Viewing all posts with tag: Big Picture  

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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Fish Oil : Heart Disease :: Microcredit : Women’s Empowerment?

A theme on the social science blogs these days is “everything we know is wrong.”

The frequent citation of drug trials as the basis for sound social science experiments disguises an unsettling fact about medical research in general: it’s often statistically and causally naïve. Political scientist/economist Chris Blattman recently pointed to a piece documenting that a widely influential fish oil/heart disease study that had been used to sell millions of dollars of fish oil never directly measured heart disease in the population of interest. Emily Oster, an economist at the University of Chicago, is now writing regularly for data journalism site fivethirtyeight on the spurious correlations in a lot of medical research. But it’s not just a problem of medical research. “As I teach my students,” Blattman wrote, “the first thing you should say to yourself as you open every book or research paper is, ‘This is almost certainly wrong’…Welcome to science" . . . 

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Is Piketty too Pessimistic on Financial Development and Inequality?

Thomas Piketty’s recent book on inequality, the enormously popular best-seller Capital in the Twenty-First Century, explores the historical evolution of income and wealth inequality and its possible drivers.  The book demonstrates that developing as well as developed economies have seen a big upswing in income inequality in recent years, as measured by the share of total income accounted for by the top percentile . . . 

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“But Is It Scalable?” Some Good News on Digital Payments for Large Government Programs

One of the most promising innovations in the digital payments space has been on the delivery of government benefits through electronic payments systems in developing countries. Now, an impact evaluation of digitization of government payments in India by Karthik Muralidharan (UCSD), Paul Niehaus (UCSD) and Sandip Sukhtankar (Dartmouth) finds encouraging results.

In one of the largest randomized impact evaluations to date – covering 19 million people – Muralidharan and colleagues study the recent rollout of the “Smartcards” project in the state of Andhra Pradesh in India.  The Smartcards project introduced biometrically-authenticated electronic benefit transfers into two large Indian social welfare programs:  the well-known National Rural Employment Guarantee Scheme (NREGS) and the Social Security Pensions (SSP).  The research team worked with the government to implement a randomization of the order in which districts received the program, allowing for a rigorous evaluation of program impacts half way through the implementation . . . 

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FAI's Greatest Blog Hits of 2013

We’ve crunched the numbers and compiled the list of FAI’s most viewed posts of last year:

  1. What’s Next: Another Repayment Crisis? by Daniel Rozas
  2. FAI Video: A Conversation with Pascaline Dupas
  3. What’s Next? External Validity by Jonathan Morduch
  4. The Death and Life of Cash by Timothy Ogden
  5. FAI Video: Dean Karlan Discusses Commitment Savings Research
  6. Beyond Business: Rethinking Microfinance - Timothy Ogden and Jonathan Morduch in Foreign Policy
  7. What's Next: Five Factors – Beyond Mobile Money – that will make Financially-Inclusive G2P a Reality by Jamie Zimmerman
  8. "How Microfinance Really Works" - Jonathan Morduch in Milken Review
  9. Impact Evaluation of Compartamos Released by Alicia Brindisi
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Regulatory Regimes Matter for Mobile Money Usage

At a recent Microfinance Club of New York event with Michael Joseph, the former CEO of Safaricom in Kenya and now the Director of Mobile Money for Vodafone, Joseph cited regulatory barriers as the principal reason that mobile money has not taken off in India, the largest market in the world and his current project. A new paper from Eva Gutierrez and Sandeep Singh at the World Bank confirms his intuition, finding evidence for the importance of regulation for mobile money usage by combining the World Bank’s Global Findex database with cross-country variation in regulatory regimes.

The authors argue that both regulatory certainty — stability in regulation — and regulatory openness — policies that favor the introduction of new technologies — are necessary for mobile money adoption. They construct an index of regulatory favorability towards mobile money and look at the relationship between their index and actual end user behavior using the Global Findex to track outcomes for 35 countries, finding that overall, regulation is a significant factor in explaining mobile money usage among both the banked and unbanked . . . 

