1. FinLit Redux: A few weeks ago I had an op-ed in the Washington Post bemoaning the ongoing emphasis on financial literacy training. David Evans had an issue with one particular sentence in that op-ed, not about financial literacy, but about the effectiveness of information interventions. Here's his list of 10 studies where providing information (alone) changes behavior. And I suppose my inclusion of this is another piece of evidence supporting his point? On the other hand, here's a long, rambling essay from the president of the (US) National Foundation for Financial Education which is one of the finest examples I've ever seen of not just moving the goalposts but denying they even exist. He's got all the greatest hits: don't evaluate based on current practice because we're changing; don't evaluate based on average practice, because of course there are bad programs; don't evaluate based on standard measures because programs vary; don't pay attention to negative stories because they are "old and tired"; and even, "hey look over there!" Is there an emoji for scream of helpless rage?
The reason I find such defenses so enraging is because the huge amount of resources being poured into financial literacy could be put to so much better use that actually are likely to help people. Here's a piece looking at one of the specific trade-offs: financial literacy distracts from the very real need to protect consumers from bad actors. That's not just theoretical. The (US) CFPB is actually shifting from consumer protection to education. Where's that scream of helpless rage emoji again?
2. Household Finance and Regulation: Thinking about consumer protection and the role and value of financial literacy requires thinking about household finance. Fred Wherry, Kristin Seefeldt and Anthony Alvarez have a short essay on how to think about these issues, with several sentences I wish I had written, including, "Stop treating the borrowers as if they are ignorant or irresponsible. And start treating the lenders as if they are inefficient (and sometimes malicious) providers of needed financial services."
There is a tension there, however, that I think too often gets short shrift. Consumer protection regulation necessarily involves removing some choices, and therefore some agency, from consumers. I hope to write more about this, but here is Anne Fleming, (author of City of Debtors which I've been citing frequently) writing aboutthe trade-offs in the caps on interest rates proposed by some prominent Democrats. Making those trade-offs also requires regulators to decide what consumers really want. And that's not always so clear--for instance, here's a look at how "social meaning of money" sociological frameworks do a better job of predicting behavior in retirement accounts than behavioral or rational actor models. And of course the needs and desires of consumers vary so you're not just trading-off between choice and protection but between the needs and desires of different consumers. Yes, this is a bit of a stretch, but here's an article about how women are carving out their own niche in a bit of the household finance world that has been dominated by white men.
Now I recognize that all of this so far is about things going on in the US. But as I frequently argue, the US has a lot more relevance to global conversations than is generally recognized. For instance, here's a story about Facebook turning into a platform for the kind of informal insurance networks we talk about so often in developing countries.
3. Digital Finance: That's a reasonable segue into digital finance, especially since the piece quotes Mark Zuckerberg's ambition to make money as easy to send as a picture (which, y'know, isn't actually very ambitious given that a billion+ people can already do that). But in Hong Kong a lot of them are choosing these days not to do it. Well, at least not to use digital tools to make purchases. Why? Because they are worried that the government will use the data trail to identify who is participating in protests. It's a well-founded worry not just in Hong Kong but around the world, and one that digital finance advocates should be taking much more seriously. And no, cryptocurrency is not in any way a solution for this.
Viewing all posts with tag: Subsidy
Week of October 17, 2016
1. 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.
Week of September 19, 2016
1. 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.
Week of July 20, 2015
1. Transfers and Subsidies: India's plan to provide subsidies electronically through bank accounts, biometric ID cards, mobile transfers (also know as JAM) can reduce leakage and increase efficiency but what are its limitations? Does it really have the potential to be "the holy grail of efficient and equitable welfare policy?" The New York Times
2. Evidence-Based Policy: The study of deworming pills that launched the RCT movement in development has come into question. But there are a lot of questionsabout the questions.
