You Say M-Shwari, I Say Payday Loan

Over at CGAP, Julie Zollman has a terrific post on M-Shwari, the Kenyan borrowing and saving platform built on M-Pesa, examining the underlying customer needs that have led to M-Shwari’s success. Here’s a key passage:

The appeal [of M-Shwari] was the possibility of being able to borrow on demand, in real time, to stretch families’ ability to make ends meet in the short term.  M-Shwari offered liquidity bigger than credit from local shops; faster, more private, and more reliable than friends and family, and cheaper than moneylenders. Here was a product that … solved a very real financial need while also getting delivery right: being accessible, having simple rules…
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Linking Wage Labor and Savings: Evidence from Sri Lanka

We often talk about how access to financial instruments may complement entrepreneurship.  Financial instruments such as vehicles for savings and loans may help to encourage entrepreneurship and investment by making it possible for individuals to make larger investments and to hoard returns for the future.  Less has been said about the interaction between financial access and wage work, but a recent paper by Michael Callen, Suresh De Mel, Craig McIntosh and Christopher Woodruff shows, perhaps surprisingly, that a strong link can exist between financial access and wage labor as well.

In their experimental study, individuals in Sri Lanka were offered access to an improved savings product in which weekly deposits could be made to deposit collectors operating door-to-door with digital point-of-service terminals to record deposits.  As in previous studies, access to the savings product increases savings and expenditures.  The authors however also find that access to this savings product increased incomes while simultaneously encouraging disinvestment in microenterprises . . . 

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WSJ: Financial Inclusion in Asia and Microcredit's Impact

This week, The Wall Street Journal featured a pair of articles on current issues in microfinance. The first highlights the varied strategies governments across Asia are employing to promote financial inclusion, including mobile technologies and India's policy of universal bank accounts.  However, some are concerned about the $80 overdraft feature of these accounts, and liken the potential risk of indebtedness to the past failures of microfinance.  FAI's Executive Director Jonathan Morduch notes that indeed, microfinance's impact on poverty alleviation to date has been "disappointing" . . . 

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Borrower Identification vs. Product Design: Does "Who" or "What" Matter More?

Given the mixed results of recent randomized evaluations of microfinance, an open question is whether there are broad limits to the benefits of microloans or whether programs can be tailored in specific ways to maximize impact.  Two features of microfinance programs that may matter are targeting and product design.  A recent working paper by Pushkar Maitra, Sandip Mitra, Dilip Mookherjee, Alberto Motta and Sujata Visaria investigates the role of these features by studying a microfinance program they term TRAIL, or Trader Agent Intermediated Lending.

The paper compares the impacts of a traditional group-based lending microfinance model to a more innovative and targeted model in the context of smallholder farming in West Bengal.  The TRAIL model targets loans by incentivizing local traders to identify high potential borrowers for unsecured individual loans. The loans also have some innovative terms . . . 

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Mobile-izing People in Bangladesh

This post written by Shamsin Ahmed and Kazi Amit Imran

Bill and Melinda Gates’ 2015 annual letter bets that over the next 15 years mobile banking will have a transformational effect on the lives of the poor. In Bangladesh, about 70% of the population is unbanked, yet an equivalent percentage of the population—not necessarily the same people though—has access to mobile phones. Put two and two together and mobile money is a no-brainer from our perspective.

Since the launch of the first mobile money product in 2011, mobile banking  has been made possible in part by the efforts of the government’s mandate to create a ‘Digital Bangladesh’, and the subsequent policy support from the Central Bank to promote the growth of the mobile finance industry . . .

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New Studies Highlight Immigrant Financial Access in NYC and Beyond

Last week a coalition of NYC-based nonprofits released a report on the financial status of immigrants in Queens. It’s part of a growing body of research drawing attention to how financial service providers can meet the distinct needs of America’s massive immigrant market. Just last summer the Center for Financial Services Innovation published a national, in-depth analysis of immigrants’ financial needs and recommendations for addressing them . .  

