How Best to Target the Poor? An Operational Targeting of the Poor Using Indicator-Based Proxy Means Tests

This paper attempts to determine the best microfinance model to target the poor in Uganda.

Policy makers, program managers, development practitioners and MFIs face the challenge of targeting polices, projects and services at the poor. The paper uses household survey data from Uganda to examine four models to identify the poor in the country. It analyzes model sensitivity to different poverty lines and tests their validity using bootstrapped simulation methods. The models:

• Achieve fairly accurate predictions of absolute poverty;
• Can be used to assess MFI poverty outreach and measure changes in poverty over time in the population;
• Are useful tools for the development community in Uganda.

There is no single national poverty line in Uganda. Poverty lines in the country are disaggregated into regional poverty lines that reflect the differences in the costs of living in different parts of the country. The paper uses an expenditure-based definition of welfare with an international poverty line of US$1.08 a day as a benchmark.

This paper was presented at the "Joint 3rd African Association of Agricultural Economists (AAAE) and 48th Agricultural Economists Association of South Africa (AEASA) Conference", Cape Town, South Africa, September 19-23, 2010.