Ultra-poor graduation model results show more than just cash is needed

AGURUT, Uganda, and SAN FRANCISCO — Under the shade of a tree in Agurut village in Eastern Uganda, hundreds of donuts wait to be fried in an iron wok. Once the donuts are cooked, they will be collected by motorbikes and sold at small shops in the surrounding villages. This open-air bakery, called Shukrani, is run by three neighbors. Before starting this business in October 2016, the trio all lived in extreme poverty. Now, on a good week, they bring in about $60 in profit from the two batches of donuts sold, which they split equally among the three of them. With those funds, they also invest about 10 percent back into the business.

Their business was created as part of a microenterprise program run by Village Enterprise, a nonprofit organization based in the United States with most of its staff based in the countries where it works: Kenya and Uganda.

Before starting the bakery, Omonding Anna Grace couldn’t afford to send all of her three grandchildren to school because of school fees. Now, the children attend school, and Anna Grace bought a goat, a cow, and two mattresses with the surplus she earned. She uses the cow to plow her four-acre field. The majority of her fields lay idle a year ago because she didn’t have the capacity to plow it. With the help of funds from her bakery business, and the new cow she bought with the profits, her life took a u-turn.

Village Enterprises places individuals living under the $1.90 a day threshold into a year-long program, where they receive support through seed grants, mentorship, and training, and have access to financial services through a savings group. Last year, the organization was selected to implement a $5.26 million Development Impact Bond, which builds on the commitment to evidence it has demonstrated, and will push the organization to deepen that evidence base. Village Enterprise’s approach to reducing poverty was put to test this week with the release of results from an independent evaluation of the organization’s programming conducted by Innovations for Poverty Action, or IPA, a research and policy nonprofit.

The results, released in Kampala on Thursday, demonstrated that the full entrepreneurship program can increase sustained asset holdings, consumption, well-being, and nutrition. This randomized controlled trial also found that cash transfers didn’t appear to have meaningful impacts on extreme poverty reduction when they are dispersed on their own, suggesting that the holistic approach produces the strongest results. The study is part of a larger effort by IPA to establish a body of research examining the ultra-poor graduation model, which takes on several challenges of poverty at once, from health to savings to livelihoods.

Assessing effectiveness

“This is filling in some critical gaps in our evidence about how to help move the extreme poor out of poverty,” Nathanael Goldberg, who directs IPA’s Social Protection Program and led its Ultra Poor Graduation Initiative, told Devex. “We know something about how cash grants work, but we don't know enough about how that applies specifically to the ultra poor and how lasting those results are.”

This is the first study he has seen that compares the exact same type of household to assess the impact of graduation programming as opposed to cash transfers. Speaking at a dissemination event in Washington, D.C., that preceded the event in Kampala, he said the takeaways are that the holistic version of the program produces the stronger results, and the recipients get more in benefits than the cost to deliver the program. To Goldberg, that means the work is worth doing even though it is expensive.

“In a lot of cases, it's more expensive than most governments or NGOs would be able to take on, so there's a need to find a more scalable, lower cost version of the program, and that's the reason these Village Enterprise results are so important, because they have one of the lowest cost models at a cost that should be approachable for NGOs or governments to take on,” he said.

Participants in the Village Enterprise program are trained in areas such as record keeping, marketing, and financial management. After three months, program participants receive a grant of about $100. Businesses that have shown stability and growth then receive a second grant of about $50 after six months. They are mentored and a savings group is set up among the 30 participants involved in the program, so that members can both contribute to the pool of money and request loans from it. For Shukrani, the seed capital allowed the business partners to buy large quantities of the ingredients they needed to make the donuts, and their training and mentoring allowed them to identify the demand for donuts in their community.

IPA broke down and measured these various elements of the program for their effectiveness. The study targeted 6,378 households in 138 villages in Uganda. They were divided into six groups, in order to examine the effectiveness of different elements of the program, and each group received varying degrees of the program’s services. Some of the groups received all of the services, others had elements such as the grants or savings group removed, and one group only received unconditional cash transfers. Another received an unconditional cash transfer, coupled with a behavioral and mindset intervention aimed at goal setting and self-affirmation. Then there was the group that was offered nothing.

The results found that the full program let to increased consumption of $23.82 per person in a household, which included more food security and dietary diversity; asset growth of $14.94, which was primarily from the acquisition of livestock; and cash inflows into the household increased by $12.32 per person. The study also found that the full costs of the program appear to be recoverable within three to four years and that the savings group did not reduce poverty but did lead to some improvements in the standing of women. It also found that the unconditional cash transfers didn’t appear to have meaningful impacts on poverty outcomes, and that the behavioral mindset interventions did not appear to lead to increases in consumption.

