I write this from Dhaka, where I am visiting for the second time to help get our mobile banking impact evaluation in motion. I am not here alone, however, and I wanted to devote this post to introducing the truly outstanding Bangladeshi economists, research staff and organizations who are our partners in this research study.
First, we are uniquely privileged to be working with Dr. Hassan Zaman as a co-principal investigator on this study. Dr. Zaman is the chief economist of Bangladesh’s central bank, although he will soon be returning to Washington, DC to take a director-level advisory position on South Asia at the World Bank. He spent much of his career prior to Bangladesh Bank at the World Bank and earlier worked for BRAC. He has generated a body of policy and academic work that reflects a diverse mix of interests in development, including on development and finance, and will lead the World Bank’s work on poverty reduction and human development in his new role . . .
Read MoreWe 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 MoreIn 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 MoreNot long ago on this blog, Julie Siwicki explored Senator Elizabeth Warren's controversial idea that post offices begin offering checking and savings accounts, small loans, and money transfers. Would underserved consumers would actually benefit from the plan? Would expanded financial services actually help the struggling post office turn a profit? With the proposal now before Congress, FAI's managing Director Tim Ogden spoke with Next City, a non-profit that covers leaders, policies and innovations in metropolitan regions, about what it would take for postal banking to meet the needs of the unbanked . . .
Read MoreEconomist Jenny Aker explores the pros and cons of delivering aid via cash, voucher, or digital payment in two very different African programs . . .
Read MoreA recently released World Bank Policy Research Working Paper presents results of an audit study of Mexican banks, investigating whether bank employees hide the lowest cost options from potential customers in order to turn a higher profit.
Financial products can vary widely in cost while providing more or less the same services. The dispersion in prices for products that offer essentially the same benefits – checking accounts, savings accounts, loans, and index funds – is thought to at least partly reflect a lack of information on the part of consumers. Savvy and informed consumers would gravitate to the lowest cost option, and competition would then drive prices down to the same level for equivalent products.
A key potential source of information on financial product attributes and prices is bank employees. Bank employees presumably know their products, but may strategically choose not to divulge information about lower cost options . . .
Read MoreRecent work from CGAP and Continuum Innovation in Pakistan calls extreme illiteracy a “hidden hurdle” to financial inclusion. When people are unable to read or understand digital transactions they are less likely to trust digital products, constraining a viable avenue for access to financial products. In many cases illiterate people have to rely on an agent to complete their transaction and many remain wary of such services. The scale of this challenge is immense: UNESCO estimates the worldwide illiterate population at almost 800 million.
Many researchers have proposed ways to make financial services, and digital financial services in particular, more accessible to illiterate people. One idea comes from Woldmariam et al., who propose a new user interface that allows mobile money users in Ethiopia to identify currency notes on screen . . .
Read MoreWhat does financial access look like? I like to think of it as a non-prescriptive goal in two parts. First, high-quality, affordable financial services are available. Second, people are aware of the services available to them. When these conditions are met, people are free to choose whether or not to use the services, and “access” is created.
A recent working paper challenged me to probe this definition of access further. Using data from the Mexican Family Life Survey, the authors explore a) whether households are aware of a specific financial product, and b) given that awareness, if they use the product. They found, among other results, that while the availability of one type of formal loan in a given locality did predict households’ knowledge of that credit, it did not lead them to use it . . .
Read MoreJust 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 MoreAs 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 MoreIn mid-June the Stanford Social Innovation Review blogged the results of a survey they conducted. The survey’s purpose: to understand the role of academic research in the work of practitioners in a broad range of social, environmental and economic issue areas. Many of the 1,800 respondents described academic research as difficult to access, expensive, too narrow, and not relevant. Seventy percent cited the “difficulty of translating research findings into concrete action” as one of the reasons for a substantial gap between the two worlds.
The results of the survey brought to my mind strong words from former Freedom from Hunger CEO Chris Dunford about the usefulness and applicability of one specific type of academic research, randomized control trials . . .
Read MoreDiscussions 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 MoreMore than 200 alumni, students, faculty, staff, donors, and friends of NYU Wagner celebrated the school's 75th anniversary on Thursday, June 12. The celebration began with faculty presenting their research highlights, or "WAGTalks." FAI's Jonathan Morduch kicked off the series with an overview of the US Financial Diaries (USFD) project and its relevance in today's current economic debates. Jonathan emphasized that USFD provides a highly detailed, month-to-month picture of the financial lives of low-income Americans, which brings to light issues like income volatility that studies using annual income data are unable to catch. See below to view Jonathan's full presentation and click here to watch the other WAGTalks in the series.
