Friday, May 4, 2012

Kiva Scholar: Bridging the gap between charity and microfinance

Microfinance is not the silver-bullet solution to end global poverty. For the poorest of the poor, an effort must be made to stabilize their living conditions and provide them with the most basic human necessities before any steps are taken to strengthen them economically.

In this week's post, we'd like to share an article by Janet Heiesy, director of the Asia Program for Trickle Up. It highlights the “Graduation Model,” a methodology originally developed by microfinance institution BRAC in Bangladesh that is being used to reach the poorest communities around the world in a sustainable way.

This model targets the ultra-poor and consists of the following components:

1) Consumption support: Participants are given a cash stipend or in-kind package on a regular basis to stabilize household consumption.

2) Savings services: Graduation models encourage or require participants to open a savings account. In some cases, withdrawal of savings is only allowed for emergencies.

3) Skills training: Training sessions on hygiene, sanitation, enterprise skill development, financial literacy, business development and social issues are provided to clients.

4) Asset transfer: Assets, usually livestock or other productive assets, are given to participants to invest in a trade business.

The goal of the Graduation Model is to give a person the capacity to receive and repay a microloan that they otherwise would not necessarily have benefited from. For more on graduation projects and case studies, check out "Ultra Poor Graduation Pilots: Spanning the gap between charity and microfinance" by Nathaneal Goldberg, senior policy director for Innovations for Poverty Action.

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We value being in tune with the latest news on microfinance and poverty alleviation. Kiva Scholar is designed to share research and developments in the field and open the conversation up to you!