Week of June 3, 2013

Electronic banking, social enterprise incubators, and global financial inclusion are all in this week’s round up of what is new and notable in the field.

  • In her blog post for CFI, Elizabeth Davidson discusses the recent movement to regulate Walmart’s activities in the financial sector, specifically its Bluebird prepaid card service. Davidson highlights a parallel example of the expansion of Banco Azteca in Mexico and its function as a “gateway” to larger, more traditional financial institutions for the poor.
     
  • Together with Village Capital, The Aspen Institute released a review of the role of accelerators and incubators in the social enterprise and impact investing arenas. The report claims it’s the first quantitative assessment of the impact accelerator landscape and surveys 52 organizations worldwide.
  • The Center for Technology Innovation at Brookings recently hosted a forum to explore the impact of mobile devices on business practices and entrepreneurship in the developing world.

  • A new report published by the National Council of La Raza, a Hispanic civil rights and advocacy organization, found evidence of a link between citizenship and increased financial inclusion.

  • Isobel Coleman, Senior Fellow and Director of the Civil Society at the Council on Foreign Relations, recently hosted a forum to discuss how to reach the two billion people who do not have access to formal financial services. She also wrote a complementary article on the event for the CFR blog.

  • Felix Salmon, who is currently attending the Underbanked Financial Services Forum in Miami, shared his thoughts on mobile check-cashing and what it means for the unbanked.

  • Last but certainly not least, the US Financial Diaries project posted profiles of six households participating in the study, which promises a timely and independent look at how low- and moderate-income Americans are managing their financial lives.

Week of May 31, 2013: US Edition

This is the inaugral edition of New & Noteworthy: United States. This week's installment includes new research on breadwinner moms, a report on the installment loan industry and a story about bulk buying as an investment technique and alternative to savings.

  • ProPublica recently published an investigative report on the practices of the installment loan industry, specifically highlighting the effect of the loans on low-income borrowers and the regulatory issues facing lenders.
     
  • Breadwinner Moms, a new report from Pew Research shows the percentage of married and single breadwinner mothers, and single, have grown in size in the past five decades. Of all households with children younger than 18, the share of married mothers who out-earn their husbands has gone up from 4% in 1960 to 15% in 2011 while the share of families led by single mothers tripled (from 7% to 25% during the same time period).
     
  • Economist Russ Roberts joins NPR’s Uri Berliner in a trip through the wholesale market to explain the theory behind using bulk buying as an investment technique and alternative to savings. According to Roberts, low inflation rates of 1.7% still outpace the average savings account and if inflation rises in the near future, goods bought today could be worth more in the future often generating higher rates of returns than current investment options.

Week of May 31, 2013

This week’s mostly new and definitely notable list includes a new report on health insurance in Ghana, investigations into calculating global poverty figures, and new thoughts on financial inclusion.
 

  • Recently the Consortium on Financial Systems and Poverty sat down with Emmanuel Maliti, a researcher and seed grant recipient, to discuss his work in Tanzania. Maliti is investigating the efficacy of direct and indirect punishments on repayment performance among informal savings groups in Dar es Salaam.
  • In this article for the Boston Review, Pranab Bardhan reviews four books on development and poverty alleviation released in the last few years and compares two major approaches - the macro-political camp versus the micro experimentalists.
  • CGAP released the third blog post in its series highlighting themes from its recently approved five-year strategic plan. This installment describes CGAP’s approach to “building an enabling and protective policy environment” for financial inclusion and includes video clips from interviews with Philippine central bank Deputy Governor Nestor Espenilla and his colleague Pia Roman.   
  • A new report from the ILO Microinsurance Innovation Facility evaluates the impact of consumer education on health insurance enrolment in Ghana. Researchers found evidence that convenience of registration and timing of premium payments were more common challenges to enrolment than lack of knowledge of health insurance. See also FAI’s Jonathan Bauchet on an experiment marketing life insurance in Mexico. In a forthcoming paper, Bauchet discusses evidence from a natural experiment that ease of payment was a major factor in insurance purchases.
  • MicroSave released a report this week exploring the role of information sources in poor household’s decision-making processes. Researchers review what decision making paths people use to reach a decision, and how information sources accessible to them influence the process in an effort to inform better approaches for increasing financial literacy.
  • The World Bank released a working paper, authored by Asli Demirguc-Kunt, Leora Klapper, and Dorothe Singer, documenting and analyzing gender differences in the use of financial services using data from 98 developing countries. The data, drawn from the Global Financial Inclusion (Global Findex) database, highlights the existence of significant gender gaps in ownership of accounts as well as usage of savings and credit products.
  • Using a RCT of a large-scale micro-entrepreneurship program in Chile, the Consortium on Financial Systems and Poverty assessed the effectiveness s of training and asset transfers on individuals’’ employment and income. The results of the research indicate an increase in both for participants in the program. 
  • In a recent blog post for the Center for Financial Inclusion, Ignacio Mas makes the case that financial inclusion involves both formal and informal channels. He uses a cake analogy "to represent the idea of platforms, of capabilities arranged horizontally and interworking with each other." 