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New 2014 State of the Industry Report on Mobile Financial Services for the Unbanked

Today, the GSMA Mobile Money for the Unbanked (MMU) programme releases its 2014 State of the Industry Report on mobile financial services. Published annually, the report provides industry practitioners with insights into the important developments taking place in mobile money, mobile insurance, mobile savings and mobile credit.

The mobile financial services sector continued to expand in 2014, boosted by the creation of more enabling regulatory frameworks in several markets. With 255 mobile money services in operation across 89 countries, mobile money services are now available in over 60% of developing markets.  Today, mobile financial services are firmly established in the financial sectors of the majority of the developing world, serving new business areas and enabling a wider range of digital payments . . . 

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Hopefully Not the Final Word on Microcredit (Part 2)

Despite the long-awaited publication of six impact evaluations of microcredit, there are still many questions to be answered. But I worry about whether we will ever get answers. I don’t think that anyone involved in the impact evaluations would consider them to be the “final word” but that may be, de facto, what they are.

Why?

Back in 2011 the Development Impact blog published a survey of young academics which listed microfinance as the “least under-researched” topic in development. In other words, up-and-coming researchers were saying that enough work had been done on microfinance. You can be sure that ambitious economists looking to make their mark are not going to direct their limited energies toward a topic they think is well-covered. Indeed, while I haven’t done a thorough analysis of this, my impression is that there have been a declining number of papers devoted to credit in the last few years at NEUDC, one of the best places to see new academic work. Whether or not the impact studies are the final word on microcredit, they may be the final word in academic interest . . . 

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Hopefully Not the Final Word on Microcredit

In January, the American Economic Journal: Applied Economics published a special issue devoted to impact evaluations of microcredit. You can see an overview and some of my thoughts here (and some other write ups here and here). Justin Sandefur, from CGD, titles a blog post on the issue, “The Final Word on Microcredit?”

I really hope the answer to Justin’s (rhetorical) question is “No.” Because I still have a lot of questions.

If you haven’t been keeping score on the microcredit evaluations, all of which have been circulating for a few years now, here’s the bottom line according to Esther Duflo (editor of AEJ:Applied and co-author of one of the studies) “These loans do help, but the changes are not transformative, certainly not transformative enough to justify charitable donations to the standard microcredit model.”

To provide a bit more detail, while the six studies are quite different—who got access to credit, loan amounts and terms, local context, time, metrics, etc.—none found significant increases in income, consumption or spending on things like health or education . . . 

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What We Talk About When We Talk About Savings

A few weeks ago I attended the first day of the New England Universities Development Consortium’s annual conference. It’s a good place to see the latest economics research on a pretty wide variety of development topics, including microfinance. During one session that included presentations of four papers, I noticed that three were about “savings” but each, on closer inspection, had a very different definition of “savings.”

One paper was examining the demand for credit versus savings, but the savings in question was money set aside for less than two weeks. Another was evaluating a program to encourage savings among 8 and 9 year olds and measured account  balances at the end of a school semester. The third discussed savings accounts held in formal banks in Nigeria, with massive balances compared to the other papers.

So what are we talking about when we talk about savings?

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Hidden from View: Mobile Money and the Policy Agenda

The past few weeks have seen plenty of ruminations about Uber’s potential invasions of privacy and the amount of data Google collects from its users. The concern is that these companies could use this data for nefarious purposes (although your definition of nefarious may vary). An Uber executive, for instance, suggested that the company could “dig up dirt” on journalists who wrote negative stories and hinted that they’ve already tracked the movements of at least a few reporters to date.

Felix Salmon writes that this is only the beginning of a wave of privacy scandals. What I found most remarkable in the various columns, threads, and postings is that I didn’t see a single mention of credit card companies or other financial institutions . . . 

