Poverty Scorecards: Lessons from a Microlender in Bosnia-Herzegovina

Publication Date: 23 Dec 2004
Published by: Microfinance.com
Document Type: Paper

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Are poverty scorecards good indicators of poverty?

This paper analyzes how well a simple scorecard identifies poor clients at a micro lender in Bosnia – Herzegovina. It argues that:

• The scorecard ranks clients by relative poverty and identifies the likelihood that a client is poor by an absolute standard;
• The score tracks poverty more closely than loan size, which is microfinance’s traditional poverty indicator;
• Poverty scorecards are a simple, inexpensive way for micro lenders – or any other developmental entity – to target the poor, track changes in poverty over time, manage poverty outreach, and report on clients’ absolute poverty.

The paper lists the following lessons for poverty measurement that would be of use in microfinance, and development, in general:

• Poverty scorecards need not be complex or costly;
• If a scorecard is derived from an expenditure survey, then it can estimate poverty rates based on absolute benchmarks; however, such an estimate can be biased. Reducing bias requires including many indicators and/or surveying both clients and non-clients;
• Simple weighting schemes are the best. Data quantity and quality matter more than statistical sophistication;
• Programs might use two scorecards – the first with more indicators that managers can use, and the second with fewer indicators that donors can use. The first larger scorecard is more accurate and therefore more useful in targeting and tracking;
• Loan size is correlated with poverty likelihood, but not very strongly;
• Domain knowledge – about the country, intervention and program – is very important;
• Poverty scorecards are not specific to microfinance;
• Poverty scoring can promote an organizational culture of intentional explicit management of poverty outreach.