Last night FAI had the pleasure of co-hosting a lively and informative panel discussion on the impact of cash transfers in international development with the Microfinance Club of New York. The panel (moderated by FAI's Timothy Ogden) included Paul Niehaus and Jeremy Schapiro, co-founders of GiveDirectly, Jenny Aker, Assistant Professor of Development Economics at The Fletcher School, and Johannes Haushofer, Assistant Professor of Psychology and Public Affairs at Princeton University.
As is to be expected when you mix practitioners and academics, the evening's conversations had a good mix of thoughtful insights, debates, and allusions to other bodies of work for futher research. Below is a list of what was mentioned as well as some additional items we feel are a nice complement for the issues raised by the panelists, including a new FAI infographic showing what we know so far about microcredit. . . Read More
This week’s UN General Assembly meetings brought renewed attention to the set of global goals that will replace the Millennium Development Goals (MDGs) when they expire in 2015.
The latest draft of the new “Sustainable Development Goals” (SDGs) is a kitchen-sink-like receptacle for the interests of every possible development constituency. There are some obvious and glaring problems with this. To focus on the plus side, though, this enormous brain dump allows space for some intriguing new thinking about what the global community can and should agree upon . . . Read More
We write a good deal about remittances because they are a big part of the financial lives of many poor households—on the sending and receiving end. Remittances receive a lot of attention in aggregate because so much money is flowing: a reasonable estimate is that more than $600 billion is moving annually and that the vast majority of that is flowing to poor households. On Friday, I spoke with The New York Times' editorial board about some of the macro challenges of remittance systems and the role that the World Bank could play in alleviating the costs and burdens of anti-money laundering regulations. I believe there is a useful role for the World Bank and the other development banks to play in lowering the costs of remittances, and that role fits well within the banks anti-poverty missions . . . Read More
In an interview with FAI, economist Jenny Aker explained that effective commitment savings products are those that balance flexibility and restrictions:
“If you give someone a savings product and it completely ties their hand, they don’t want to use it. They want to have a little bit of that tying of the hand so they can’t spend that money but they don’t want to be completely divorced from access to that money.”
Much of the research on commitments focuses on savings products, which makes sense: when trying to save money, some “tying of the hands” helps. Like dieting, setting money aside requires the willpower to deny yourself something you want in the present to meet a goal in the future. To win the struggle for control between your present self and your future self, little commitment nudges can change behavior. Where product design gets tricky is in determining how restrictive the commitment should be. A study of savers in Kenya gives us one clue that it might not take much: when given the choice of letting neighbors hold the key to a savings lock box or holding the keys themselves, participants saved more when they chose the latter. Simply having the physical barrier of the box was enough to nudge them to save . . . Read More
Just about everyone agrees that international remittances should be cheaper. If you run the numbers on international remittance flows, incomes of recipients and transaction costs, you can make a case that reducing remittance costs would be among the highest ROI interventions for raising incomes of poor households in the developing world (and given what we’re learning about the use and benefits of cash transfers, there’s good reason to believe the money would be well spent).
As this became clear over the last 10 years, the World Bank, IADB and plenty of NGOs have drawn attention to the issue—and have largely succeeded in dramatically reducing the cost of sending money home (costs do still vary widely depending on sending and receiving country). Still, most people I talk with think costs should fall even more . . . Read More
As part of our ongoing effort to bring the worlds of research and practice closer together, we are experimenting with making academic work more readable and accessible by publishing and disseminating it in new formats. We’ve just released a paper by Michael Clemens and Tim Ogden on Medium, which we like so far for its clean, visually appealing, picture-heavy layout, and the way it allows readers to leave comments on specific paragraphs. Of course, in the world of the “3 minute read” this is admittedly a slightly longer haul.
The paper proposes a fundamental reframing of the research agenda on remittances, payments and development. When a household’s choice to send a migrant abroad migration is seen as an investment in human capital, and the physical location of the migrant as an asset to be acquired, then remittances are properly viewed as returns on investment rather than windfall income.
Here Michael and Tim illustrate why physical location should be viewed as an asset with an example from the ballet . . . Read More
Discussions of migration and remittances often revolve around statistics that illustrate the sheer scale of migrants (231 million in 2013) or money flows ($404 billion that same year). But each one of the 231 million migrants is a person who leaves family members, friends, and the familiarity of their culture, and many of them retain strong ties with their home communities, sending money but also exchanging information. Sociologist Peggy Levitt studies these information flows and refers to them as social remittances. Social remittances are “defined as ideas, know-how, practices, and skills that shape their encounters with and integration into their host societies…and promote and impede development in their countries of origin.” They can come in the form of norms, practices, social capital, and identities. Unlike their monetary counterparts, social remittances are difficult to quantify and not yet well understood . . . Read More
In April Walmart announced the launch of a new money transfer service. I did a double take on the service's low price: $9.50 to send up to $900 from one Walmart store to another – that’s as much as $66.50 cheaper than the price of competing services at Western Union and Money Gram.
This is just the latest example of Walmart's foray into the financial services industry. In 2012 the retailer launched the Bluebird prepaid card with American Express. The product has no monthly fees or minimum balance requirements, making it more affordable than the norm. The cost of cashing a check at Walmart's Money Center is a transparent flat rate, often cheaper than independent financial services centers that take a large percentage of a check's total. The big box store also offers car insurance “one stop shops” at a growing number of locations, and it houses bank branches with “convenient hours, free financial education and unusually forgiving account features”. All in all, Walmart seems to consistently deliver more budget-friendly financial tools than its competitors. And not only do its financial products come at a lower price for consumers; they are all offered in the same place, easing the burden on people who are squeezed for time and transportation . . . Read More
A collaboration between the Gates Foundation and the Gallup World Poll has gathered new data on remittances for a broad set of countries in Sub-Saharan Africa and in South Asia, home to many growing markets for mobile banking and money transfers.