3. Credit: For rural farmers in India, increasing productivity often means purchasing expensive equipment with a loan, which may be difficult to obtain without collateral or a credit history. Could a financing model based on demand aggregation delivered through a local cooperative/bank partnership help? NextBillion
Week of July 13, 2015
1. Savings: A new report from the US Financial Diaries project provides evidence that lower income households are saving up for frequent, short-term emergencies that prevent the growth of long-term savings. Could 401k style auto-enrollment programs help to manage both long- and short-term savings goals? AARP
2. M-Pesa: Is M-Pesa merely a fintech service or [cue foreboding music] "a stealth political coup by a private operator which profits only from enforcing discipline, control and transparency (via massive data capture) over a wayward system?"... Financial Times
3. ...Regardless of its characterization, new regulations could cause Safaricom to separate its mobile money service from its voice, data, and infrastructure businesses. The changes could weaken Safaricom's market position, but may be a win for competitors like Airtel. Quartz
Week of July 6, 2015
1. Transfers: Cash transfers are a more common form of benefits for the world's poor than you might think. In fact, Sub-Saharan Africa is the only region where food and other in-kind transfers are more prevalent than cash transfer programs. The World Bank
2. Global Poverty: Between 2001 and 2011, the global middle-income population (those living on $10-$20 per day) almost doubled while those living on less than $2 per day halved from 29% to 15%. However, the poor just became slightly less poor as the portion of people living on $2-$10 increased 6 percentage points during this time while high income categories barely changed. Pew Research Center
3. Digital Literacy: A new report finds many women rely heavily on their social circles for instruction and trouble-shooting when it comes to accessing mobile internet, an important finding for mobile money and digital content providers. GSMA
Week of February 16, 2015
1. Informal Finance: FAI's Executive Director Jonathan Morduch discusses what makes informal finance so popular and how financial institutions can respond. NextBillion
2. Cash Transfers: Electronic payments are a fast and effective way to administer cash transfer programs. But what about in failed states, where the lack of infrastructure means driving large piles of cash around to beneficiaries? The Guardian
3. Wealth Inequality: "The fact that 42 percent of African-American Americans between the ages of 25 and 55 had student loan debt in 2013 (compared to 28 percent of whites) reflects a vicious cycle: families’ lower wealth compels students to take on debt, but that debt then hurts their overall wealth well into adulthood." PBS Newshour
Cash Transfers: The Conversation Continues
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 MoreWeek of December 8, 2014
1. Poverty in the U.S.: “It’s assumed that we’re not unstable because we’re poor, we’re poor because we’re unstable. So let’s just talk about how impossible it is to keep your life from spiraling out of control when you have no financial cushion whatsoever.” Slate
2. Agricultural Loans: Forgiveness of agricultural loans has been a common occurrence in India. it's about to happen again. But who gets the benefits and what happens after? Bloomberg
3. Cash Transfers: Evidence is building for positive impact of both unconditional cash transfers and graduation models for the ultra-poor. How do you decide between the two? NextBillion
Week of December 1, 2014
1. Mobile Technology: Privacy and other regulatory concerns have limited access to mobile communications metadata useful for public health. Is there a path forward? Brookings
2. Savings: "After years of relative neglect from proponents of 'financial inclusion,' why are [ROSCAs] now getting the attention they deserve?" CFI
3. Cash Transfers*: Are cash transfer evaluations doing enough to measure community-level tensions? IRIN News
Week of November 17, 2014
1. E-Payments: Electronic vouchers and mobile money may be a fast, cheap way to transfer funds in some parts of the developing world but when digital infrastructure is weak (like in the DRC), old fashioned cash may be the best option. Mercy Corps
2. Financial Inclusion: Bangladesh's central bank is dropping the requirement of a guardian's signature and lowering bank account fees in hopes of bringing 7.4 million working children into the formal financial system. The Guardian
3. SMEs: Shifting the focus from regulations to actual transaction costs (gathered from local firm owners) could provide a richer, more accurate picture for The World Bank's annual Doing Business report. Policy Innovations
Week of October 27, 2014
1. Financial Inclusion: Lisa Servon asks: Are banks too expensive to use? The New York Times
2. Savings: A newly launched micro-pension platform in India links employers and domestic workers to a streamlined enrollment process for a National Pension Scheme product. CFI
3. Human-Centered Design: Seven human-centered design projects in eight countries testing 30 prototypes for 175 concepts for financial products or services. All in one report. CGAP
Video: What's Behind Door #3? Investment in Migration for the World's Poor
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 MoreMigration, Remittances, Income, The World Bank...and Legos
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 MoreA Hard Look at Soft Commitments
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 MoreWeek of August 11, 2014
1. Cash Transfers: Conditional cash transfers in the US encounter ridicule and skepticism, but this "foreign import" for the war on poverty has promise. Politico
2. Payday Lending: A new app allows hourly workers to immediately access wages they’ve already earned, without having to wait for their employer’s standard pay cycle or relying on payday lenders for quick cash. Wired
3. Mobile Banking: How can regulatory “best practices” in digital financial services move away from focusing on enabling participation in the market to fostering competition? Ignacio Mas outlines a few strategies. The World Bank - All About Finance
Read MoreWhen Regulators and Remittances Collide, Migrants Lose Out
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 MoreGrants Double Income but not Empowerment for Ultra-poor in Uganda
A new paper by Chris Blattman (Columbia) and co-authors provides optimistic new evidence on the returns to providing cash grants to impoverished women in northern Uganda. The new experiment varied whether the ultra-poor, largely women, were offered a business grant worth $150, training and supervision, and found dramatic impacts of the cash grant on entrepreneurship, hours worked, individual earnings, and household consumption.
The paper stands out from previous studies in that it finds strong positive impacts for women, and that it does so among the most impoverished people in the village. Only those people identified by a local nonprofit as the poorest fifteen people in each village (86 percent of whom were women) were eligible for the study. Previous studies of cash and in-kind small enterprise grants delivered to women in Sri Lanka and in Ghana find more mixed effects. Grants to female-owned microenterprises had, on average, no impact in Sri Lanka, and in Ghana, only in-kind grants or grants made to initially more profitable female microenterprises appeared to benefit recipients . . .
Read MoreWeek of May 26, 2014
1. Cash Transfers: Opponents of cash transfers argue the poor waste their funds on alcohol and tobacco. But a review of 44 estimates of consumption across 19 studies and 13 interventions does not show evidence of increased spending on these goods. The World Bank - Development Impact Blog
2. Mobile Banking: Sometimes mobile banking is a little too helpful. The New Yorker
3. Financial Access: The bank branch may make a comeback after all - new research on issues relating to financial access among communities of color shows individuals surveyed greatly preferred to bank in person rather than use online services, even if they owned a smartphone. National Council of La Raza
Walmart is Coming for Your Banks
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 . . .
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