Poor households in developing countries face large and varied risks, but often have inadequate informal tools to manage them. Microinsurance is being developed to create a better alternative, and it should--in theory--be in high demand. Yet take-up of microinsurance remains low. I study the impact of price and information on the demand for life microinsurance among microfinance borrowers of Compartamos in Mexico. I randomly assigned 8,700 borrowers to two of four treatments: (i) no longer receive a base amount of subsidized insurance coverage (high price) or keep the subsidy (low price), and (ii) being informed with a message emphasizing the financial toll of a funeral and how the insurance payoff helps to face it (financial information) or information emphasizing the emotional toll of a funeral on the surviving family (emotional information). On average, eliminating the subsidy led to a decrease in insurance coverage, but the two messages did not impact coverage. The impacts are heterogeneous, however. . .
October 2012
By Jonathan Bauchet
Price and Information in Life Microinsurance Demand: Experimental Evidence from Mexico
Poor households in developing countries face large and varied risks, but often have inadequate informal tools to manage them. Microinsurance is being developed to create a better alternative, and it should--in theory--be in high demand. Yet take-up of microinsurance remains low. I study the impact of price and information on the demand for life microinsurance among microfinance borrowers of Compartamos in Mexico. I randomly assigned 8,700 borrowers to two of four treatments: (i) no longer receive a base amount of subsidized insurance coverage (high price) or keep the subsidy (low price), and (ii) being informed with a message emphasizing the financial toll of a funeral and how the insurance payoff helps to face it (financial information) or information emphasizing the emotional toll of a funeral on the surviving family (emotional information). On average, eliminating the subsidy led to a decrease in insurance coverage, but the two messages did not impact coverage. The impacts are heterogeneous, however. Although all borrowers decreased their coverage as the subsidy was eliminated, younger borrowers presented with the emotional information were less likely to drop coverage than their counterparts presented with the financial information. The impact was reversed for middle-aged borrowers: the financial information led to a smaller drop in coverage following the elimination of the subsidy. The findings add to the literature on how information drives behavior in developing countries, and suggest that specific information provided at the time of choice was critical to help borrowers make a decision regarding a risk management strategy.
Around the world, only about half of adults (aged fifteen and older) have access to an account with a formal financial institution. In low income countries, less than a quarter do.
August 2012
By Kerry Brennan
Unequal Access
Around the world, only about half of adults (aged fifteen and older) have access to an account with a formal financial institution. In low income countries, less than a quarter do.
Even in high income countries, family and friends remain an important source of borrowing...
August 2012
By Kerry Brennan
How and Why Do People Borrow?
Even in high income countries, family and friends remain an important source of borrowing...
A formal bank account provides a secure way to save, and is the gate- way to accessing many other financial services that can help individuals manage their financial lives. While a formal account is taken for granted as a necessity by many people in high income countries, account access varies widely for their low income counterparts.
August 2012
By Kerry Brennan
Account penetration is high in wealthy countries, but there is great variation in account penetration among lower income countries
A formal bank account provides a secure way to save, and is the gate- way to accessing many other financial services that can help individuals manage their financial lives. While a formal account is taken for granted as a necessity by many people in high income countries, account access varies widely for their low income counterparts.
Although there is an overall positive relationship between GDP per capita and rates of account holding among coun- tries in the sample, differences of twenty percentage points or more are not uncommon be- tween countries with similar income levels. For example, over 40% of residents of Kenya have a formal account while less than 10% of Benin’s residents do.
Across low income countries, there is great variation in formal account penetration
Although there is an overall positive relationship between GDP per capita and rates of account holding among coun- tries in the sample, differences of twenty percentage points or more are not uncommon be- tween countries with similar income levels. For example, over 40% of residents of Kenya have a formal account while less than 10% of Benin’s residents do.
Countries that receive more remittances (as a percentage of GDP) tend to have lower account penetration.
August 2012
By Kerry Brennan
Remittances and Account Penetration
Countries that receive more remittances (as a percentage of GDP) tend to have lower account penetration.
In wealthy and poor countries alike, people rely on a variety of lending sources to meet their financial needs.
August 2012
By Kerry Brennan
Lending Sources by Country GDP
In wealthy and poor countries alike, people rely on a variety of lending sources to meet their financial needs.
Mobile phone penetration does not explain much of the cross-country variation in rates of sending money via mobile phone.
Mobile Phone Penetration and Mobile Money Usage
Mobile phone penetration does not explain much of the cross-country variation in rates of sending money via mobile phone.
Infographic: mobile payments are more common in urban areas, but there are important exceptions.
August 2012
By Kerry Brennan
Mobile Payments and the Urban-Rural Divide
Infographic: mobile payments are more common in urban areas, but there are important exceptions.
The potential to reach rural communities with mobile payments has not yet been realized in many countries.
July 2012
By Kerry Brennan
Urban-Rural Mobile Payments
The potential to reach rural communities with mobile payments has not yet been realized in many countries.
In 1990, Carlos Danel and Carlos Labarthe co-founded Compartamos—which means "let's share" in Spanish—to provide poor residents (mainly rural women) of Mexico with access to economic opportunities. At its inception Compartamos was a nonprofit organization serving mainly indigenous, rural women in some of the poorest regions in Mexico. The company has since evolved into a commercial bank. While some are critical of the company for what they believe is its emphasis on profits over social returns, our research into microfinance and social investment provides a more nuanced response to the criticism. Nonetheless, there's no denying Compartamos' impact on the region. It is currently one of the largest microcredit institutions in all of Latin America. Most of its more than 600,000 clients live in rural areas of Mexico.
In 1990, Carlos Danel and Carlos Labarthe co-founded Compartamos—which means "let's share" in Spanish—to provide poor residents (mainly rural women) of Mexico with access to economic opportunities. At its inception Compartamos was a nonprofit organization serving mainly indigenous, rural women in some of the poorest regions in Mexico. The company has since evolved into a commercial bank. While some are critical of the company for what they believe is its emphasis on profits over social returns, our research into microfinance and social investment provides a more nuanced response to the criticism. Nonetheless, there's no denying Compartamos' impact on the region. It is currently one of the largest microcredit institutions in all of Latin America. Most of its more than 600,000 clients live in rural areas of Mexico.
We caught up with Carlos Danel in New York, when he was in town for a conference to ask him about some of the most critical questions facing the microfinance industry.
High quality evidence on the state of financial access around the world is advancing rapidly, as the chapters of this book illustrate. A happy consequence of increasing knowledge is the ability to better recognize what we don’t yet know. Here are ten questions, some micro, some macro, that need answers if we are to make informed decisions on how to improve financial access.
January 2012
By Jonathan Morduch
10 Research Questions: A Research Framing Note
High quality evidence on the state of financial access around the world is advancing rapidly, as the chapters of this book illustrate. A happy consequence of increasing knowledge is the ability to better recognize what we don’t yet know. Here are ten questions, some micro, some macro, that need answers if we are to make informed decisions on how to improve financial access.
