Knowledge Center / Frequently Asked Questions

The Bottom Billion author Paul Collier defines the bottom billion as the roughly 60 poorest countries that are home to about a billion people—the countries “that are falling behind, and often falling apart.”  Economists look at development from the top down in terms of countries, GNP, global aid and trade flows.  While this is useful, it also glosses over some important disparities that the aggregate numbers and averages don’t address.
The Bottom Billion Fund proposes a slightly different definition of the bottom billion.  In the same spirit of Paul Collier’s great insight, it is with a greater focus on those people with the greatest need, but no matter what country they live in.
This distinction has power for changing the way economic development is understood and pursued. It defines the Bottom Billion people as the 1.4 billion people that live in extreme poverty on less than $1.25/day and makes them a first priority for development solutions.
$1.25/day PPP (purchasing power parity) is the current definition from the World Bank as the measured line for extreme poverty.

See http://siteresources.worldbank.org/JAPANINJAPANESEEXT/Resources/515497-1201490097949/080827_The_Developing_World_is_Poorer_than_we_Thought.pdf
And 
http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html

Though China and India have experienced extraordinary national growth with increased opportunities for many, these two countries are home to nearly half of the Bottom Billion people. Approximately 400 million people in India (or 35% of the population) and 200 million people in China (or 15% of the population) still live in extreme poverty. Growing national income is surely important and valuable, but it does not assure that the poorest are included in this growth.

Most free market solutions and public programs reward profit or program success above inclusion, especially inclusion of the poorest.

There are many understandable reasons why Bottom Billion people are excluded or slip through the cracks. Most Bottom Billion people bring less capital to the table.  Not only do they have less working capital and fewer assets, but also less health, less education, and less social connections, too. Since Bottom Billion people usually live in communities or slums where there is less clean water, less sanitation, less access to natural resources and less community resources, it is easy to see why development programs that wish to report successes might not include Bottom Billion people.

It has been estimated that $300 billion is needed to fully fund global microfinance and bring access to every poor person on the planet who would wish to receive it.

As little as $30 billion could fully fund microfinance for all the Bottom Billion people who could use it.

The quality of solutions on which the money is used, however, is more critical than the total amount of money used when it comes to serving the Bottom Billion people efficiently and effectively.

This simple question has proved difficult to answer.  Answering it requires the ability to distinguish the Bottom Billion people from the middle poor, something that is only recently possible due to the creation of poverty measurement tools including the PPI (progress out of poverty index) and the PAT (poverty assessment tool). Though the number of MFIs using poverty measurement tools is still small, and results are not yet widely published, it is suggested that less than 10% of the Bottom Billion people are currently being served by microfinance.

Determining how much microfinance does for its clients, let alone its Bottom Billion clients, is proving difficult to answer as well.  On one side, microfinance has had many anecdotal claims of dramatic benefits for its clients. A number of impact studies have helped strengthen the case of microfinance benefitting its clients, though rigorous causality has been hard to test and prove. On the other side, several academic researchers and microfinance critics have repeatedly questioned whether there is any hard evidence that microfinance does any good for its clients at all. A continuing rigorous dialogue with more research based on good data should be welcomed for assessing and improving microfinance practices and for maximizing benefits to clients. In the mean time, however, it is important to reconcile that we may see the end of extreme poverty before we see definitive answers to all of these questions. And that’s OK.  As Sasha Dichter, Director of Business Development at Acumen Fund, writes:

It feels to me that no one would bother asking in a serious way to do a [Randomized Control Trial] on cellphones, because it’s no longer anyone’s business to ask that question – because the market has taken over.  The product is appealing enough, consumers have spoken, we can all agree that the ability to communicate via a cellphone creates positive externalities – some economic, some social – and since we’re not using up grant money to pay for it, it stops being the purview of development economists to fret about this.

Improvements as little as 1% to 2% in the number of people leaving extreme poverty each year, thanks in part to microfinance solutions, can have a tremendous impact on eliminating extreme poverty over the next decade.

Credit is surely not a magic pill to cure poverty and increase incomes. It helps by leveraging the skills and hard work of the borrower.

Just as a credit card does not make a small business succeed, but can help a good small business manager succeed, microfinance is a tool that can help many enterprising individuals make inroads to better support themselves, their families, and their communities.

In the wrong hands, or promoted to the wrong clients with inadequate training and preparation, or in too large an amount, credit is damaging and can even be part of an addictive downward spiral of over indebtedness. Just like credit for all populations, credit for the poor must be matched to the scale of the borrower’s cash flows.

Microfinance can’t solve extreme poverty by itself.  Microfinance is not a magic pill.

But people can work to help end extreme poverty, and microfinance can help them do it.

Perhaps the greatest single motivation for the creation of the Bottom Billion Fund came from a CGAP study of MFIs in the early 2000s that reported which regions foreign direct investment in MFIs was flowing to, compared to which regions were home to the largest numbers of Bottom Billion people. The data showed that over 90% of investment flowed to MFIs in regions where less than 10% of the Bottom Billion live, and less than 10% of the investment flowed to regions where over 90% of the Bottom Billon live.

This data suggested that investment in microfinance was not very closely aligned with microfinance for the Bottom Billion.

More recent data collected by CGAP shows that the numbers have been improving for Bottom Billion microfinance.  About 38% of foreign investment now flows to the regions where over 90% of the BB live. 51% of foreign investment in microfinance continues to flow to the regions where less than 10% of the Bottom Billion live.

In the face of the humanitarian crisis that is extreme poverty, the Bottom Billion Fund brings more investment to microfinance for Bottom Billion people.

The beauty of profit incentives in free markets is that they drive capital to places where capital can be used most efficiently and provide the highest returns. Bottom Billion Fund’s financial incentives for investee MFIs achieving measurable financial and social progress in the lives of the Bottom Billion people can spark new sources of motivation, growth and ideas for efficient and effective solutions to help serve the Bottom Billion people, and help eliminate extreme poverty.


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