The Socio-Cultural Dimension of Microcredit

Much of the dialogue around microfinance suggests that the poor are universally credit constrained and that cash shortages drive a monolithic demand for credit. As such, microfinance is often treated as a technical, rational and linear process that is characterized by an “if-you-build-it-they-will-come” mindset. Too often overlooked are the contextually specific and nuanced processes that influence consumers’ demand for microcredit in a variety of social, moral, cultural, and political contexts.

A fascinating new paper, “Explaining Participation and Repayment in Microcredit Schemes in Rural Morocco: the Role of Social Norms and Actors,” from the Institute of Research for Development at the Sorbonne University explores exactly these dimensions of microfinance. Drawing upon evidence collected from rural Morocco, the team of authors explores the socio-cultural factors that influence a household’s use of microcredit services . . . 

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Week of May 23, 2013

Below are the latest and greatest articles, reports, and research from the field of microfinance and economic development. From remittances in Asia to microinsurance in Africa, it’s definitely been an interesting week!

Center for Financial Inclusion, "M-Pesa Launches in India," May 15, 2013
M-Pesa launched in India last month and will be conducted through a partnership between Vodafone and ICICI Bank. The service will roll out in phases, beginning with the eastern areas of the country. The first phase includes a network of 8,300 agents and will include cash deposits, withdrawals, money transfers, airtime top-ups, bill payment services, and the ability to make purchases at select stores.

Michael J. McCord, et al., The Landscape of Microinsurance in Africa - 2012, The Microinsurance Center, May 16, 2013
ABSTRACT: This landscape study aims to describe the current state of, and recent trends in, microinsurance in Africa. A total of 214 respondents from 39 countries where microinsurance was identified provided data for 511 providers and 598 products. The study identifies gaps in access to and the supply of microinsurance, as well as key bottlenecks to sustainable expansion of the sector. Its ultimate goal is to help industry stakeholders – insurers, delivery channels, policy makers, regulators, donors and others – identify areas for improvements that will eventually lead to better products and services for low-income clients.

The Wall Street Journal, "Number of the Week: Class of 2013, Most Indebted Ever," May 18, 2013
The average debt load for each borrower receiving a bachelor’s degree this year is about $30,000, according to an recent analysis of government data. That number has doubled over the course of a recent graduate’s lifetime. Even adjusting for inflation, the average debt burden was half that size 20 years ago. According to the Federal Reserve, total outstanding student-loan debt stood at $986 billion at the end of the first quarter of this year, representing an increase of 2.1% from the previous quarter and nearly 50% from the same quarter in 2009.

The Atlantic, “Poor People Are Now More Likely to Live in Suburbs Than Cities," May 20, 2013
This week the Brookings Institution released a new study of population and income trends that finds the US suburbs are showing a rapid increase in poverty rates. According to the research, those living in poverty in the suburban areas grew 64 percent between 2000 and 2010, while many major cities exhibited a decrease in poverty levels. More densely populated cities still have high poverty rates but the total number of poor living in suburban area exceeds that in urban area, representing a reversal in nearly a century's worth of population trends.

