Microfinance has provided access to financial services for many of the world's poor, and its proponents have hailed it as an effective tool in the fight against poverty. But there is a concern that microfinance is not well-suited to the poorest of the poor, because it assumes access to minimum levels of economic opportunity. For households struggling to meet basic consumption needs, transfers may be the more appropriate first step. It remains to be seen, however, whether interventions targeting ultra-poor households can move them from living in a condition of extreme poverty to a level of self-sufficiency that makes them candidates for microfinance.

Ethiopia is a poor country in East Africa that faces many development challenges. 85% of Ethiopian households are engaged in agriculture and 39% of Ethiopians live below the poverty line. Ethiopia is known to have had periods of extreme famine. More recent efforts of aid relief have begun to shift from direct food support and food-for work programs to interventions designed to increase long-term prosperity. These interventions include credit for entrepreneurship, savings associations, and agricultural support, such as irrigation, water storage, and market linkages.

The Targeting the Ultra Poor (TUP) intervention targets the lower tier of those households that are already a part of The Productive Safety Net Programme (PSNP), one of the Government of Ethiopia's flagship reform programs. PSNP aims to address food security issues by offering guaranteed employment for five days a month in return for transfers of either food or cash. TUP combines safety net programs with entrepreneurial activities to develop a microfinance graduation model for the poorest households. The intervention poses the question of whether the poorest of the poor can graduate from charity beneficiaries to microfinance clients.

Five hundred treatment households in ten villages in Wukro district of Ethiopia will initially receive a cash stipend and consumption support in the form of 15kg of wheat per month, transferred through PSNP. Once households' food consumption stabilizes, they will receive individual savings accounts at DECSI, a microfinance institution operating in the region, as well as business training. Later on, participants receive a carefully chosen asset, including sheep, goats, vegetables or beekeeping, to help jump start a new economic activity. Participants are monitored throughout the process - they receive home visits to help boost confidence and build expertise, and are provided with access to REST social and health services.