Top Ten PPI Challenges: Barriers faced by MFIs >

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As the Regional Microfinance Programme Specialist for Plan International in Asia, I have learned first-hand the top challenges faced by microfinance institutions in accepting—and implementing—the PPI as their poverty assessment tool. My observations led me to create the ten challenges I outline here.

  1. Simplicity is difficult to accept. For some people it’s difficult to accept simple solutions. The PPI as a simple tool raises some barriers which makes its acceptance difficult.
  2. Can poverty be measured with 10 questions? A lot of people have asked this question. The PPI uses 10 non-financial, verifiable indicators to measure poverty. It must be explained that these are proxy indicators with attached values and a poverty look-up table to score those values--to measure the likelihood of poverty each score indicates. In summary, the PPI consists of 10 proxy indicators with scores attached to values measured by poverty likelihood tables. So the PPI is NOT just 10 questions.
  3. The gaps between PPI results and the results from an MFI’s own poverty measurement tool raise questions. Mostly MFIs are surprised to see the gap between PPI results and the results from their own poverty measurement tool. The PPI measures poverty for different poverty lines, e.g. national poverty line, food poverty line, US$1.25/day PPP, etc. Before an MFI compares PPI results with the results of its tool, it must find out where its poverty tool fits in terms of poverty line(s). Does the MFI’s poverty tool measure poverty for the national poverty line or US$1.25/day PPP? You need to compare apples with apples.
  4. Strong ownership by the MFI for its own poverty measurement tool. Some MFIs are reluctant to abandon their own tools although they know that the responses to questions are inflated, and the results are not accurate due to the subjectivity and non-verifiable nature of the questions.
  5. The PPI is developed from an old (2 or more years) national socio-economic survey. So people think that the PPI is not reflective of the current situation. But the old national survey is the latest available survey and, in the absence of new national survey, the PPI can’t be revised. Remember that the government is also using the results of the old national survey for its own purposes, which means it is still highly relevant.
  6. The PPI doesn’t fit with all extreme situations. Just like any other tool. People like to think about extreme situations in general to demonstrate that the PPI doesn’t work in these extreme cases. But, like any other tool, the PPI is not perfect; there will always be exceptions (outliers). But such exceptions will always be a tiny percentage and it’s immaterial to worry too much about them. The impact of such extreme cases on the accuracy of the results will be almost none.
  7. Top management and board lack understanding of the PPI. It’s key for top management and the board to develop an appropriate understanding of the PPI. The MFI should make a systematic effort to build this understanding; if they do not understand, they will not commit.
  8. Social performance is just a talk and not the walk. The PPI supports MFIs in achieving their social missions. But in the case of some MFIs, achieving their social mission is limited to talk only without serious actions.
  9. The MFI lacks the capacity to interpret PPI results. Often PPI results don’t match the expectations of the institutions. The MFI must be clear when it interprets the PPI results. For example, the MFI needs to break down a consolidated result like “30% of clients are below the national poverty line” into loan cycles as financial services may help reduce poverty of clients in higher loan cycles.
  10. How does the PPI make a business case? There’s a need to develop evidence that shows how the PPI contributes to the reduction of over-indebtedness, increases profits, expands market share, etc. Research and case studies should demonstrate that the PPI is not limited to social performance only but is also vital for pure business, which it is.

Muhammad Awais is a guest blogger on the Progress Out of Poverty blog. As the Regional Microfinance  Programme Specialist for Plan International in Asia, Awais focuses on helping integrate social performance metrics into Plan International’s work. He brings a great perspective from the MFI practitioner as well as from the network level of how to integrate SPM tools like the PPI into operations. He is based in Bangkok.