IFAD and The World Bank, Sending Money Home to Asia, May 20, 2013
According to a new report, Asian migrants sent approximately US$260 billion to their families in 2012. However, many of the benefits of these cash flows did reach those in rural areas due to high transaction fees and limited financial service availability. High fees (on average 8.35%) also limit the amount of funds going to reduce poverty and providing for recipient families. The report examines how to improve the market for remittances to Asia. Asia represents one of the largest remittance markets in the world, affecting over 70 million families. In Afghanistan, Bangladesh, the Philippines, and Nepal, remittances account for 10% of GDP; in Tajikistan, they may total more than 50% of GDP.

In case you missed it…

These items were recently released in the past few months but are relevant to conversations we’re having at FAI.

Gabriel Davel, Regulatory Options to Curb Debt Stress, CGAP, March 15, 2013
This Focus Note argues that it is preferable to implement appropriate monitoring mechanisms and regulatory interventions at an early stage in credit market development, to detect potential debt stress and prevent reckless lending practices, thereby avoiding risks to financial markets, consumers, and the regulator’s credibility. Davel divides crises of reckless lending and over-indebtedness into five stages: a) preconditions; b) commercialization and expansion; c) debt build-up with low default; d) default and contraction; and e) institutional failure and potential contagion. The first three phases are the run-up to the crisis, while in the last two, the crisis has hit. Davel argues that it is the responsibility of regulators and lenders to recognize the signs while the market is still in one of the first three phases. 

The World Bank, The Global Findex Database: Financial Inclusion in Europe and Central Asia, April 2013
In Europe and Central Asia 45 percent of adults have an account with a formal financial institution though just 7 percent report having saved formally in the past year, according to new data from the Global Financial Inclusion (Global Findex) database. This note describes how individuals' use of financial services differs significantly by gender, education, employment status, and other individual characteristics. The note also provides insight into how adults in the region save, borrow, make payments, and manage risk.

 

Savings Crisis in West Bengal

In the past few weeks, the local government of West Bengal has been embroiled in a financial and political crisis that has potentially large impacts on the state’s poor and its MFIs.  After discovering that the commercial entity the Saradha Group had duped thousands of investors through a real estate Ponzi scheme, the state minister launched a full investigation of over 70 other deposit-taking entities which are grouped under the category of “chit funds.”

A chit fund is a ROSCA-meets-the-auction block style of Indian savings scheme in which subscribers pool money every month and then try to outbid each other to get the entire pot.  The difference between the lowest bid and what is left in the pool is distributed among members.  In West Bengal, chit funds are particularly important due to the high demand for products that accommodate small savings.  According to Abhijit Banerjee and Maitreesh Ghatak, West Bengal’s share of population was approximately 7.5% in 2011, its state domestic product was 6.7% of India’s GDP, but its share of bank deposits was 22%.  Many of the state’s poor cannot afford to open a bank account and those who can face plummeting interest rates.  Chit funds can offer an alternative to traditional savings and credit lines for the unbanked . . . 

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Week of May 20, 2013

Impact Evaluation of Compartamos Released

The long-awaited impact study of Compartamos, led by Manuela Angelucci of the University of Michigan and Dean Karlan and Johnathan Zinman of IPA, has finally been published. The research team used a randomized trial to test the impact of loans offered at 110% APR by Compartamos, the largest microlender in Mexico. After three years of data collection on a variety of factors, the results were generally positive with no evidence that the loans caused harm or significant negative effects.  Researchers found that loan recipients grew their business revenues and expenses, were happier, more trusting, had greater household decision power, and were better able to manage liquidity and risk.  However, there was little evidence that loans had an impact on building wealth like household income, business profits, or consumption.

One of the more interesting conclusions from the paper is as follows . . . 

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Reliability of Self-Reported Data - Diaries and Alternative Methodologies

In last week’s blog post, I suggested that self-reported data should be supplemented with objective sources of information from independent third-party entities. Sometimes, however, independent data sources simply aren’t available and researchers have no choice but to base their analysis on self-reported data. Under these circumstances, some data collection methodologies might be more useful than others in ensuring that self-reported data are reliable. In this post, I discuss several studies of the potential of the diaries methodology and alternative strategies to capture accurate self-reported data.

Klaus Deininger, Calogero Carletto, Sara Savastano and James Muwonge examine the effect of personal diaries on the quality of self-reported agricultural data in their study, “Can Diaries Help in Improving Agricultural Production Statistics? Evidence from Uganda.” In Uganda, a large part of crop output consists of continually harvested crops such as cassava and banana. Since these crops are harvested over long periods of time, farmers who are asked to report harvest data may have trouble recalling events that happened several months earlier . . . 

