weighted and scores are derived such that the lowest possible score is 0 (most likely below the poverty line) and the highest is 100 (most likely above the poverty line).
Where do the PPI indicators come from?
Indicators are derived from country-specific, national-level household surveys of expenditure or income. For example, the Philippines PPI is built from an analysis of 38,014 households from the Annual Poverty Indicators Survey (APIS) conducted in 2002. For more information regarding the construction of the PPI indicators, click here.
Why should my organization use the PPI?
Through the UN Millennium Development Goals, the global community has challenged itself to halve the number of people living in extreme poverty by 2015. To respond to the scale of global poverty adequately, however, microfinance institutions (MFIs) must operate more efficiently, provide products and services that meet the changing needs of their communities, and show results. Most MFIs have a social mission: reducing poverty, reaching people excluded from financial services, empowering women, or promoting community solidarity. However, many MFIs do not have the tools to evaluate how well they are fulfilling their mission. The PPI is designed to meet that need.
What is the cost of implementing the PPI?
Preliminary cost assessments have shown a range of possible costs depending on decisions made by individual organizations. Organizations in Mexico and the Philippines saw all-in costs of US$0.50 to US$1 per client or from 1 to 2 percent of total annual operating budget. Those organizations saw savings from faster loan application times and anticipate further savings based on better client retention. These economies are not yet quantified.
What are the benefits of working with the PPI?
Microfinance institutions across the world are implementing the PPI. As a critical mass of users develops, innovations and best practices of responding to PPI data will emerge. These institutional responses include using PPI data to change and improve an organization’s product offerings. This will result in better targeting of microfinance services and more appropriate products and services for different client groups that meet client needs better. The end goal of this effort is to enable organizations to be more effective at poverty alleviation.
Additionally, products and services that are effectively designed for their target market will make organizations more competitive by improving client retention and institutional profitability.
Beyond managerial responses, organizations using the PPI are also finding that PPI data are helpful marketing materials for social investors.
What are the technical requirements for PPI implementation?
An organization should have an automated MIS to make effective use of PPI data. Beyond that initial prerequisite, organizations with widely differing levels of technical expertise, portfolio size and staffing levels are successfully integrating the PPI into operations.
What types of organizations use the PPI?
Any organization looking to measure its client outreach at a point in time and/or measure a client’s poverty status over a period of time in relation to the $1/Day/PPP, $2/day/PPP or national poverty line. The PPI information supports institutions planning to report to the Microcredit Summit Campaign regarding the movement of clients across the poverty line.
What does the PPI do for my organization?
The PPI provides a snapshot of a client’s poverty likelihood at any given point in time, which can be used on a group of clients to find the poverty distribution within that group.
The PPI can help an organization:
- Divide clients into distinct poverty bands (above or below one or more poverty lines)
- Track movement of clients across the poverty line
- Inform management decisions about processes, programs, products and provision of services
- Respond to competitive pressures, by better meeting client needs
- Provide timely and accurate Social Performance information to regulatory bodies, social investors, donors, and rating agencies
- Assess mission achievement
How does the PPI tell me about poverty movement over time?
Tracking the poverty likelihoods of a group of clients at regular intervals will provide an understanding of poverty movement over time within that group. An organization can administer the PPI on a sample basis or upon every loan renewal.
For example, suppose a microlender or organization had a portfolio of clients on Jan. 1, 2006 with average poverty likelihood of 58 percent. In other words, 58 percent of the clients in the organization’s portfolio fall under the poverty line. Then suppose that on Jan. 1, 2007 (a year later), the organization’s average poverty likelihood is now 39 percent, an improvement of 58 – 39 = 19 percentage points in one year. This means 19 of every 100 clients progressed out of poverty (crossed over the poverty line). Given that 58 percent of clients were poor in the first place, one in three (19 ÷ 58 = 33 percent) poor clients left poverty.