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Cash Transfers: The Conversation Continues

Last night FAI had the pleasure of co-hosting a lively and informative panel discussion on the impact of cash transfers in international development with the Microfinance Club of New York.  The panel (moderated by FAI's Timothy Ogden) included Paul Niehaus and Jeremy Schapiro, co-founders of GiveDirectly, Jenny Aker, Assistant Professor of Development Economics at The Fletcher School, and Johannes Haushofer, Assistant Professor of Psychology and Public Affairs at Princeton University. 

As is to be expected when you mix practitioners and academics, the evening's conversations had a good mix of thoughtful insights, debates, and allusions to other bodies of work for futher research.  Below is a list of what was mentioned as well as some additional items we feel are a nice complement for the issues raised by the panelists, including a new FAI infographic showing what we know so far about microcredit. . . 

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NYT: Unsteady Incomes Keep Millions of Workers Behind on Bills

Today, The New York Times featured research from the U.S. Financial Diaries as well as other sources to explore the issue of income volatility and how it is affecting the financial lives of Americans.  The complete article is available here.

For millions of Americans, including USFD households, income fluctuates monthly, weekly, and seasonally.  In fact, 61% of the time (for those in the study), there is a mismatch between spending needs and income flows.  According to principal investigator Jonathan Morduch, “This is a hidden inequality that often gets lost.”

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The Hidden Financial Lives of Working Americans

Today researchers and national experts will share early findings from the U.S. Financial Diaries (USFD) project, which tracked every dollar earned, spent, borrowed, saved, and shared by 235 low- and moderate-income households in five states over the course of a year—thus providing a powerful picture of how millions of Americans work to make ends meet.  At the event, you will have first access to USFD findings. . . 

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The Wisdom of the Group: FAI's Newest Briefing Note on Savings Groups, Research, and Product Design

Budgeting can be a daunting task for the poor. Poor families must stretch low, often-volatile income to meet basic consumption needs, and handle un­foreseen expenses. Despite these challeng­es, the poor are able to save. They often do so in small amounts for short periods of time, adding to and spending down savings frequently. But short-term saving seldom results in long-term assets—it is not a tool for building up larger sums.

The poor have an acute need for savings tools to amass lump sums of money, yet the supply of useful products often falls short, in part because formal providers face barriers to entry in this market. Savings groups are (and have been) a traditional method used by households around the world to save.  But what makes these groups effective?  What value do they provide for members? Can lessons from savings groups inform the design of products that reduce cost, reduce risk, and help consumers save?

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Thriving but Still Vulnerable in the US

The latest household profile from the U.S. Financial Diaries project presents the story of Mateo Valencia, 31, and Lucia Benitez, 30.  Mateo and Lucia are an unmarried couple currently living in Queens, New York after moving to the U.S. from Ecuador in 2005. They live with their four-year-old son Pablo in a three-bedroom, one-bathroom townhouse, and they rent out rooms to friends and relatives who are between homes or jobs. Mateo and Lucia are in many ways emblematic of the American immigrant experience. They came to the U.S. with hopes of building a better life and while they are not truly secure yet, they are finding opportunities. They each work multiple jobs and actively seek additional income earning opportunities. But Mateo and Lucia live much of their financial life outside the formal financial system. They deal primarily in cash, so there is little information to support a credit score and they do not have long-term savings or health insurance. Their undocumented status also undermines their ability to invest in the long-term . . . 

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New USFD Household Profile

Each of the U.S. Financial Diaries' Household Profiles presents the financial life of one family in the USFD study. While these families are not necessarily representative of the total sample, they illustrate recurring themes: households struggling with income volatility, unplanned expenses, and finding ways to save and invest, but also using creative–and sometimes counter intuitive–budget and money management strategies to help make ends meet. 

The latest profile focuses on Elena Navarro,  27-year-old woman living outside of San Jose, CA.  She has a bachelor’s degree and ambitions to attend law school. While Elena’s degree and experience qualify her for jobs that pay well above the poverty line, she lives close to the margin . . . 

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