My head is spinning but if you measure social impact, it needs to be
Four years tracking results from 40 inclusive businesses was a tough job, but the question of defining who was a BoP beneficiary wasn't a big issue. But the last 4 weeks have had my head spinning on the question of 'how poor are the poor?' with major organisations releasing new data.
Last month saw upheaval in international poverty lines, with the announcement of new poverty data from the International Comparison Project, while today sees the launch of the 2014 multidimensional poverty index. In between the two, we had the launch of IFC's updated Global Consumption Database with details of how the BoP spend their money. If your focus is on how business reaches 'the poor' or 'BoP', and if you need to move beyond glib use of those terms, all three are relevant.
As I write, the 2014 Multidimensional Poverty Index is being launched by OHPI in London. It doesn't measure income, and instead measures whether households have children in school, children that have died, assets, food. It's an intuitive way of assessing poverty, particularly as you can see how poor people are (how many indicators apply) and how many are poor (how many people score as poor).
A few highlights - but do explore the site yourself:
- 75% of the MPI Poor (meaning those who are poor by the Multidimensional Poverty Index) live in middle-income countries. These may be where impact investment and inclusive business focus, so has interesting implications for us I think.
- 85% of the poor are in rural areas - a much higher share than shown by conventional income data. Controversial.
- 50% of the 1.2bn poor are actually 'destitute'. 97% of them are in Sub-Saharan Africa and South Asia. The only good news is that destitution is falling faster than poverty, with Ethiopia as the stellar example.
The MPI approach doesn't measure income so doesn't need conversion rates between countries. In contrast the well-known '$1.25 extreme poverty line', (the basis of the Millennium Development Goals), is based on converting local currencies into an international dollar, using purchasing power parity (PPP). The PPP conversion factor tells you how much local currency would buy the basket of goods that was worth $1.25 in the US in 2005. At current market exchange rates, it's often much less than $1.25. Last month new data was released from the International Comparison Project. This showed that poor people are actually able to buy more with their meagre shillings or rupees than we had thought. The implication is that fewer people fall under the $1.25 line than we thought (good news of course, though they are still abysmally poor). Bad news for techies, is the difference between market dollars and PPP dollars is even bigger. Looking ahead, it means the World Bank will need to issue new PPP conversion factors, and will probably also uprate the international poverty line above $1.25. A great source on this, and lively debate, is http://www.cgdev.org/blog/global-absolute-poverty-fell-almost-half-...
Does this matter to people who are not World Bank economists? Well I think so, because many businesses and funds try to report whether they are reaching people who live below the $1.25 or $2.50 poverty line, sometimes not realising that these lines are not expressed in market prices (yes, I've done that myself before too). We need to know how to represent international poverty lines in current prices if we are using real-time data from clients. If your clients or farmers are living on under $1.25 per person per day in current prices, sorry this does not mean they live under the $1.25 international poverty line, due to this PPP conversion. You may not be waiting with bated breath for the new PPP conversion rates, but in theory many of us should be using them.
The third and final item that had me delving into the depths of poverty was the IFC's excellent new Global Consumption Database. In my Editor's Choice for June, I explain why it is so useful for businesses, who can find expenditure data for market segments in their sector and country. The depth of market data in there is quite astonishing. Buried in the small print was intriguing explanation of how IFC define the poorest market segments of the BoP: their 'lowest' segment is people on under almost $3 per person per day at Purchasing Power Parity, while their 'low' income segment lives on under almost $9 per person per day (PPP). Their statistics reveal the spending and differences between these groups, between rural and urban households, across a host of items. If you like data, go for a spin in the data.