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How Microcredit Went Global

Most of NYU’s development economists are on leave this year (Raquel, Debraj, and Hunt: your colleagues miss you). The regular doctoral sequence and development seminar are on hold for the year. Students walk the halls unsure who to ask about the right way to parameterize intra-village treatment heterogeneity when doing power calculations.  Bill Easterly and Yaw Nyarko are holding the fort, though, and they pulled off a standing-room-only annual Development Research Institute conference on Friday, November 15. It was a reminder of what makes NYU such an interesting place to study development.

Takeaways: The history of European settlement made more difference than we thought to global patterns of growth (and still does) . . . 

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China: The Big Financial Inclusion Frontier

Last week was a big one for those hoping to reach “full financial inclusion” by 2020. The President of the World Bank has signed on to the cause, and the Center for Financial Inclusion just rallied the troops in London at the Financial Inclusion 2020 Global Forum.

As with most really big global goals, success requires making strides in China. China is the last huge, untapped market for microfinance, but there are signs that that’s changing. The focus of microfinance in China is on credit, and the numbers of providers has been growing fast, with a big jump since 2010. At the end of 2010, the China Association of Microfinance had 2,614 formal members in 31 provinces and cities. The early members were mainly public-interest microfinance institutions focused on poverty reduction . . . 

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A Roundup of Recent and Ongoing Mobile Money Research in Economics

A growing body of research on mobile money has a lot to say about its potential to smooth risks and facilitate transfer programs, but a definitive experimental study on what it means for the financial lives of the poor remains undone – a gap we would like to fill with our future work at the Financial Access Initiative.

In recent years, mobile technologies have rapidly expanded in the developing world, bringing information and other transformative services with them to the previously isolated and the poor (Aker and Mbiti, 2010; Aker, 2010; Jensen, 2007).  Rapidly adopted in most developing country contexts, mobile technologies have the potential to serve as a broad-distribution platform for other services and products.  For example, a growing literature looks at the potential for mobile technologies to serve as a vehicle for the delivery of information and reminders in a variety of contexts, including for loan repayment and health . . . 

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Designing for or designing with the poor?

As microfinance expands beyond loans to include products like microinsurance and commitment saving accounts, study after study show that simply offering something new is not enough to expand financial inclusion –the design of the product matters.  But how do financial institutions and practitioners start the process of creating products that are both profitable and meet the needs of the poor?

One method is human-centered design (HCD). HCD and “design thinking” were made famous by Ideo, the international design firm responsible for Apple’s first mouse. Ideo defines HDC as a “process [that] begins by examining the needs, dreams, and behaviors of the people we want to affect with our solutions.” These solutions emerge at the intersection of what people desire, is technologically feasible, and financially viable. The process has three main phases – researching, creating prototypes, and testing those prototypes (and possibly revising them based on user feedback). . . 

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Fighting Poverty, Profitably: A New Report on Payment Systems

A recent report of the Gates Foundation, from their program on Financial Services for the Poor, highlights payment systems as a way of “Fighting Poverty, Profitably” – as the report says in its title.  Payment systems, according to the report, “could serve as the connective tissue for bringing a broader array of financial services to the poor”.

The report brings together the existing data on payment systems to analyze how potential payments service providers could profitably extend their services to underserved populations in developing countries.  They identify four cost and revenue centers – accounts, cash-in-cash-out, transfers, and what they term “adjacencies” – in their framework, and argue for revenue models built on three of the four (cash-in-cash-out, transfers, and adjacencies) to best give companies an incentive to serve the poor.

In countries that have already embraced mobile payment systems, such as Kenya, some of the most exciting action is occurring in adjacencies . . . 

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Knowing is Half the Battle: Unpacking Financial Literacy

The opening of the new Affordable Care Act health insurance marketplaces presents millions of Americans with a complicated financial decision. How do they value insurance? The marketplaces will primarily serve people who are not employed full time or are in low-wage jobs—and are therefore likely to be juggling tight finances already. What is the cost of paying down debt more slowly to buy insurance? The obvious intervention to help people make better financial decisions when faced with complex options is financial literacy.

Unfortunately, the evidence on financial literacy is pretty dismal. David McKenzie’s study of a voluntary financial literacy program in Mexico that finds no effect is pretty representative. Earlier this year, author Helaine Olen wrote that financial literacy is “a bunch of hooey,” Jason Zweig at The Wall Street Journal cited educational programs that actually make people worse off financially, and FINRA released a study showing that financial literacy among Americans has weakened since 2009.

