Last week we blogged about the puzzle of low adoption of mobile banking accounts in Bangladesh. When we ask, people say they’re interested in mobile banking accounts. So why don’t they adopt the new technology? And why are rates of adoption so high in some places, like Kenya, and so low in Bangladesh?
Read MoreNew Remittance Data, Ripe for Analysis
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?”
Bangladesh’s bKash Adoption Puzzle
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 MoreUnhappy Tax Day for Some
Last week the New York Times highlighted a trend among low-income communities: people seeking tax prep at unregulated, sometimes fraudulent, pop-up shops. The article explains, "for millions of low-income Americans tax season means the biggest one-time influx of money all year." When preparers hand these customers a lump sum much larger than they're used to seeing on a daily basis, many filers don't think to check the numbers. After all, they sought a professional to do the work so they wouldn't have to . . .
Low-income tax filers are vulnerable.
Read MoreCoping with Financial Shocks, Insurance is one Tool of Many
This blog post is co-written with Barbara Magnoni and Laura Budzyna.
Do clients get value from microinsurance? This was a straightforward question asked of the MILK Project over three years ago. And as the Project comes to an end, we have come up with a perhaps uninspiring answer: Sometimes. But keep reading- the inspiration is in the nuance . . .
Read MoreThe Life of the "Microentrepreneur"
There has been plenty written on the failure of microcredit-funded enterprises to grow or achieve more than minimal profitability. If you’re curious why microenterprises don’t grow, I recommend reading a new piece that provides some insight into the life of a microentrepreneur. It’s from an unexpected source: a Fast Company magazine article about the emerging world of task-based “entrepreneurship” in the United States. Companies like Uber, TaskRabbit, Postmates, AirBnB and Amazon (via its Mechanical Turk service) allow people to earn income by doing odd-jobs, renting out a room or running errands. The rosy view that all these companies present is that they are providing an opportunity for people to earn money on their own terms and in the hours that they are not otherwise occupied. And each prominently features stories of individuals who are doing quite well, even quitting regular jobs and substantially profiting from using these tools (not unlike, it should be noted, the stories that emanate from microcredit).
But that is not the experience of the average user . . .
Read MoreNot For Free
Two weeks ago I attended a Payments Bootcamp put on by Glenbrook Partners (a 2-day class they hold several times a year) to learn more about how the payments industry works behind the scenes. There is a lot to learn. Two days allows more than just scratching the surface, but not much more. While the class is focused on the payments infrastructure in the United States particularly, the material illuminates the evolution of mobile money and digital payments in the developing world.
A better understanding of the economics of the payments industry provided the foundation for a new longer-term research project on the future of digital payments innovation in developing countries. But one thing that immediately grabbed my attention was a conversation from the first day about why the payments system in the United States is so complicated and opaque (for instance, it is now virtually impossible for a small merchant to know what fees they will pay for a credit card transaction). According to Carol Coye Benson, a Glenbrook partner teaching the course, the root cause is the stubborn refusal of consumers to be overtly charged for payments. The attitude seems to be that no one should be charged for using “their own money" . . .
Read MoreBRAC Innovation Fund Announces Idea Challenge
On my recent trip to Bangladesh, I had the good luck to cross paths with and chat over dinner with Maria May and Amanda Misiti, two members of the Social Innovation Lab at BRAC who are engaged in advancing the organization’s mobile money agenda. Founded in 1972 in a rural village in Bangladesh, BRAC is one of the world’s largest and most influential nonprofits, serving by its estimates over 135 million people in need . . .
Read MoreShould Your Post Office Be a Bank?
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 MoreHow can financial services advance the rights of the poor?
I recently attended the launch event for Bill Easterly’s latest book, The Tyranny of Experts. His thesis is that international development policies have been determined by a group of so-called experts, who both ignore the rights of the poor and systemically violate those rights. After his presentation, Professor Easterly urged the audience to start more discussions that highlight a rights-based development agenda.
This call to action prompted me to think about how the provision of financial services can advance the rights of the poor, and reminded me of my first-hand experience with Slum Dwellers International (SDI) in Uganda. SDI is a grassroots organization of the urban poor that started in India in 1996 but now works in 33 countries . . .
Read MoreDeflating the Promise of Using Remittances to Cope with Financial Shocks
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 MoreQuiz: How Much Do You Really Know About Mobile Money?
