Last week I had the privilege to attend a workshop in La Paz, Bolivia. La Paz is located at an elevation of 3,600m above sea level and sits in a bowl surrounded by the high mountains of the altiplano. As it grew, the city of La Paz climbed the hills, resulting in varying elevations of 3,200 to 4,100m. Right after I arrived at the airport of El Alto, I was quickly blown away by the spectacular views over the city.
Born and raised in a country that is partly below sea level, I happily followed the three rules that, according to the locals, every visitor to La Paz should obey in order to prevent altitude sickness:
- “Camina lentito” (Walk slowly)
- “Come poquito” (Eat in moderation)
- “Duerme solito” (Sleep alone)
[As a heads up, I recommend reading my previous post about the Poverty Stoplight before digging into this one]
The workshop I joined was organized by Locfund; a fund that gives local currency loans to microfinance institutions (MFIs) in Latin America. Locfund is a long-standing client of FMO; the Dutch Development Bank where I will return after my internship in Paraguay. To make it even better, the workshop was given by Fundación Paraguaya! My two professional worlds coming together in a single workshop about the Poverty Stoplight, and how to replicate it in Bolivia. Awesome!
The aim of the workshop was to take the 50 indicators from Paraguay and adapt them to the Bolivian reality. In addition to the people from Locfund and Fundación Paraguaya were representatives of two Bolivian MFIs that have expressed interest in replicating the Poverty Stoplight, in conjunction with Experts in Health & Education and Microfinance.
Taking the road less traveled
The week started with an elaborate introduction to Fundación Paraguaya, its focus areas (microfinance, training young entrepreneurs, and self-sustainable agricultural schools) and how the institution has developed over the years. Unlike many of its peers and competitors in the industry, Fundación Paraguaya made a deliberate choice in the early 2000’s not to follow the standard path and become a regulated bank.
In general, obtaining a banking license requires a certain amount of capital. In the absence of shareholders with deep pockets or a functioning local capital market, many MFIs have turned to international funders. Attracting capital from international funders requires a certain scale/size, which is easier to reach with a set of standardized financial products and services. If we assume that each poor family is poor in its own unique way, and that not every family has the entrepreneurial talent to convert a loan from an MFI in a successful business, how do you effectively lift people out of (extreme poverty) with a standardized approach?
This is why Fundación Paraguaya chose to continue as an NGO, reaching the poorest segment of the Paraguayan population instead of becoming a licensed bank.
As one of the workshop participants, who has more than 20 years of microfinance experience under his belt, stated:
“Nowadays, we seem to have forgotten why we founded the microfinance programs in the first place. We have become subject to pressure from (international) shareholders, funders, the banking regulator and rating agencies to continuously report growth, preferably more than the competition. If you don’t grow, all these parties will start asking questions. The size of the loan portfolio, number of clients, number of loans disbursed, loans in arrears, profitability, operational efficiency… all indicators that are easy to measure. But linking loan officer’s targets to these indicators have reduced interaction with and knowledge about our clients. The Poverty Stoplight has the potential to bring us back to the reason why microfinance was born, to lift people out of poverty”.
Adapting the Stoplight methodology to the local context
We spent day two and day three in La Paz looking at each indicator from the Bolivian point of view. What works for poor families in Paraguay does not necessarily work in other countries. For example, in Tanzania, the indicator that measures access to drinking water would be scored ‘Green’ if the nearest drinking water source is located within 150 meters of the house. In Paraguay this is ‘Red’. Green is when the family has constant access to a faucet.
Although you might say that Paraguay and Bolivia, as neighboring countries, have many similarities, there were enough differences to highlight. The first important observation was that the pictures used for the indicators in Paraguay had too much green vegetation for the Bolivian context, where you have a large part of the population living in mountainous areas. Many families would therefore not recognize themselves in the pictures.
Besides many changes in vocabulary or in the way of phrasing, there were also adjustments based on political or cultural sensitivities.
Whereas one of the Paraguayan indicators stresses that reading and writing in Spanish is an important asset to all family members, in Bolivia they are strongly promoting the indigenous languages ever since Evo Morales (the first indigenous president) came to power. The indicator therefore had to be adjusted to reflect this.
Another big political difference lies in the voting indicator. In Bolivia, voting is mandatory by law, and if you don’t participate, you may be denied any administrative or financial formalities for 3 months, not in the public nor in the private sector. This means you will not be able to pay your bills, get cash from the bank, etc. Therefore, the voting turnout is usually very high (2014: close to 90%) and it does not make sense to come up with three different levels for this indicator.
The two countries also differ in reflecting the involvement of cultural traditions. In Bolivia, there already exists a high level of attachment to cultural traditions because of the characteristics of the population. Wikipedia tells us that indigenous Bolivians are the majority ethnic group, accounting for approximately 62% of the population. An additional 30% of the population is mestizo, having mixed European and indigenous ancestry. However, as people at the table suggested, celebrating certain cultural festivities is usually reflected in excessive consumption of alcohol and exaggerated expenses that affect the economic situation of the family. This is not something you want to promote as an MFI, and therefore, the indicator was removed.
After all 50 indicators were adapted, deleted or replaced, day four was dedicated to testing the indicators in the field with focus groups, consisting of clients of the Bolivian MFIs. Unfortunately, I was not able to participate on this day, but judging from the wrap-up on day five, most of the indicators reflected the real-life struggles and only minor details had to be changed.
And this is just the beginning. Now it’s up to the representatives of the Bolivian MFIs, perhaps together with the people from Fundación Paraguaya, to convince the decision-makers at the MFI to actually implement this methodology in their day-to-day business. Not an easy hurdle if you would ask me, because it will affect the whole organization.
Next steps are to design and carry out a pilot project, evaluate and adjust based on the pilot, train loan officers, and finally, implementation followed by continuous monitoring. I’m wishing them the best of luck!
“Estamos en una etapa histórica”
These are the words of Luis Fernando Sanabria, the general manager of the Fundación, at the start of a training session on the ‘new’ Stoplight back in Paraguay.
The Stoplight has gone through several stages in its young history. In 2008, the Fundación started a pilot program with just 80 families. Subsequently, the period between 2011 and 2014 was characterized by ‘scaling up’ the Stoplight 1.0 across the loan portfolio. Asesoras received specific targets (e.g. number of families that have to transform all indicators into ‘green’). In consultation with their managers, they could pick their own clients to reach these targets. You can imagine that many started with the low-hanging fruit (families with already many green indicators), resulting in 10,000 families that have been working with the Stoplight during that period.
Now, in 2015, it’s time for the version 2.0, of which systematization is the key theme. The objective is to demonstrate impact and attribute the causality of poverty elimination to the Stoplight. The selection of families that will work with the Stoplight will be conducted randomly by the Monitoring & Evaluation Unit, and every branch manager will check samples of families to verify if the Asesoras have done their assessments properly. Asesoras will now only use cloud-connected tablets to do the assessment. This will facilitate information gathering and improve data validity (compared to paper assessments). In addition, monitoring is more structured, with at least one monthly visit and one weekly contact moment (e.g. phone call) by the Asesora.
Personally, I think creating a more efficient, structured and scientifically proven Stoplight methodology will eventually help to scale up the tool and facilitate replication for other countries.
Scaling up a customized poverty elimination tool… the future is near, and it’s an exciting prospect.
Dennis van Erp is working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.