While financial literacy levels are linked to better financial decisions, study after study shows that financial literacy courses are ineffective . . . 

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Who Will Pay for Financial Inclusion?

A dinner I attended on Monday night previewed the upcoming Financial Inclusion 2020 Global Summit in London. The Summit’s ultimate goal is to include 2.5 billion more people in the formal financial system by 2020.  It was an interesting (off the record) conversation. Without violationg the rules of engagement, I want to focus in on a topic I raised: Who is going to pay for financial inclusion? 

Providing financial services to poor households has been and will continue to be expensive. While technology (like electronic payments) and innovative approaches (like KGFS) can reduce costs, they cannot make serving poor customers cost- or profit-competitive with serving wealthier customers.  The bottom line is that including 2.5 billion people in the financial system is going to cost money. Someone will have to pay.

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New Research from the American Economic Review

The American Economic Association (AEA) recently released the Papers and Proceedings issue of its journal American Economic Review, which presents selected papers from the AEA's annual meeting. The AER is one of the premier economics journals and has very broad coverage. For instance, you can learn everything you never knew you wanted to know about income and church attendance in nineteenth century Prussia. Happily, this volume also includes a number of papers relating to mobile money, credit, savings, and insurance.

Mobile Money

In their study, William Jack, Adam Ray, and Tavneet Suri investigate how households using M-PESA interact with and exploit their informal networks when making transactions. The authors find M-PESA users have more remittance activity, make transfers over distances greater than 100 km, and have more reciprocal transactions than non-users.

While Jack et al. looked at volume of transactions, David Weil and Isaac Mbiti used aggregate data in their research on the velocity of mobile money. One of the more intriguing findings is that withdrawals are made frequently and in small amounts, even though users can reduce fees if they group withdrawals. As the use of mobile money grows in other countries (M-PESA recently launched in India, for instance) it will be interesting to see how similar these (and previous) findings are in different cultural contexts.

Gender and Finance

Using data from over 30,000 firms in 90 developing countries, Elizabeth Asiedu, Isaac Kalonda-Kanyama, Leonce Ndikumana, and Akwasi Nti-Adde analyze whether gender is a determinant in financing constraints and access to credit for firms. They find that indeed, female-owned firms are more likely to be financially constrained than male-owned counterparts but only in the sub-Saharan African region. There is no gender gap in other regions but small firms are more likely to be financially constrained than larger firms, and foreign-owned firms are less likely to be constrained than domestically owned firms.

Moving from the macro to the micro level, Carolina Castilla and Thomas Walker investigate gendered dynamics of intra-household financial decisions in their paper. In a field experiment in Southern Ghana, researchers conducted public and private lotteries with cash and in-kind prizes to observe the effects of these windfalls on household allocations. They found “husbands' public windfalls increase investment in assets and social capital, while there is no such effect when wives win. Private windfalls of both spouses are committed to cash (wives) or in-kind gifts (husband) which are either difficult to monitor or to reverse if discovered by the other spouse.”


We return to Kenya with Michael Kremer, Jean Lee, Jonathan Robinson, and Olga Rostapshova in their study on behavioral biases and firm behavior. Among a sample of Kenyan shopkeepers, those with lower math skills were less accepting of small-scale risk and were also less likely to have larger inventories than those with higher scores. There are some interesting observations in the paper on the connection between loss aversion and microfinance, suggesting that small business owners are less likely to access microcredit if risk averse and social safety nets could possibly help increase investment in these enterprises.

Similarly, Ahmed Mushfiq Mobarak and Mark R. Rosenzweig look at risk in the context of the Indian insurance market, specifically rainfall insurance. Their findings show that when insured farmers took greater risks, wage levels increased but so did the volatility of labor demand, creating a threat to landless workers. When offered the choice, landless workers also purchased insurance when contracts were offered to farmers.


Lastly, Suresh de Mel, Craig McIntosh, and Christopher Woodruff report the findings of their field experiment in rural Sri Lanka that tested the efficacy of various methods of collecting deposits in formal bank accounts. Although their research shows frequent, face-to-face collection increases aggregate household savings, collections using community lock boxes affected the number of transactions but not the overall level of savings.