Last month the Mobile Money for the Unbanked group at GSMA released their state of the industry report for 2013. They’ve been collecting data on mobile money since 2010 so a more complete picture of changes in the industry is starting to emerge, and this year for the first time they’ve added other mobile money products like insurance, credit and savings, which make up a growing piece of the mobile money pie. Though we try to keep up on what’s new in mobile money, some of the findings surprised us.
We hear that people these days are into quizzes (admit it, you already know which Game of Thrones character you are). Now get out your pencil and paper to tally up your scores, and see how much you really know about the global mobile money industry . . .
Read MoreWomen Pay More and Get Less: Experiences from Malawi
Here on the FAI blog we’ve written many posts on the shortcomings of financial literacy training programs, both in the US and abroad. When I came across a study from the World Bank’s Development Research Group evaluating a vocational training and entrepreneurship program in Malawi, I was prepared to add this to the stack of mounting evidence of training programs that show little to no effect on business development and personal finance and move on. But in this case, the study focuses on the gendered differences of participation in the training course, not just whether or not it was effective at facilitating new business activity.
Like previous research, the Malawi study found no effects on self-employment*, but it did find significant differences in satisfaction and self-esteem between women and men after taking part in the program. The authors (Cho et al.) comment, “these differences are explained by both the conditions under which women participate in training, as well as gender differences in the training experience" . . .
Read MoreStop Saying That Customers Don't Know What They Want
Lately I've been noticing a lot of writing about innovation inanely citing Steve Jobs (“People don't know what they want until you show it to them”) and/or Henry Ford (“If I had asked people what they wanted, they would have said faster horses.”) quotations about customers not knowing what they want. An example last week, in an otherwise reasonable piece about how to measure economic progress, caused my frustration to boil over.
I think this perspective on innovation rears its head a lot when it comes to financial services for poor households which is concerning because it is 90% (at least) dead wrong.
Let’s start with the Ford quotation. First, it’s apocryphal . . .
Read MoreThe Price of (Dis)Trust
No consumer likes overdraft fees. Overdraft fees are often unexpected, expensive, and in some cases undeserved. What’s more, they can wreak financial havoc on households living on a low-income.
But the larger issue is not the fees themselves. It’s the lack of transparency surrounding them and the widespread consumer distrust that results.
Edelman is a PR firm that surveys people around the world to create an annual Trust Barometer (among other things), which gauges levels of trust in different institutions. In 2012 it found that only 41% of respondents in the U.S. trust banks – which, by the way, were at the bottom of the list right along with financial services. The year’s ratings on banks are second-worst only to 2011, when they hit a low of 25% . . .
Read MoreThe Curious Case of the Falling Remittances
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 MoreSouth-South Remittances: The Untapped Mobile Market
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 MoreWhat if all of Africa were as digital as Kenya?
In Kenya, 70 percent of long distance payments from one individual to another are made electronically. Seventy percent of payments from governments and businesses to individuals are also made electronically. From 2006 to 2009 when M-Pesa—the Kenyan mobile instrument for all these payments—was expanding, the total number of person-to-person electronic transactions shot up rapidly, by 215 percent.
What would happen if the rest of Sub-Saharan Africa looked like Kenya? A just out from McKinsey, based on Gallup data funded by the Gates Foundation, looks into that future scenario.
The focus of the report is the opportunity for potential payment providers to earn more revenue (estimated at 2 percent of transaction volume). Projections show revenues from electronic payments across the continent would grow 50 percent, to $15-$16 billion a year. This news comes with something of a puzzle. With the opportunity so large, why have most other countries not followed in Kenya’s footsteps?
Read MoreWho needs payday loans?
There’s a nice post on payday loans by New School professor Lisa Servon on the New Yorker Currency blog this week. She tells the story of Azlinah Tambu, a single mother in Oakland, CA who took out a series of payday loans, knowing she wouldn’t be able to pay them back on time and will end up repaying far more than she borrows. There’s no question Tambu is as informed a consumer of these types of loans as you could find: she has worked as a teller for a payday lender. In relating Tambu’s struggle to repay, Servon makes two really important and related points.
First, current debates focus too much on the need for regulation to curb the abusive practices of payday lenders rather than seeking to understand the financial lives and motives of the people taking out these loans, despite their high cost . . .
Read MoreThe New York Times: How Credit-Card Debt Can Help the Poor
Today The New York Times features a perspective from Shaila Dewan on the importance of credit and saving in the lives of the poor. Dewan highlights that life without credit can be expensive and severly limiting in terms of accessing housing and other services or dealing with emergencies. She also notes that savings and credit are interconnected and quotes FAI's Jonathan Morduch on his own observations of the relationship between this activities from his research in Bangladesh . . .
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