The BBVA Microfinance Foundation is the first private organization to use this index to study the situation of the 2.8 million entrepreneurs it serves in five Latin American countries, to better understand the needs they face, and to design value proposals that improve the living conditions of those who need it most.
The Multidimensional Poverty Index is a standard adopted by the United Nations that has become internationally accepted. More than 100 countries use this methodology in their official statistics. This way of measuring poverty complements the traditional one, based on income level. In multidimensional poverty, the elements considered reflect the more structural aspects of poverty. According to Sabine Alkire, director of the Human Development and Poverty Initiative at Oxford University, which developed this methodology, “our goal was not just research for academic publications. We always thought that we wanted to be useful to poor people and that the measurements could be used for public policy-making, as well as by NGOs and the private sector.”
But what does it mean to suffer from multidimensional poverty? The study, conducted by BBVAMF, is based on nine indicators that target three dimensions of poverty: education, health and housing. It measures how many and with which intensity do households experience these deprivations. These indicators are used by countries in their multidimensional poverty statistics.
The most common deprivations in the entrepreneurs’ households are the number of years of schooling (affecting 42% of households), sanitation (26%) and water access (20%); followed by housing materials (19%) and Internet access (19%). Around 24% of households simultaneously suffer deprivations in three or more indicators which defines them as multidimensionally poor.
“We want to deepen our understanding of the entrepreneurs’ families’ well-being in order to improve their quality of life. That is why we used this method of measuring multidimensional poverty, which complements those we have already been implementing,” shared Stephanie García Van Gool, director of Impact Measurement and Strategic Development at BBVAMF, who led the report.
Education and health are among the most important development gaps detected by BBVAMF, which has made low-cost health insurance available to its entrepreneurs, reaching nearly 180,000 beneficiaries by the end of the year and providing training to 594,614 people during 2021.
Entrepreneurship also has an indirect impact on their communities. Although it is a tool for self-employment for most of them, 35% provide jobs for other people.
This multidimensional view is complementary to that of monetary poverty. The study shows that there are people who are not poor monetarily speaking but they do suffer from these structural deprivations. In fact, there is a significant number of BBVAMF entrepreneurs with incomes above the monetary poverty line who suffer from deprivations in their education, health and housing simultaneously. Another finding is that people who are multidimensionally poor are more likely to be more impacted by a “shock”.
Post-pandemic recovery
Spanish household savings increased 2.3 times in 2020 as a consequence of the restrictions imposed by the health situation and the fear of contagion, according to data from BBVA Research.
“This has not been the case for vulnerable households in Latin America; throughout 2020, 71% of the entrepreneurs we served saw their savings totally or partially affected. And despite government assistance, the average balance also declined in 2021,” as explained by Garcia Van Gool.
The pandemic has increased regional inequality due to high job destruction, especially in lower-income segments and has increased poverty and inequality levels despite the policies implemented by the different countries.
In 2021, a good part of these impacts were offset by a GDP recovery. Nevertheless, employment recovery was at a slower pace than economic activity, so that a higher level of entrepreneurship was observed as a mechanism for seeking income or diversifying it.
The impact of the pandemic was significant for both microenterprises and their households, confirming their financial fragility. Many of these businesses have been revived, but face new challenges, such as climate change or the global food crisis (the United Nations FAO Food Price Index reached an all-time high of $159.7 in March this year, up from $141.1 the previous month).
Now more than ever, BBVAMF will continue to support entrepreneurs. In the words of CEO Javier M. Flores, the most important aspect of the Foundation’s 15 years of activity is “to have helped millions of people to have a better quality of life. That is our main objective.”
Young entrepreneurs, the new profile
The economic reactivation has seen the surge of a new profile: the young entrepreneur, generally urban residents and with higher educational levels, who in 2021 represent 39% of new clients and more than 20% of active loans of BBVAMF’s MFIs. Focused mainly on the highly competitive retail sector, their ease of adaptation to digital environments opens up new opportunities for them.
They stand out for the number of new ventures as well as for their faster capacity to recover. Despite having a better educational level than their elders, they have seen their job opportunities diminished, so they are more business-oriented than before this crisis. Their ease of adapting to a digital environment has helped them with this recovery.
The type of activity they carry out, mainly in an urban environment (65%), adapts quickly because of their ease towards changing or diversifying their products and because the initial investment in assets is lower than in other activities, in spite of fierce competition.
Households’ efforts to adapt
Despite the financial shock, many of the low-income entrepreneurs served by BBVAMF entities, most of them women (57%), have managed to reactivate their businesses through retail trade. The agricultural sector, less affected by mobility, has continued to grow. Before the pandemic, the rural environment was particularly unstable. Now, however, uncertainty is greater in urban areas.
Behind these data is the enormous adaptation effort of many households. Financial stress has affected them notably, and the increase in their income instability has been flagrant: in 2019 it affected 25% of them, while in 2021 it affected 35%.
Of these entrepreneurs, many have achieved the same income as before and at growth rates close to those of 2019: the average in 2021 stands at 18% growth in sales and 21% in their profits.
Education and health, priorities for BBVAMF
BBVAMF has developed initiatives and products to improve household needs in housing, sanitation, education, health as well as productivity and environmental resilience. In 2021, these initiatives benefited more than 210,000 entrepreneurs, granting loans worth over $130 million.
García Van Gool has highlighted the importance of “building long-term relationships for a positive and sustainable performance. We observed that it is after three credit cycles when people who initially had incomes below the poverty line cross this threshold and on average, the pool of poor entrepreneurs is reduced by 27% after two years of relationship with the Foundation’s MFIs, showing a positive and growing trend”.
“After two years, 5% of the entrepreneurs have improved their housing conditions and 1% have improved their level of education, with a consequent positive impact on future generations,” she stressed.