Vulnerability: The 2013 Microcredit Summit Campaign Report

In 2011, microfinance providers reached fewer total people than they did in 2010, as well as fewer people living in extreme poverty, according to the 2013 State of the Campaign Report, which is released annually by the Microcredit Summit Campaign. Entitled “Vulnerability,” the report presents some stark findings. This is the first time the number of microfinance clients has decreased since the Campaign began its conducting research on the industry in 1998. This overall decrease occurred despite an expansion of 1.4 million more clients in sub-Saharan Africa. Most of this reduction occurred in India, and was in part due to the microfinance crisis that began in Andhra Pradesh in late 2010.

There are a number of reasons for the slowdown. Microfinance institutions (MFIs) are more likely to go to markets that have already proven to be successful. Reaching poorer and more remote clients is generally more difficult and costly for organizations. Additionally, data limitations make it hard to know when local markets are saturated. Maturing markets, the global economic crisis, investor wariness, and donor fatigue also contributed to the slowdown . . . 

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The Other Half of the Benefit-Cost Debate

When it comes to costs and benefits, we at FAI tend to focus on benefits. The recent release of the Compartamos microfinance impact evaluation was thus a big event in our office. With our heads in the academic literature, we tend to write a lot about RCTs and other ways to measure benefits of interventions.

We’re contributing to a problem, though. There’s a big danger in conflating impact and value. We can’t say much about  the value of microfinance (or any other intervention) based on benefits alone. The most realistic proposition in favor of microfinance is that relatively small benefits are paired with relatively small costs, leading to a favorable cost-benefit ratio. That’s a hypothesis, of course, and it hinges on a careful reckoning of the cost data.

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Saving Chiapas, Saving Ourselves: How to avoid a repayment crisis in Mexico

My last two posts on the potential repayment crisis in Chiapas described the high risk of a crisis in Chiapas, Mexico, and its potentially devastating consequences to the microfinance sector around the world. But here is the good news: thus far there is no crisis, and one could still be avoided. 

I have argued before that development finance institutions and other funders could leverage Smart Certification to enforce client protection practices and thus reduce the risk of the kind of over-lending that's happening in Chiapas. However, that prescription alone would not work in Mexico, mainly because a large number of Mexican MFIs are independent of foreign funding, and there are many other lenders active in the same space, including consumer finance companies and large retailers that provide credit.

The answer to avoiding a repayment crisis in Mexico will thus require government action . . . 

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Wagner’s Jonathan Morduch on Reimagining Banking for Half the World’s Adults

Half of the adults in the world are “unbanked” -- about 2.5 billion people. That’s the starting point of a new book, Banking the World: Empirical Foundations of Financial Inclusion, published by the MIT Press.

To reach those 2.5 billion people, NYU Wagner professor Jonathan Morduch argues that we need to think about banking in radically different ways. Promising solutions involve using new technologies like mobile phones, as well as re-imagined ideas like self-governing village-based saving groups. Understanding those possibilities is a focus of the The Financial Access Initiative, the NYU center Morduch founded with colleagues at Yale and Harvard. Morduch co-edited Banking the World . . . 

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Payments, Cash and Geographic & Economic Mobility

Right now there is a lot of talk about allowing more geographic mobility to enable more economic mobility--in other words, easing immigration restrictions. There is powerful evidence that enabling more migration (internal and external) would be a powerful tool to fight global poverty.

But there is a different kind of geographic and economic mobility that is worth thinking about--the geographic and economic immobility of cash. 

A just-for-fun project to track the movement of specific dollar bills as they move from place to place and person to person has yielded very interesting data on this issue in the United States. Back in 1998 the Where's George project started encouraging people to log the geographic (by zip code) location of their cash before spending it . . . 

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"How Microfinance Really Works" - Jonathan Morduch in Milken Review

It's an important moment for the microfinance movement. At a time when real progress has been made in making financial services available to the poor, questions abound about the effectiveness of microfinance as a way of helping people escape from poverty. The priveleged position microfinance has enjoyed among poverty interventions and social investment is eroding. Charting the right path forward for microfinance--and effective investments in reducing poverty--requires a closer look at how microfinance really has worked . . . 

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