New Publication: Exploring the Business Models Behind Microsavings

In a new paper, Exploring the Business Models Behind Microsavings, FAI affiliate Daniel Rozas seeks to disentangle some of the existing complications in the microsavings story by exploring several key questions:.

  • How might one define the different models by which MFIs provide savings?
  • How are they distinguished, where are they more prevalent, and which institutions are more likely to adopt them?
  • And is there a difference in outcomes—in terms of cost, outreach, and profit?
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The Bail Trap: When a Lack of Savings Means Jail Time

Recently, The New York Times Magazine ran a feature on the bail process for petty crimes, with a focus on the Brooklyn, NY court system.  Although bail was historically set as a bond to ensure a defendant will return to court for trial, it is increasingly used as a tool for incarceration.  According to the article, at any given time, 450,000 individuals in the U.S. are held in detention awaiting trial because they were unable to pay their court-assigned bail.  A disproportionate number of these are poor.

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Notes from the Field: New Video from Our Mobile Money Research in Bangladesh

In the past, we've talked about peer effects and low adoption rates of mobile money banking accounts in Bangladesh. Our research exploring these issues (as well benefits for migrant workers)  is in full swing!  It is a randomized evaluation, which means that half of the sample is randomly assigned to a control group, while half of the sample is randomly assigned to the treatment group, which receives training and assistance with signing up for mobile money accounts. 
In this video, co-investigator Dr. Abu Shonchoy audits the training by re-interviewing a woman who was part of the treatment group to make sure that the training was thorough and made the service understandable to the participant . . . 

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2014 Global Findex: Is the Glass Half Full?

The 2014 Global Findex data has been a hot topic of conversation around the FAI offices since its release last month.  While there is a lot to dissect in the 97-page report, the biggest headline is the 20% decrease in the number of unbanked worldwide  - approximately 700 million people worldwide. 

However, there are concerns that this number is overstated and the data leave us with outstanding questions as to why certain trends occur over the last 4 years.  One reason is we do not yet have access to the microdata.  When we can only use broad strokes to tell a nuanced story, many of the finer points are lost, like regional differences in financial inclusion changes. 

Another example is the data around gender . . . 

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When Social Networks Are Everything, but Not Enough

We know that the path out of poverty is rarely a smooth one.  The poor are buffeted by a wide range of shocks, pushing them backwards along the way.  Exploring the world of risk in the Kenya Financial Diaries, we learned that for many of the poor, navigating a world of risk is actually not only about how you manage your money.  It’s also about how you manage relationships with friends and family who can come to your aid when things go wrong.  Consider Greta’s story: 

Greta and her husband had saved money for a caesarian section she would need to deliver her baby. But public health facility workers went on strike just she was due, and the cost of care at a private facility was five times higher, much more than Greta could finance without hard and dangerous sacrifices. Through friends and family Greta was able to raise roughly 75% of the additional funds needed. 

For low-income Kenyans, social network financing of risk is incredibly powerful . . . 

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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.


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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