1. Mentors for Microenterprises in Kenya: Brooks, Donovan and Johnson assign high profit microentrepreneurs to mentor newer entrants. That's a particularly interesting way to potentially change the trajectories of microfirms. The mentored firms see a significant jump in profits driven by learning how to cut costs but don't maintain the gains once mentorship stops.
2. Grants and Plans for Senegalese Farmers: Ambler, de Brauw and Godlonton give $200 grants and develop a farm management plan for smallholders. The grants boost production (by more than $200), but the gains seem to fade out, though higher stock of assets remains. Farm management plans don't have a measurable impact. I find this interesting for many of the same reasons as #1: figuring out how to boost profits of small enterprises is near the top of my list of urgent program/policy questions.
3. Seasonal Migration in India: Imbert and Papp use NREGA and choices about short-term migration to better understand why the large gap in earnings between rural and urban migration doesn't lead to more seasonal migration. They estimate that more than half of the income gap is consumed with higher living costs in urban areas, with the rest due to non-economic costs--like being away from home and "hard-living", (e.g. sleeping on the street). There are some interesting policy applications for the design of rural public works/income programs and the development of migration finance and support programs.
Read More1. The Future of Microfinance: The big news this week is the merger of two giants in the field--Grameen Foundation and Freedom from Hunger. The merger follows the relatively recent retirement of two giants of the field--the former leaders of Grameen and FFH, Alex Counts and Chris Dunford, respectively. As the announcement states there are clear ways that combining the two organizations may improve their impact, but it's also clear that consolidation is a result of the maturing of the microfinance industry, and I mean that in the Silicon Valley sense, not in the childhood development sense. Where is the industry headed? Reading between the lines of the announcement makes it clear that the combined organization sees the future as one where microfinance is just a utility, or perhaps one of a set of tools, not the center piece of anti-poverty interventions. That's probably right.
One reason why: it's easy for microcredit to go off the rails when it is the centerpiece. Here's an update on overindebtedness in Cambodia.
2. Household Finance: How should households be managing their finances? I don't mean the basics, like choosing a lower-cost over a higher-cost loan, but managing their finances over their lifetime to achieve their goals. Almost all of the the ideas and advice we have for households in developed countries is built on the life cycle model--a household's earning power starts out low but steadily grows, peaks in late middle-age and then declines. Households then should use financial services and tools to shift their income and smooth their lifetime consumption. This piece from the WSJ about what mistakes households in the US make at each phase of their life is particularly explicit about using the life cycle model and it's implications as a standard for whether households are managing their finances correctly or not. The problem with that view, of course, is that it's increasingly clear from financial diaries and other work that the life cycle model isn't an accurate representation of the many households' situation. And we don't have good advice for households' where volatility is the norm, not a blip, and where slow and steady doesn't win the race, or even work at all.
Read More1. News from Rwanda: An evaluation of the use of small-scale household solar panels in Rwanda finds that there are benefits but those are small and diffuse enough that subsidies will be needed to scale adoption. At the conference itself I learned that while 89% of Rwandans are "financially included" only 6% are "adequately served" according to recent FinScope data--a healthy reminder that heavy caveats are required when setting inclusion goals. The next step is to recognize (with a nod to James Scott) that in markets with high "inlcusion," under-served is a strategy not a condition. And while this isn't news about Rwanda, I learned about it in Rwanda: MFO is conducting garment worker financial diaries in southeast Asia which should help us understand a bit more of the difference between Blattman and Dercon's results in Ethiopia and Heath and Mobarak's results in Bangladesh.
2. The Cost of Volatility: One of the common findings from financial diaries work around the world is the prevalence of income volatility, perhaps most surprisingly among US households. In the US Diaries data we see a lot of the volatility coming from variations in amount earned per week in the same job. There are lots of reasons to suspect that volatile schedules and the income volatility that flows from it is bad for households, but how bad? A new field experiment hints that it's really bad. Mas and Pallais randomize wage offers to potential staff for a national call center and find that workers aren't willing to sacrifice pay for a flexible schedule, but are willing to give up 20% of their wage to avoid having a schedule set by the employer with a week's notice.
Read More1. Digital Identity: A few weeks ago we featured a paper on the general equilibrium effects of NREGA in India, which depends on a universal ID system. Next Billion takes a look at India's digital ID system and compares it with Pakistan's program.
