Using the Traffic Light Approach to go from Financial Inclusion to Poverty Elimination
FP’s “traffic light” tool gives MFIs & underserved clients the info they need to go beyond “financial inclusion” and eliminate poverty.
About Your Organization
Paraguay, CE, Asuncion
Country where this project is creating social impact
Paraguay, XX, Nationwide
Is your organization a
Non‐profit/NGO/citizen sector organization
How long has your organization been operating?
More than 5 years
Has the organization received awards or honors? Please tell us about them
Sample of recent awards:
Skoll Foundation Social Entrepreneurship Awards (2005-07 & 2008-2011)
§Member, Schwab Foundation for Social Entrepreneurship network (2005-present)
§Opportunity Collaboration Achievement Award (2011)
§ Oikocredit - Best Development Project Award (2010)
§ Global Development Network (GDN) -Japanese Award for Most Innovative Development Project (2009)
§ World Innovation Summit for Education (WISE) Award - Qatar Foundation (2009)
§Templeton Freedom Award - Atlas Foundation (2009)
§Marten Social Entrepreneur Award - Atlas Foundation (2009)
§UNESCO/Inter-American Development Bank - Youth Best Practice Award (2009)
§ BBC World Challenge – Second prize in global competition (2008)
§CGAP/Mix Market: Transparency in microfinance operations (2004-09)
§MixMarket: Transparency in social performance in MF operations (2009)
§Inter-American Development Bank – Social Enterprise Award (2004)
§Inter-American Development Bank – finalist for the Excellence in Microfinance Award (2009 & 2010)
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Select the stage that best applies to your solution
Growth (your pilot is up and running, and starting to expand)
How long have you been in operation?
Operating for 1‐5 years
Which of the following best describes the barrier(s) your innovation addresses? Choose up to two
The Need: What problem are you trying to solve?
Poverty has many more dimensions than just insufficient income; for each family, it comes in a different constellation which might include poor housing, unclean water, inadequate medical care, or some or all or none of the above. Women’s village banking enables microfinance institutions (MFIs) to serve poor families in excluded and underserved communities. But how can MFIs provide clients with appropriate financial services if they don’t know which poverty-related problems affect each client family? More importantly, how can a client design and execute her own poverty elimination plan without a way to size up and prioritize her family’s poverty-related problems?
The Solution: What is your solution? Be specific!
Our solution is an innovative tool which allows each low-income women’s village bank member to measure the extent of her family’s poverty in all its dimensions and displays this information in a “traffic light” format that she can readily understand: red for “extreme poverty," yellow for “poor,” and green for “no longer poor.” This is the only tool we know which enables the poor themselves to measure & take stock of their poverty in all its dimensions, provides such easily understood feedback, enables clients to be the chief architects of & protagonist in their own poverty elimination programs, and gives MFIs detailed, family-by-family, low-cost information they need to design and offer financial services that meet the specific needs of clients in underserved and excluded communities.
The Model: Walk us through a specific example of how your solution makes a difference; include your primary activities
After forming a village bank, its “advisor” administers the “traffic light” survey to each member. Its 50 indicators cover: income/employment, health/environment, housing/infrastructure, education/culture, organization/participation and self-awareness/motivation. Each question has three pictures showing the situations of a typical family living in extreme poverty, one living below the national poverty line and one which isn’t poor in this particular regard. Each client identifies which picture best represents her family’s situation and then receives a page showing in “traffic light” format the ways in which her family is extremely poor (red), poor (yellow) or not poor (green). The village bank works with its “advisor” to develop a plan for addressing the poverty-related problems that most members have in common. Meanwhile, clients develop personal action plans for increasing family income and using this income to address their families’ poverty-related problems.
The FP uses the same “traffic light” information to assess which problems are most common among its clients and develop appropriate financial services for each type. These now include: micro-franchises to increase family income and provide products that underserved communities need to solve other poverty-related problems, e.g. affordable medical supplies and foodstuffs; housing loans; education loans; loans to community water authorities; and burial insurance.
The Marketplace: Who are your peers and competitors? Identify others also working to address the needs you are and what differentiates you from them. What challenges could these players pose to your success or growth?
Grameen’s Progress Out Of Poverty Index only estimates “the likelihood that clients fall below the national poverty line” (see Grameen website), requires extensive training to use and does not provide usable information to the client, thus removing her from her rightful role as the main protagonist in overcoming her own poverty.
