4.2.5. Overview of Very Poor Populations
Poverty is commonly conceptualized in terms of income and measured using related indicators (e.g., percentage of people living on incomes of less than $1.25 or $2 per day). Such measures are relatively simple to apply and do reflect a causal link between earnings and well-being. Yet although these indicators are informative, they risk an incorrect conclusion: that raising incomes alone is sufficient to reduce poverty. This assumption is tenuous even among the less poor, and particularly so among very poor populations for whom risk reduction and loss management are more immediate priorities. Income-based measures are particularly deceptive when livelihoods are not primarily cash-based. For example, a rural farmer producing most of her own needs may appear much poorer than a urban slum dweller, and yet have a much more secure livelihood.
Research suggests that economic insecurity and the lack of effective safety nets (e.g., savings, insurance, social networks) make very poor populations highly vulnerable to external shocks such as drought, labor market disruptions or illness. They cope by employing a diverse set of strategies to minimize the potential for loss—selecting lower risk activities with lower potential returns, diversifying income sources to reduce income variability, and self-insuring through the accumulation of assets and the cultivation of social networks. These strategies typically limit the growth of a microenterprise, as household income is diverted away from investments that would increase the scale of the enterprise.
Once very poor households have suffered a loss, they seek to manage it using one or more of several strategies:
- First, and most easily reversible, they better leverage existing assets (e.g., further sales of labor, temporary migration) and reduce consumption.
- Second, and less easy to reverse, they begin liquidating productive assets (e.g., livestock) and acquire interest-bearing loans that smooth consumption patterns but reduce the capacity of the household to rebuild their previous livelihoods.
- The final set of strategies is typically made under distress and has long-term consequences—the breakup of the household, reliance upon charity, or permanent migration.
These household strategies to deal with loss reflect the importance of risk management and mitigation among the most vulnerable. Value chain strategies that are predicated on households assuming significant risk may struggle to engage very poor populations.
The relevance of the value chain approach to very poor populations is depicted by the economic strengthening pathway (shown below), which conceptualizes different economic strategies as being relevant at different levels of vulnerability. The levels are understood to be indicative, as households do not always proceed in a linear fashion and may have multiple priorities at the same time. In the initial stages of economic strengthening, as households are recovering and protecting assets, smoothing household consumption and managing cash flow, risk reduction mechanisms interventions are most relevant: savings mobilization, developing informal and formal insurance mechanisms, legal protection and access, and use of basic services. At these stages, investing household assets in income-generating opportunities is unwise given the lack of capacity to sustain investment losses. Supporting food security through effective food availability, access and utilization is critical. The value chain approach is most relevant at stages four and five, as households begin to look for opportunities to grow their assets and expand household income. Sequencing and integrating value chain approaches with other strategies is therefore critical.
One inclusive markets approach that has emerged in recent years and garnered an increasing level of attention has become known as the push/pull approach. The name draws from the business world and has been adapted for the international development arena, integrating learning from graduation models, vulnerable livelihoods programming, behavior change psychology, business development services (BDS) market development, and inclusive market systems. A push/pull approach aims to bring more structure to poverty reduction work at both ends of the economic spectrum through a more interactive, coordinated, market-led process of gradual change at both the household and systems levels. It is one of many approaches that can support pathways out of poverty for the extreme poor. To download a framework for a push/pull approach to inclusive market Systems Development Framework for a Push/Pull Approach to Inclusive Market Systems development, click here.
There are several tools for understanding the context of very poor populations and their livelihoods that can be useful for value chain programming. These include:
- The Sustainable Livelihoods Approach
- Household Economy Analysis
- Poverty Assessment Tools
- Progress Out of Poverty Index
- Food Security Survey
- ↑ http://go.worldbank.org/RQBDCTUXW0
- ↑ E. Dunn, N. Kalaitzandonakes, and C. Valdivia, Risk and the Impacts of Microenterprise Services, (1996), 22-28.
- ↑ E. Dunn, N. Kalaitzandonakes, and C. Valdivia, Risk and the Impacts of Microenterprise Services, (1996), 22-25.
- ↑ E. Dunn, N. Kalaitzandonakes, and C. Valdivia, Risk and the Impacts of Microenterprise Services, (1996), 25-8.
- ↑ J. Wolfe, Household Economic Strengthening in Tanzania: Framework for PEPFAR Programming, 2009.
- ↑ J. Wolfe, Household Economic Strengthening in Tanzania: Framework for PEPFAR Programming, (2009), 7.