08/17/2010 04:42 pm ET Updated May 25, 2011

Measure? Alleviate? No, Eliminate Poverty

While academics from prestigious East Coast universities are developing randomized trials to test the impact of microfinance on poverty - and coming up only with modest-sounding results, Martín Burt, the founder of Fundación Paraguaya , is making a bold leap. Not content to measure poverty impact, or even to alleviate poverty, Burt thinks he can get every Fundación Paraguaya client out of poverty. His secret? Tapping the energy of the clients themselves.

Martín Burt is a microfinance pioneer. He started Fundación Paraguaya in 1985 as a micro-lending affiliate of ACCION International, and he built it to acclaim as a top-performing microfinance organization (including the InterAmerican Development Bank best microfinance institution award in 2004). After a brief foray into politics--a term as mayor of Asunción--Burt came back to Fundación Paraguaya with a broad social focus at a time when much of microfinance was exclusively narrowing in on financial services.

Burt contends that the most important contribution of microfinance to development is not so much what it provides but how it operates. Microfinance showed that institutions assisting the poor must become financially self-sustaining if they are to have scale and permanence, two qualities necessary for significant impact on global poverty. Just as important is the way microfinance treats clients - the poor of the world. It treats them as capable people who can be agents of their own development. It supports them in their own efforts toward a better life - the proverbial hand up, not handout. Burt applied this philosophy in developing a model agricultural high school serving students from disadvantaged families in rural Paraguay. The school operates without external subsidy, financed through sales of student-grown and processed products.

Recently, Burt turned his fertile social entrepreneurship imagination to the foundation's group loan clients. They seemed to benefit from their access to Fundación Paraguaya loans, but rarely crossed the line out of poverty, and this bothered him.

He started looking for ways to measure poverty that coincided with his broad "capabilities" view of what poverty is. He and his team came up with a list of 50 indicators in these categories: employment and income; health; housing and physical surroundings; education; civic participation; and self-awareness. Taken together, these indicators would reflect a well-rounded view of a family's quality of life.

The next step is where poverty researchers often bog down. They may agree on shelter quality as an indicator, but how to calibrate shelter quality? Number of rooms? Type of floor? Electricity? And who is going to measure those indicators? Usually a trained enumerator visits a client to ask many probing and personal questions about facets of their lives people may prefer to keep to themselves. The answers are not always reliable.

But reaching back to the microfinance philosophy, Burt saw that the best people to calibrate the indicators were the clients, and the best people to rate the clients against the indicators were again, the clients. Not only did they have the best information about their poverty status, they were also the people for whom the answers mattered most. So, working with five of the client groups and grant support from the Peery Foundation, Fundación Paraguaya began assisting clients to assess their own poverty status. Each person rated herself as green, yellow or red on each of the 50 indicators.

The groups then looked at their overall results and began to create specific goals. For example, one group might decide that for the indicator "nutritious diet" their goal would be for all members of the group to be either yellow or green (no red) by the end of the year. The group would then form action plans, starting with small steps to yield tangible progress, like eating beans twice a week. Some goals, like registering to vote, might be relatively straightforward, while others, like all-weather road access, might not. And some could be tackled individually, while other would require collective action. Burt is counting on group pressure and group encouragement to provide both motivation and a pooling of capabilities, and the foundation will provide training clients to organize themselves into neighborhood committees to lobby for their needs with government officials.

In some cases, Fundación Paraguaya may actually require some actions (one example - child savings accounts) as conditions for remaining clients in good standing. And it is making microfranchising available to some clients who need new income sources. Clients become micro-franchisees, selling services that range from eyeglasses to food kits, generic medicines and school supplies. Their products help neighbors address other poverty indicators while providing income to the seller.

The beauty of Fundación Paraguaya's concept, christened Ikatú ("Yes we can" in Guaraní), is that although it starts out like a poverty measurement program, it turns into a much more important poverty reduction program. As this is written, the project is still in a pilot stage, but Burt is encouraged because the pilot groups already express their feelings of empowerment. They are excited to compete with other groups to see who can meet their poverty elimination goals faster, and that gives them hope in the future.