Many governments use conditional cash transfers as an anti-poverty tool, but they are expensive, create adverse labor market incentives and presume that low-income adults can’t overcome poverty—that their children are the only hope.
Our traffic light approach compares favourably to both on cost, effectiveness, equity and client-friendliness.
This Entry is about (Issues)
Founding Story: We want to hear about your "Aha!" moment. Share the story of where and when the founder(s) saw this solution's potential to change the world.
In the 1990s, most microfinance programs transformed themselves into banks, believing that massive financial inclusion would eliminate poverty. FP bucked industry trends, remaining a non-profit, using its surplus to increase social impact, not paying out profits to shareholders. In 2008, FP celebrated its 25th year; our microfinance program excelled by traditional measures. Nevertheless, we were saddened by the indicator that mattered to us most: client poverty; we felt it time to buck the trend again. We looked more deeply into why our clients remained poor and scoured other disciplines for insights that would allow us to understand inter-generational poverty better. In the end, we discovered the “genie effect”—like Aladdin, our greatest contribution is to rub the lantern and allow the genie inside each client to escape.
Please describe the goal of your initiative; outline what you are trying to achieve
The challenge is to eliminate poverty; not alleviate it, but eliminate it. This "traffic light" approach has the potential to revolutionize how organizations and governments attack poverty due to the following innovations: i) it recognizes that poverty affects different families in different ways and, hence, that poverty elimination requires individualized solutions; ii) program beneficiaries are the architects of and protagonists in their own personalized anti-poverty programs; iii) the approach leverages village banking programs and the group support and peer pressure they provide; iv) it doesn't burden government budgets; the resources needed to address families' poverty-related problems are generated by the program beneficiaries themselves.
Which barrier(s) to financial inclusion does your solution seek to address? (select all applicable)
The lack of affordable financial products tailored to the needs of underserved and excluded communities,, Other (Please describe below).
If you selected 'other' above, please specify which other barriers to financial inclusion you solution seeks to address:
Lack of information about client needs and means of empowering clients to use microfinance to overcome poverty.
For which underserved or excluded communities will your solution create access to valuable, affordable, secure and comprehensive financial services?
Fundación Paraguaya is using this “traffic light” tool as part of the innovative poverty elimination program which we run through our women’s village banking program. In village banking, we serve 37,000 low-income women an estimated 52% of whom live in extreme poverty. They are organized into xxxx village banks in urban and rural areas, including xx banks in indigenous communities. Since 2008, we have run progressively larger pilots of our “traffic light” tool. In 2011, the pilot included 10,000 low-income women. Thanks to the tool, which gave disadvantaged women new insight into their poverty-related problems and the FP, detailed, low-cost information on how best to assist each family, 6400 families were able to overcome poverty, as measured by family income above the national poverty line.
Could your solution work in other geographies or regions? If so, where?
Yes! This solution would work for any MFI anywhere in the world whose approach was client-centered and whose mission went beyond “financial inclusion” to include poverty elimination. In this regard, the “traffic light” survey can be easily adapted in order to show clients pictures of situations of extreme poverty, poverty and non-poverty that are representative of how these situations look in their particular countries/regions. By the same token, the information revealed by the tool would give any MFI anywhere in the world the kind of detailed, family-by-family data it needs – at an affordable cost to the MFI – to develop and provide the types of products and services that will be most effective in enabling their clients in underserved and impoverished communities to overcome poverty.
If your solution is dramatically successful, how will things be different in 10 years?
In 10 years, this solution will be have been adopted by other women’s village banking programs and other governments around the world. Not only will beneficiaries have financial services, but they will have overcome, or be on a clear path to overcoming, poverty.
The following is a conservative estimate of the solution’s 10-year impact, assuming that each beneficiary family has 5 family members:
-- 5 MFIs of about the same size as the FP in 10 years (100,000 women village banking clients each) will apply our solution (5 x 5 x 100,000 = 2,500,000)
-- 5 governments will apply our solution to 100,000 families each (5 x 5 x 100,000 = 2,500,000)
Total impact: 5,000,000 people out of poverty.
What will have had to have changed to make this happen?
To make this happen, MFIs’ mounting interest in eliminating poverty, rather than just providing financial inclusion, will have to continue to grow. We believe that competitive pressures will encourage MFI’s to move in this direction, since clients will seek programs that offer them the services that best serve their needs.
