Rigorous Evaluation: Not an Afterthought

There's a new piece in Foreign Policy magazine which takes a tough look at Jeff Sachs and the Millenium Villages Project--not in regard to results or interventions, but in regard to evaluation. The project was always pitched as a demonstration of a "different" approach to ending poverty that could provide a blueprint for addressing poverty globally. 

As the piece explains--citing FAI's founder Jonathan Morduch, FAI Affiliate Michael Clemens, Ted Miguel from UC-Berkeley and Nancy Birdsall from CGD, among others--that is no longer a realistic option. The project wasn't structured to allow for the kind of rigorous evaluation that would give it credibility as a demonstration or a justification for scale-up. While it seems there is now an effort to do more rigorous evaluation, for most aspects of the project it is simply too late to establish the comparisons and baselines necessary for credible claims of impact . . . 

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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 Death and Life of Cash

Cash is all the rage in development circles right now—whether it’s trying to drastically reduce the use of cash by the poor or drastically increase the use of cash by development agencies (both public and private). There isn’t an actual conflict here. In the first case, the idea is to reduce the use of the physical artifact of cash; the latter is all about increasing the direct transfer of money to the poor. So the two efforts are actually complementary: reducing the use of physical cash makes transferring money cheaper and more feasible.

The cost and risk of transporting, transferring and tracking physical cash has always been one of the major objections to cash transfer programs. Another is the idea that poor households won’t use cash well. At various times and places you can find someone arguing that the poor lack the training, education, sophistication, access to quality goods and services, impulse control, security, or moral sensibility to make cash transfers a good use of funds.

That position has always had little evidence on its side . . . 

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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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Week of June 17, 2013

This week, experts in the field explore the pros and cons of mobile money, the relationship between migration and microfinance, and new strategies to social investment.

  • Maryann Bylander of the Migration Policy Institute explores the relationship between migration and microfinance and the growth of the “migra-loan” – a fusion of remittances and credit products.
     
  • This article in American Banker explores the potential effect of the Affordable Care Act on the unbanked should insurers require customers to pay via checking account and not electronic means.
     
  • Tina Rosenberg’s opinion piece in The New York Times reviews the potential pros and cons of the emerging Development Impact Bond, a new twist on Social Impact Bonds that are backed by development agencies or foundations.
     
  • Both FAI Affiliate Ignacio Mas and Susie Lonie discuss the gap between the high expectations of mobile money networks and the realities of implementation.
     
  • This Guardian piece offers an overview of social finance strategies aimed at helping small-scale farmers in the developing world.
     
  • While mobile money has seen success in places like Kenya, there are risks of opening channels to criminal activity like money laundering, argues Josh Meyer for Quartz.com.
     
  • A UK company is launching Randomise Me, an online tool for anyone to set up their own RCT. The vision is that Randomise Me will be the RCT equivalent of Survey Gizmo or Survey Monkey.
  • Researchers from the Univeristy of Michigan and Universidad Francisco Marroquín in Guatemala released results from an RCT on educational subsidies and migrant remittances. The study found that the subsidies (in the form of matching grants) led to increases in educational spending and higher private school attendance for youths is El Salvador connected to migrant study participants.
     
  • Barbara Magnoni recently asked if microinsurance "pays off for the poor” while also highlighting the work of the MILK Project.

Week of June 10, 2013

This week’s “New & Noteworthy” includes a report on rising income and demand for financial services, the impact of “big data” on poverty measurements, and responses to the G8 meeting on impact investing.

  • The Center for Financial Inclusion released Growing Income, Growing Inclusion, its second report from its Mapping the Invisible Market initiative. This report proposes that over the next decade, worldwide income growth will propel millions out of poverty and into the “vulnerable class” of $4-$10 a day income levels and increase demand for formal financial services.
  • Emma Samman, a research fellow at ODI, responded in The Guardian to the release of a report by the UN high level panel on the post-2015 development agenda, which endorses new data-collection methods in development. The author advises that governments, researchers, and practitioners should combine new technologies with traditional, in-depth household surveys to increase the robustness and accuracy of data collection.
  • In another response piece by ODI, Emmanuel Letouzé discusses the potential (and challenges) of using “big data” for monitoring and measuring poverty.
  • Researchers from the IFPRI published an update to a 2012 working paper that shows Brazil’s Bolsa Famillia conditional cash transfer program significant increases urban women’s decision-making power regarding contraception use, children’s school attendance, and health expenses.
  • This report from EUFFI summarizes results from a survey implemented in France, Italy, Poland, Sweden and the United Kingdom showing that new means of payment that require a bank account (debit cards, internet banking, etc.) are not as accessible as cash and usually have additional requirements like ID cards and good credit history.
     
  • Ben Thornley offers his “five takeaways” from the recent G8 meeting on social impact investing.
  • A new study from the Microinsurance Network seeks to address the role of microinsurance within social protection systems and notes that very few countries are having these conversations.

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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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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