2. Insurance (Is Hard All Over): When you read about attempts to launch microinsurance programs for developing countries, it can often seem like insurance markets work very well in developed countries. But insurance is hard no matter where you are, and may be getting harder due to climate risks and our human failings in thinking about large but rare risks. Here's a new brief from the Penn Wharton Public Policy Institute looking at how under-insured many American homeowners are and proposing some steps to get those people to buy insurance.
3. Shocks and External Validity: Typically conversations about the external validity of an impact evaluation focus on whether a finding in one place applies to a finding in another place. Here's a new paper by Rosenzweig and Udry looking at external validity issues in the same place but in different times, specifically at how important aggregate shocks can be when impact is likely to vary over time (as with agriculture or schooling). I'm not sure how big a problem not considering time variance is, but it is a good reminder to examine assumptions when applying findings from impact evaluations.
Read More1. The End of Cash?: Ken Rogoff has a new(ish) book arguing for the end of paper currency. In the New Yorker, Nathan Heller explores Stockholm, one of the most cashless cities on the planet. The move away from cash in Sweden was strongly influenced by high profile robberies of cash depots, making the insecurity and anonymity (for criminals) of cash much more salient. In Heller's piece, there are a few references to issues of privacy, regulation and insecurity of digital tools, but surprisingly little reference to digital payments in less developed countries, or issues in countries where government is less trusted and less trustworthy than Sweden.
2. Cashless in the USA: The US is a very long way away from cashlessness, but one of the primary mechanisms for movement in that direction is prepaid cards. In the last decade they have become increasingly popular alternatives to bank accounts, and as a mechanism for delivering government benefits like food stamps and unemployment and pay to workers without accounts. The Consumer Financial Protection Bureau has released new regulations for prepaid cards to increase consumer protections and bring prepaid cards more in line with credit cards. The regulations include limited liability for lost or stolen cards and new requirements that cards that allow overdrafts have to evaluate customers' ability to repay.
Read More1. Jobs! Jobs! Jobs!: For quite a few years now, my mental model has been that most poor households are "frustrated employees, not frustrated entrepreneurs." In other words, most people aren't held back from their entrepreneurial dreams by lack of access to credit, but they are held back in their dreams of having a job by the lack of jobs. That view is tied heavily to the fact that most microenterprises don't grow at least in part because the owners don't appear to be trying to grow them. This week Chris Blattman and Stefan Dercon released a new working paper about an experiment in Ethiopia where they were able to compare factory jobs to grants for self-employment. They find, among many other details, that those who randomly receive factory employment leave the jobs quickly and those who receive grants for self-employment tended to stay in self-employment and out of the industrial sector. There is a lot going on in this paper so it requires careful reading and some thinking, but it will definitely alter at least my confidence level in my priors.
But the discussion of the new Blattman and Dercon paper revived my memory (hat tips to Rachel Glennerster and Asif Dowla) of this Heath and Mobarak paper on the positive impact of factory work in Bangladesh so there's multiple updating going on for me this week.
2. But Wait, There's More Jobs! Jobs! Jobs!: Karthik Muralidharan and Paul Niehaus have a new paper based off of one of the world's largest RCTs, the roll-out of the new and improved NREGA guaranteed work scheme in India. They find that the program raised incomes of poor households dramatically, but that most of the gains comes from pushing up private sector wage rates, not from income from the program itself. Jonathan Morduch notes that the jump in wages was a factor in the ultra-poor program he studied in Andhra Pradesh not having much impact (many participants left the program to take jobs).
The Muralidharan and Niehaus paper also brings to mind this earlier paper from Breza and Kinnan looking at something similar--how the availability or unavailability of microcredit in India to fund self-employment had generalized effects by altering wage rates. That paper is one of the reasons I believe in the "frustrated employees, not frustrated entrepreneurs" thesis, so now my brain hurts.
Read More1. Microfinance Subsidy: Back before there were impact evaluations the heated discussions in microfinance were about costs and subsidies (and business model, which is really a conversation about cost and subsidy). Those conversations have died down as the focus shifted to impact evaluations--appropriately!--but cost and impact are equally important when it comes to policy choices. Cull, Demirguc-Kunt, and (our very own) Morduch have a new paper that does the painstaking work to accurately measure subsidy in microfinance. They find that subsidy is pervasive and long-lasting, but small: meaning the modest impact of microfinance has to be viewed in terms of even more modest cost. I could write the whole faiV this week just on findings from the paper which is another way of saying: read it! Bob Cull has a short overview of the findings here for those with short attention spans, or a day full of meetings.