At the same time, Fundacion Paraguaya will need to provide strong evidence that our solution works. For this reason, we have applied for financing to conduct an impact evaluation of our “traffic light” approach. We believe our funding prospects are good, since many donors realize the social, environmental and security imperatives for finding effective solutions to world poverty.
What has been the impact of your solution to date?
Our 2011 pilot enabled 6400 families (32,000 people) to overcome poverty, increasing family income to above the national poverty line.
At the same time, we have developed a number of additional products and services to assist clients and their families in addressing the poverty-related problems identified by their respective “traffic lights.” These include: home improvement microloans; microcredits to “legalize” businesses and establish ownership of land and other assets; microfranchises for: the sale of eyeglasses (with our partner, Vision Spring), over-the-counter pharmaceutical products and basic foodstuffs; loans to community water authorities; microcredits for education (with our partner, Vittana); youth savings clubs (with our partner, Aflatoun); youth village banking groups; group health insurance; client life insurance; and group discounts via a client club, among others. With these tools, clients can transform their "traffic lights" from red to yellow to green.
What is your projected impact over the next five years?
In Paraguay, we will gradually scale up our "traffic light" approach to cover all of our village bank clients (in 5 years, at least 50,000 vs. 37,000 today.) Thus, our solution will have 250,000 direct beneficiaries (50,000 x 5).
Outside of Paraguay, we expect that other MF programs will be testing our solution, with 3 programs running pilots of 5,000 clients each (3 x 5 x 5,000), with an additional 75,000 direct beneficiaries.
Total direct beneficiaries who have overcome poverty on or a clear path to do so: 325,000.
What barriers might hinder the success of your project? How do you plan to overcome them?
Barrier #1: Increasing need for qualified, dedicated village bank “advisors” to satisfy program demand in excluded and underserved communities. Solution: Recruit among successful village bank clients in nearby communities, train thoroughly, provide performance incentives.
Barrier #2: Need for more trainers to train clients and family members in occupational skills such as cell phone and motorcycle repair, sanitary food preparation & handling, etc. Solution: Enlist successful microfinance clients from nearby communities.
Barrier #3: Need for more tablets for “advisors” administering traffic light surveys to streamline data collection and keep program costs low. Solution: Compete for prizes and awards.
Winning entries present a strong plan for how they will achieve and track growth. Identify your six-month milestone for growing your impact
Complete “traffic light” pilot currently underway, enabling 5,000 more women to raise family income above the nat'l poverty line
Identify three major tasks you will have to complete to reach your six-month milestone
Monitor families’ progress in increasing income and turning traffic lights from red/yellow to green, providing advice as needed.
Re-administer the “traffic light” survey to each pilot participant at year-end to gather the end-line data on the 2012 pilot.
Evaluate end-line data, establish how many clients raised family income above the nat'l poverty line, distill lessons learned.
Now think bigger! Identify your 12-month impact milestone
Start impact evaluation of the “traffic light” approach to poverty elimination prior to scaling up on massive scale.
Identify three major tasks you will have to complete to reach your 12-month milestone
First 3 months: Hire and train 18 additional village bank advisors needed to carry out impact evaluation.
Next 9 months: Form at least 333 new village banks & randomly assign to the intervention or control group.
As each new women’s village bank is formed, administer “traffic light” survey to each member to establish baseline
Tell us about your partnerships
Hewlett-Packard-- developed software for recording client surveys on advisors’ netbooks and producing client “traffic lights;”
VitalSmarts (US management consultants)-- trained FP staff in “positive influence” techniques;
USAID-- funded an early pilot;
IDB/Multilateral Investment Fund—financing development of micro-franchises to raise client income and meet poverty-related needs identified in client “traffic lights;”
Government of Paraguay-- using “traffic light” to eliminate poverty in underserved communities in zone of Paraguay’s greatest social conflict.
Are you currently targeting other specific populations, locations, or markets for your innovation? If so, where and why?
At present we are targetting the District of Curuguaty, Department of Canindeyú, Paraguay because the lack of economic opportunity for women has helped perpetuate extreme, inter-generational poverty which, in turn, feeds social conflict. The most recent manifestation of this conflict occurred in June 2012, when a confrontation between campesinos “occupying” a property in private hands and police sent in to dislodge them resulted in 17 deaths and the impeachment and removal from office of the then-President of Paraguay.
What type of operating environment and internal organizational factors make your innovation successful?
The FP has a culture of innovation and rewards performance.
Please elaborate on any needs or offers you have mentioned above and/or suggest categories of support that aren't specified within the list