Graduation programs targeting the ultra-poor are expensive, Damien Kirchhoffer, country director of IPA Uganda, said during a press conference in Kampala on Thursday. But the results show that Village Enterprise’s model, which is more streamlined and more cost-effective than other graduation programs that have been studied, is still effective.

Future research will include finding ways to design programming to target the poorest of the poor, he said, as they currently see the least amount of benefit of the graduation programming.

Results-based finance

More than 156,000 people in Kenya and Uganda have been trained by Village Enterprise over the past three decades, which has led to more than 39,000 businesses started by its graduates, according to the organization.

Village Enterprise plans to use the funds from the DIB, which was designed to demonstrate a cost-effective pathway to scale for graduation programs, to start some 4,000 micro-enterprises over the next three and a half years. Under the arrangement, the U.S. Agency for International Development’s Development Innovation Ventures, the United Kingdom’s Department for International Development, and an anonymous funder, pay back investors the original investment plus interest, if outcome targets are delivered. 

This funding mechanism gives Village Enterprise access to a larger pool of capital that is more flexible than what they might receive through more traditional grants, as previously reported by Devex.

The targets are based on increases in consumption and net assets, including savings, and an independent RCT, carried out by IDinsight, will assess the impact. If Village Enterprise is successful in implementing the DIB, it could be a scaling financial mechanism, because funders are interested in results, Dianne Calvi, the CEO of Village Enterprise, said during a press conference in Kampala Thursday.

“The advantage of having these RCT results is that they will serve as the benchmark for the RCT for the impact bond,” she said. “We did quite well. In fact, this particular RCT shows that Village Enterprise is one of the most cost-effective interventions and we are hoping to do even better with this impact bond.”

Village Enterprise has a methodical approach to scale, said Brian Boland, vice president of Publisher Solutions at Facebook and co-lead of the Delta Fund, a donor advised fund that is the lead investor of the DIB.

“Silicon Valley is all about to the moon or nothing, so if it’s not the thing that’s actually going to save the world at scale, there’s a little bit of dismissal of it,” he said. “If you go too far, where you say it has to scale to massive proportions, you miss out on opportunities. Village Enterprise is very methodically scaling. They are not coming in and saying here is how we launch in every country.”

He told Devex that what convinced him and his wife, Katie, to support Village Enterprise was clarity on goals, commitment to evidence, and a clear pathway to scale.

Going beyond cash

At one point, GiveWell, a charity evaluator based in San Francisco, listed Village Enterprise among its top charities, which gave the organization a sort of seal of approval for philanthropists who identify as effective altruists. Since then, GiveWell, which seeks out high-impact giving opportunities, changed the organization’s status, citing reasons including a lack of evidence of effectiveness and questions regarding how much spending actually reaches clients in the form of grants. Meanwhile, GiveDirectly, a nonprofit that allows donors to send money via mobile phones directly to the poor in Kenya and Uganda, has become a GiveWell top charity, and caused more of the sector to look at cash as the benchmark against which other approaches are evaluated.

But the Village Enterprise team believes this RCT proves that their approach, and the ultra-poor graduation model, works.

“If you really want to lift people out of poverty, they need more than just money,” Calvi told Devex in San Francisco, where she is based.

She explained that while there is still a place for unconditional cash transfers, the extreme poor also need training and mentoring. Calvi said the Village Enterprise team believes their focus on entrepreneurship provides the most sustainable pathway out of poverty for people living in rural Africa. The RCT was designed to prove this program works beyond what cash would do, she said.

The investment in this RCT is one example of how, while Village Enterprise is a small organization, it wants to play not just an implementing role, but a thought leadership role, Calvi told Devex. Village Enterprise has worked with ImpactMatters to become a more evidence-driven organization, incorporating learning into their program, which Calvi hopes to see more NGOs do. The organization has also partnered with Spring Impact to develop the Village Enterprise Accelerator, which offers technical assistance to NGOs and governments interested in implementing the savings program, business training program, or full graduation program.

“There is only a limited amount of philanthropy. You want those dollars to go to interventions with the highest return. You need to prove you have something worth investing it,” Calvi said.

Editor’s note: Village Enterprise facilitated Devex's travel and logistics for reporting in Uganda. However, Devex maintains full editorial control of the content.