Customers not interested in your financial services? New FAI paper looks at implications of take-up rates

In microfinance, the issues that get the most play tend to be the ones most closely related to bottom lines: What are the net impacts on households? How do institutions achieve sustainability? Which mechanisms work, and why? But sometimes, in our pursuit of headline results, we skip over quieter details that tell us something important. Take-up rates often fit this description. In a new FAI Framing Note by Dean Karlan, Jonathan Morduch, and Sendhil Mullainathan, we pay them some much deserved attention.

Take-up rates are the proportion of individuals from a defined population who participate in a program. They are surprisingly variable and, in some cases, surprisingly low: data from 2 surveys and 13 projects show that take-up rates of financial services range between 2 and 84 percent of eligible individuals. 

By revealing valuable information about customers’ interest in a particular product or service, take-up rates give us a way to quantify demand. Low take-up rates also can suggest pent-up demand for products that are differently designed or priced. In addition, take-up rates have a technical implication for impact evaluations: when they are very low, researchers need data from a much larger sample to get results they can be confident in. 

In a way, take-up rates are always a bridesmaid and never the bride. We don’t know of any studies that focus on take-up, but it’s not uncommon for research surveys to include questions that shed some light on it—like why the respondent did or didn’t take a loan or buy a microinsurance policy, for instance. The conclusions that can be drawn from this kind of self-reported, anecdotal evidence are limited, in part because survey questions are always, to an extent, open to interpretation. 

To create better-designed and better-priced products, we need a better understanding of why people do or don’t take-up available financial products. We propose that the best way to get more definitive answers is to study take-up—not as an afterthought, but actively, intentionally, and rigorously.