Scale vs. Concentration in Poverty Outreach >

By Emily Hanak

Published last summer, Poverty Outreach of Selected Microfinance Institutions in the Philippines analyzes client-level poverty data from selected MFIs in the Philippines that use the Progress out of Poverty Index^®, or PPI, to measure client poverty. The report examines three aspects of poverty outreach that are integral to evaluating an organization’s social performance: concentration, scale, and penetration. 

Significant questions are raised within the report about how best to balance scale and concentration when setting poverty outreach goals.  For example, the two largest MFIs profiled in the report serve the highest number of poor clients even though smaller MFIs have higher poverty concentration in their portfolios (see figures 5 and 11 from the report below). This is not uncommon in the field of microfinance. Is this acceptable, or should these large MFIs attempt to increase their poverty concentration? Are scale and concentration mutually exclusive? How can an MFI or pro-poor organization realistically achieve both? 

The microfinance sector often views high poverty concentration as a determining factor in whether an organization meets its social goals. Yet the two larger-scale MFIs noted in the report are not disregarding social performance standards by retaining a lower relative concentration of poorer clients. Reaching scale is equally important for pro-poor organizations in order to provide critical services to a larger population. Viewed separately, scale and concentration could appear dichotomous, leading to an incomplete interpretation of poverty outreach. Penetration provides a context in which to view both concentration and scale, illustrating the share of poor households served by an organization within a specific area and allowing us to further examine outreach. Assessing all aspects of poverty outreach collectively is therefore imperative to understanding the true depth and breadth of an organization’s impact.

Cost of service delivery can significantly influence or limit an organization’s poverty outreach strategy. Pro-poor organizations must weigh the costs and benefits of specifically targeting the poorest populations, as costs may become prohibitively high when expanding outreach to poorer areas (taking into account increased levels of risk, geographically remote locations, low population density, etc.). Cross-subsidization, or charging less-poor clients a higher price in order to offset the cost of service delivery to the poorest clients, is one solution to high costs. Hospitals and public health programs have long used cross-subsidy models to reach increasing numbers of the poor, and perhaps this can be effectively translated across all pro-poor organizations. Yet there is debate surrounding who should be subsidizing outreach to the poorest—less-poor clients or external funders.

Charging less-poor clients more may prohibit them from rising as quickly out of poverty, or exclude them from becoming clients completely. Serving a higher number of less-poor clients can increase the total number of clients and lead to greater scale, as seen in the cases of MFIs C and D in the report, but to pursue this strategy an organization’s leadership must be comfortable with lower poverty concentration overall.

External funding for targeting the poor is another option, but this leads us to consider the importance of sustainability — is dependence on external funders justifiable if it allows an organization to increase scale without lowering concentration?

Perhaps reaching both concentration and scale is not the answer for organizations in achieving poverty alleviation — and instead organizations should strike a balance between them. An organization’s strategic approach to outreach must be informed by its target market, mission and goals. While some organizations make it their mission to primarily serve the ‘poorest of the poor’, the market allows for breadth across organizations and sectors, all with their respective visions and strategies for reaching the poor. Organizations can reach more poor people by offering differentiated products and services, each targeting a distinct population based on its infrastructure and capacity.

Analyzing all aspects of poverty outreach, including trends over time, can help an organization expand outreach while keeping their mission in mind, and make better targeting decisions in order to meet the double bottom line of social and financial performance. It is critical to continue monitoring and questioning ourselves to determine whether we are meeting our social performance goals, and to ensure those goals accurately reflect the needs of those we wish to serve most.