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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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Reliability of Self-Reported Data: Deliberate Misreporting

Program evaluations and policy proposals are only as good as the data upon which they are based. Although we all know this to be true, discussions about the reliability of data, especially self-reported data, have only recently emerged in the field of development economics. The other week, I highlighted two papers from the Journal of Development Economics’ Symposium on Measurement and Survey Design which discussed how recall bias might undermine the reliability of self-reported data. Even when recall bias is not at play though, self-reported data might be threatened by respondents’ desire to misreport their activities so as to portray their behaviors in a more positive light.

Sarah Baird and Berk Özler explore this phenomenon as it relates to education in their study, “Examining the Reliability of Self-Reported Data on School Participation.” Many Conditional Cash Transfer (CCT) programs are evaluated based on self-reported data about school enrollment and attendance rates. However, the desire to give socially desirable answers or the belief that program funding is linked to evaluation results might lead survey participants to over-report their level of school participation. Baird and Özler test the extent to which self-reported data of school enrollment rates can be considered reliable in CCT evaluations of this nature . . . 

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Week of May 6, 2013

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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A Must Read from Chris Dunford on Research-Practitioner Relationships

A regular theme in our writing is about the need for the microfinance industry to learn from and adapt to the needs of poor households. A few weeks ago, a new paper appeared based on an interesting attempt to test whether MFIs are interested in generating and using rigorous evidence. The researchers sent emails to 1,419 MFIs inquiring about their interest in "a partnership to randomly evaluate their programs." There were three different emails sent however: 1) a neutral email, 2) an email that emphasized positive findings from other studies of microfinance, and 3) an email that emphasized "null" findings from other studies of microfinance. 

Unsurprisingly, the positive emails had double the response rate of the negative emails. The authors interpret this finding as evidence of confirmation bias among MFIs--they are only intereted in good news that backs up their existing beliefs, and less interested in learning how to improve . . . 

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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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Week of April 22, 2013

What is the Impact of Muhammad Yunus?

Muhammad Yunus spoke to an overflowing crowd at NYU on April 15, an event jointly sponsored by the Wagner School of Public Service, Stern School of Business, and Financial Access Initiative.

Professor Yunus is known for fighting to improve the lives of millions of poor families around the world, the quest that was celebrated by the 2006 Nobel Peace Prize. These days there is a lot of talk about the impact of microcredit. But here was an opportunity to ask: what is the impact of Yunus? Given where we were, more specifically, how has Yunus changed the way we--economists, academics, policy makers and influencers--think about problems?

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Yunus, Entrepreneurs, and Employees

We had the good fortune to host, with NYU Wagner and NYU Stern, a talk by Muhammad Yunus today at FAI. If you couldn't join us in the room or via the livestream, you can read the tweetstream from the talk by searching Twitter for #FAIYunus, and soon we'll post video of the event. 

In the meantime, I wanted to offer some quick thoughts about one of the main topics that Professor Yunus addressed: entrepreneurship. During his talk, Yunus mentioned his advice to the children of Grameen Bank borrowers who have completed school: don't be a job seeker, be a job maker. In other words, be an entrepreneur. During the question and answer session, a member of the audience asked Yunus, "[You] assume everyone is inherently entrepreneurial. What about people who are not?" Yunus' response was that people who are not entrepreneurial have simply not been given a chance to discover and develop that side of themselves . . . 

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Week of April 8, 2013

Measuring (and Missing) Financial Inclusion

The fastest growing part of the financial inclusion movement isn’t a product or even a standard, it’s data and measurement. And if there’s something experts are increasingly agreeing on, it’s that it is illusory to try to define financial inclusion in any precise, universal way. John Gitau says he’s confused, and so am I. How do you measure financial inclusion?

It’s true that you might not be able to measure financial inclusion itself, but you can still measure things that indicate either actual, or the potential for, progress. Such indicatorsare what we can measure, and they are very useful as long we don’t confuse them with actual measurement of financial inclusion.

There are two broad types of indicators which can be applied to fuzzy concepts like our cherished financial inclusion . . . 

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