I have a new paper on "The [positive] Case for Social Investment in Microfinance" that I'm finishing up, and would be interested in feedback. If you'd like to take a look at a draft and provide comments, let me know (by replying to this email).
2. But Wait, There's More Microfinance: While most eyes have been turned to tracking the growth of digital financial services, the microfinance industry in India is growing rapidly again. The industry association reports 60% year-over-year growth, with the majority coming from the large incumbents like SKS and Ujjivan. Apparently the banking correspondent model is playing a significant role in growth. Let me pause for a moment to roll my eyes at the finding that clients say that 94% of loans are for "income generating activities."
Meanwhile, Jonathan Morduch has a review of Lesley Sheratt's new book on achieving an ethical balance in microfinance, a balance that a 60 percent growth rate calls into question.
Read More1. Income, Poverty and Volatility: The big news of the week in the US was the release of the US Census Bureau’s report on income, showing strong gains across the board (but best for lower income groups) and the largest drop in the poverty rate since 1999. As always, the story is more complicated than the headline statistics. Annual income measures hide year-to-year and month-to-month volatility. And volatility seems to be rising. That means that even though the poverty rate is falling based on annual income, the number of households that spend part of a year in poverty or bounce in and out of poverty from year to year may be increasing.
Aspen EPIC has a wealth of new materials on the topic of volatility including videos, interviews and blog posts.
2. Measurement: Also prominent in US news was the announcement that Wells Fargo, one of the country’s largest banks, had fired 5300 employees and paid a $185 million fine for creating millions of accounts without customer consent (to hit management metrics). Matt Levine has the most useful reporting on the issues and the problem of measurement, calling it an “evil genie...it grants your wishes, but it takes them just a bit too literally." Case in point, Indian banks have apparently been doing essentially the same thing as Wells Fargo, depositing 1 rupee into dormant accounts, so they don't appear dormant. I won’t miss the opportunity to plug Dan Rozas’ work on the large gap between savings accounts and savings account usage in microfinance banks around the world, not just in India.
Read More1. Night of the Living FinLit: I'm increasingly using the persistence of financial literacy programs as a proxy for the "evidence-based" movement. Here's a story about a new $5 million investment in FinLit for low-income youth in Chicago, where apparently half the curricula is devoted to day-trading stocks. Most remarkable is that the story spends its time wringing its hands about the irony of financial services firms funding FinLit, rather than the fact that it doesn't work in any meaningful sense. If the evidence-based movement can't kill FinLit as we know it what hope is there for other policy domains?
2. Priming Zombies: No the zombies aren't doing the priming, nor are they being primed. Here's a new review of studies of the effect of "eyes" on influencing social behavior--it's one of the "neato" findings in the priming literature that became so popular in the last decade. Like recent replications of other priming interventions, the widely reported effects don't stand up. How long will priming hold on as a zombie idea?
Read More1. Cash Transfers, Conditions and Fathers: Akresh, de Walque and Kazianga compare the effects of conditional and unconditional cash transfers, and whether they are given to mothers or fathers in 75 villages in southern Burkina Faso. They find conditions matter and that, if anything, children and households benefit more when the father is the recipient. I'm trying really, really hard to fight confirmation bias, and losing.
2. Financial Inclusion and Digital Financial Services: The Bookings Institute has published it's second annual review of progress on financial inclusion and access, with a particular focus on digital financial services. It covers 26 countries reviewing availability, use and the policy/regulatory environment. Kenya and Colombia top the list; Egypt and Ethiopia are bottom.
3. Medicine, Economics, Data and Evidence: The grass is not greener on either side of the fence. A few weeks ago we had Croke, et al's critique of meta-analysis in health research. On the other hand (see what I did there?): "In comparison to medical studies, most economics studies examined do not report important details on study design necessary to assess risk of bias." Meanwhile the medical community is arguing over how and when data from clinical trials should be shared. Larry Husten summarizes the arguments, but be sure to scroll to the end for a discussion of the difficulties of setting up a market for data and whether anyone "owns" the data. I feel like some economists might have something to say about that, perhaps starting with Coase and Ostrom. Though will the market for data end up being a Market for Lemons? And will economists put their data where their mouth is?
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