Collected jointly with the Global Findex data, the new data include answers to questions such as:
- “Have you personally brought money in person or sent money to a family member or friend living in a different city or area in [your country of residence] in the last 30 days?”
- “Have you personally brought money in person or sent money to a family member or friend living in a different country in the last 30 days?”
- “Including any charges you may have incurred, was the largest amount of money you personally brought in person or sent to a family member or friend living in a different country in the last 30 days?”
On a recent trip to Bangladesh, one question kept pestering me: if mobile bank accounts are so good for the poor, why haven’t they adopted them already? After all, financial products and services for the poor have the potential to improve lives, but only if they are actually adopted and used.
I traveled to Bangladesh to set up a randomized controlled trial to test for the impacts of mobile banking on financial management, food security, health and self-reported well-being for poor households . . . Read More
Last month brought a flurry of opinions on postal banking in response to a new proposal that the US Post Office offer financial services – including bill-pay, check cashing, even small loans – to the “financially underserved.” Reactions have ranged from enthusiastic to deeply skeptical. This post highlights two key questions that have been posed and synthesizes some of the answers offered up so far.
Would the underserved consumer actually benefit?
Some say yes. There’s evidence that the Postal Service’s financial products would be able to reach people who are “significantly poorer, older, less educated, and less likely to be employed” than those who bank at formal financial institutions according to CGAP, citing a 2013 Findex report which found that as much is true in other countries with postal banking . . . Read More
Over the past three years, I have been working on the Microinsurance Learning and Knowledge (MILK) Project, focusing on one specific question: Do clients obtain value from microinsurance? As the project comes to an end, I feel more and more that this is only one of the many questions that we should be asking as we think about how low-income people cope with risk and financial shocks. Insurance is one of many coping strategies; it is not always the quickest, the easiest, or the most accessible. But it is an important complement, and in some cases, can take the “bite” out of some of more difficult strategies such as selling assets, borrowing at high interest rates or drying up savings . . . Read More
Global remittance flows command a rightfully growing amount of attention. Recently Pew published a visualization of World Bank data on international remittances that helps show the scale and corridors of transfers. Of note, FAI’s Alicia Brindisi has been writing about south-to-south remittances and the huge market they represent.
Remittance flows are, of course, primarily driven by migration patterns. The largest country-to-country corridors for remittances—from the US to Mexico ($22 billion in 2012), from the UAE to India ($17 billion) and from India to Bangladesh ($7 billion) for instance—match the flow of migrants. In the US to Mexico corridor, remittance flows fell during the Great Recession as there was a net outflow of Mexican migrants. Curiously though, while migrant flows have returned to pre-recession levels, remittances have not. Meanwhile major banks, which had invested in providing remittance services to that corridor, are cutting back services . . . Read More
Mobile money supporters often tout the benefits of using transfer services to facilitate remittances. Many users are migrants who made the financial investment to live in a Western country and send financial resources back home. But that is only part of the story. According to a 2010 UN report , the number of South-to-South migrants (73 million) in 2010 was only slightly less than South-to-North migrants (74 million) worldwide. In Africa, one-tenth of remittances come from within the continent, and South Africa (a destination country) sees most of its remittances flow to neighboring countries. Where the people go, the money follows. The World Bank estimates the value of South-to-South remittances between $17.5 billion and $55.4 billion, or in other terms, 9 to 30% of all remittance traffic to developing countries.
Sending these payments is not cheap – the average global money transfer fee is 9% while the average fee to send funds within South-South corridors is 12% . . . Read More
In his recently published paper, “Accounting for the Poor,” MIT Economist Robert Townsend uses an impressive dataset to make the case for “accounting” for the economic contributions of the poor. Most interesting to me is how he analyzes this data to show the lifecycle and consumption needs of both the rural and urban poor – and shows that urban and rural lives are more intertwined than I had assumed . . . Read More
Despite a lot of excitement about global payments, we are just beginning to learn the most basic facts about them– how much money is sent by whom, to whom, where, and how. International remittances flows could reach $515 billion by the year 2015 and are slowly starting to receive the attention they deserve from policymakers. Now, a new set of Gates reports on payments in Africa and Asia shows that domestic remittances may far surpass international remittances in frequency and magnitude . . . Read More
Migrants send a lot of money to developing countries—several times more than foreign aid. Researchers and policymakers have seized on these very large flows and built an agenda to understand how these remittances can foster development. Indeed, you most often hear remittance flows compared to aid flows.
Something fundamental is wrong with this agenda however. Researchers tend to study remittances as if they were windfall income, like aid or oil revenue, that arrives like manna from heaven. This leads researchers toward the kind of questions you might ask about windfall income: Are remittances spent on ‘good’ things like investment and education? Do families and countries become ‘dependent’ on remittances? Read More
From Dave Birch's review of Banking the World at The Enlightened Economist:
My favourite quote from the book was that “remittances may promote idleness on the part of recipients.” As the father of a teenage son, I can attest to this . . . Read More
One way to cope with an emergency is to borrow money from family and friends. But that typically doesn’t work when a disaster strikes a whole area. Sending and receiving money over larger distances, when transferring cash from person-to-person is impractical or impossible, can be very expensive. There are a litany of costs, from communications, to finding and traveling to agents, to the actual financial cost of the transfer. And don’t forget the cost of delay—in an emergency, delays in receiving needed funds can have big consequences.
One way mobile payments could have substantial short-term benefits for poor households is by speeding up and lowering the cost of emergency transfers and remittances. A new paper by William Jack and Tavneet Suri provides evidence that mobile payments are doing just that . . . Read More