Read MoreA 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 MoreThe majority of the world’s poor share one profession: farming. Most of these farmers cultivate less than 10 acres of land, far away from paved roads and with limited access to the improved seed and fertilizer they need to produce good harvests. Most of these farmers also lack access to financial services that could help them buy that seed and fertilizer. If the global microfinance industry seeks to have a long-term impact on global poverty, it must address the needs of smallholder farmers. Most microfinance institutions are focused in urban and peri-urban areas, but a few are starting to offer products specifically targeted at farmers.
We’ve seen fast-growing interest in the farm microfinance sector in the last few years. The books, videos, and papers discussed below helped us understand the market opportunity in farm microfinance, and what needs to happen for the market to take off . . .
Read MoreWhat does it mean to live between poverty and the middle class? In a multi-media report released last week, Al Jazeera America digs into the lives of 5 Californian families that "earn too much to receive most government benefits yet too little to reliably make ends meet."
The piece profiles families with income below the self-sufficiency standard, a measure developed by the University of Washington in the 1990s. The self-sufficiency standard varies from household to household. It takes into account regional cost-of-living, ages of household members, and all major budget items. More people live below this standard than the federal poverty line, which doesn't allow for geographic cost differences and is based on assumptions about only the food portion of household budgets. According to Al Jazeera's report, the average self-sufficiency standard for a family of 4 in California is an annual income of $63,979 while the federal poverty threshold is only $23,850 . .
Read MoreThis post by Mudita Tiwari and Deepti KC.
In Dharavi, Mumbai, the largest urban slum in Asia, groups of women make papad, crispy lentil dough wafers, for Lijjat Papad Company, one of the world’s largest papad retailers. Lijjat requires any woman who works for the enterprise to first open a savings account, and to encourage savings, the company deposits a small proportion of the women’s earnings (2 rupees of every 32 rupees earned) directly into the savings accounts, adding a bonus during the Diwali festival . . .
Read MoreWhether it is education generally or domain specific skills, it seems obvious that imparting knowledge and skills should be an effective approach for improving outcomes. What’s not so obvious is how to deliver useful knowledge and skills. A few new papers shed some light on two areas of specific interest to us: financial literacy and business training for microentrepreneurs.
A new paper based on a two-year, in-school, financial literacy program for high school students finds increased use of savings over borrowing, increased likelihood of financial planning and spillover of financial knowledge to the students’ parents. There are two important things to note in these findings. First, this is a very intensive program, with training of teachers, significant investment in curriculum materials, and many hours of instruction. Second, the results are self-reported. So the impact noted is not whether, for instance, the students actually saved up for a large purchase rather than borrowing at expensive rates, but whether they report doing so (for fairly obvious reasons of time and expense, it is rarely possible to measure actual behavior in large samples). A cynical interpretation of these results would be that two years of financial literacy training is effective at teaching people how to respond to financial behavior survey questions . . .
Read MoreIn early April we blogged about BRAC’s new Innovation Fund for Mobile Money, which solicited ideas from the public for pilot projects using mobile money technologies to deliver services. The seven winners have now been announced, and project descriptions are on the BRAC blog as well as the Innovation Fund website.
The winners span a variety of sectors, but all seek new ways to use mobile money to serve the needs of the poor. Here are the descriptions of the winning projects from BRAC. We’ll report on the progress of these projects from Bangladesh, where we’re carrying out an experiment on the impact of mobile banking, this summer . . .
Read MorePopular financial advice guru Dave Ramsey has long advocated for what he calls the “debt snowball” approach to repaying debt for financially stressed households: order your debts by amount, smallest to largest, and repay them in order, ignoring interest rates. This sounds decidedly unscientific, and from a classical economics perspective it is bad advice. Rational actors should settle debts with highest interest rates first, regardless of the size of debt, in order to minimize the total amount they will have paid when all debts are finally settled. But, argues the snowball, if the debt never gets paid off at all because the debtor is daunted to the point of paralysis by the prospect of paying off a huge debt, then the classical advice is irrelevant . . .
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