Goats and Soda : NPR

In a remote region of southwestern Uganda, economist Dean Karlan encountered an unexpected puzzle. He was there to evaluate a poverty alleviation initiative he had helped create, but the program wasn't unfolding as planned.

The program utilizes the Graduation Approach, built on the principle that financial resources are essential for generating more wealth. Participants typically receive around $200 in grant money, along with business training, to start small ventures. These businesses can range from agriculture and animal husbandry to hairstyling or selling used clothing. Graduation programs have demonstrated significant success in approximately 20 countries, and a United Nations report has lauded them as a promising pathway out of poverty.

Karlan is a well-known expert in poverty solutions. He founded the research group Innovation for Poverty Action and previously served as chief economist for the United States Agency for International Development.

For the Ugandan program, Karlan introduced an innovative approach. Instead of providing individual grants, he allocated larger block grants of approximately $4,000 to groups of about 20 individuals, intended for joint management. This structure allowed participants to access larger loans than the standard $200. Moreover, the interest earned on loan repayments was distributed among all group members.

Each group was responsible for establishing its own rules for managing the grant, including setting borrowing limits, interest rates, and repayment deadlines.

That said, the reality is a bit more complicated. when Karlan conducted a follow-up visit after two years, he discovered that only half the participants were meeting expectations.