Despite the long-awaited publication of six impact evaluations of microcredit, there are still many questions to be answered. But I worry about whether we will ever get answers. I don’t think that anyone involved in the impact evaluations would consider them to be the “final word” but that may be, de facto, what they are.
Why?
Back in 2011 the Development Impact blog published a survey of young academics which listed microfinance as the “least under-researched” topic in development. In other words, up-and-coming researchers were saying that enough work had been done on microfinance. You can be sure that ambitious economists looking to make their mark are not going to direct their limited energies toward a topic they think is well-covered. Indeed, while I haven’t done a thorough analysis of this, my impression is that there have been a declining number of papers devoted to credit in the last few years at NEUDC, one of the best places to see new academic work. Whether or not the impact studies are the final word on microcredit, they may be the final word in academic interest . . .
Read More1. 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
Read MoreIn the past, we've talked about what savings groups are and how they work as an effective tool to help poor families build savings and better manage their financial lives. In our latest installment in this series, we explore the idea of incorporating the mechanisms that make savings groups work in products and contexts outside of the group model. . . .
Read More1. Microfinance: A look at the microfinance industry's rebuilding efforts in a post-Ebola West Africa. Devex
2. Unbanked: In what sounds similar to a time-compressed version of this experiment, Accion Venture Lab's Managing Director reports on his experience of being unbanked for a day. Medium
3. Development Valentines: Every February, Love is in the air...and on Twitter. Storify
Read MoreIn January, the American Economic Journal: Applied Economics published a special issue devoted to impact evaluations of microcredit. You can see an overview and some of my thoughts here (and some other write ups here and here). Justin Sandefur, from CGD, titles a blog post on the issue, “The Final Word on Microcredit?”
I really hope the answer to Justin’s (rhetorical) question is “No.” Because I still have a lot of questions.
If you haven’t been keeping score on the microcredit evaluations, all of which have been circulating for a few years now, here’s the bottom line according to Esther Duflo (editor of AEJ:Applied and co-author of one of the studies) “These loans do help, but the changes are not transformative, certainly not transformative enough to justify charitable donations to the standard microcredit model.”
To provide a bit more detail, while the six studies are quite different—who got access to credit, loan amounts and terms, local context, time, metrics, etc.—none found significant increases in income, consumption or spending on things like health or education . . .
Read More1. Mobile Banking: Rural customers in India rely on local bank agents and business correspondents to open new accounts. But the requirement (and cost incurred) for holding cash to cover withdrawals during busy periods is not worth the banking agents' while. Could mobile money pose a solution? The Economist
2. Microcredit: What happens when microcredit clients default? The answer depends mostly on where they live. Smart Campaign
3. Regulation and Development: Hernando de Soto played a major role in putting property rights on the development agenda. Planet Money profiles him, where his ideas came from, and the impact they've had. NPR's Planet Money
Read More1. Savings Groups: Forty-two percent of the 500 savings groups surveyed across five countries report linkages to a formal financial institution and the remaining 58 percent indicated "a strong interest" in linking to a bank account. The MasterCard Foundation
2. US Household Finance: New research shows 55 percent of American households have less than one month of income in savings, just under half spend more than they make, and 8 percent have debt payments equal to 41 percent or more of their gross monthly income. Pew Charitable Trusts
3. Poverty: How NYC transit cards are like paper towels - and what that means for the economics of being poor. WNYC
Read More1. The Gates Letter: The Gates Foundation, while relatively small in the universe of global development, has begun to play an agenda-influencing role. One of their areas of focus is mobile banking and payments. Quartz tells us more. Chris Blattman continues his tradition of grading the entire letter. The Washington Post
2. Mobile Money: But new technologies also bring new risks. Reports from Kenya show a proliferation of digital fraud - the "Nigerian e-mail scam for the Mobile Age." Christian Science Monitor
3. Credit Scores: The New York Times profiles big data alternatives to credit scoring models. Meanwhile, David Porteous and Ignacio Mas remind us that debt repayment history is a relatively new tool used as a “test of character…summarized in a three-digit score”. They suggest avoiding single prescriptions and enabling multiple (formal and informal) avenues for credit access. NextBillion
Read More1. Microcredit: At long last, many of the microcredit evaluations we've been talking about for the last few years are officially published. The new issue of AEJ: Appliedincludes six evaluations of microcredit and an overview from Abhijeet Banerjee, Dean Karlan, and Jonathan Zinman. (Ungated versions of the papers are available at each of the authors' websites.) American Economic Journal
2. Medical Debt: Nonprofit hospitals across the U.S. often use debt collection agencies to sue patients who can't or don't pay their bills, creating a compounded financial burden of legal fees and garnished wages for low-income patients. ProPublica
3. Mobile Money: Recently developments show Pakistan's new year's resolution might be to move from over-the-counter mobile transactions via agents to individual account expansion. CGAP
Read MoreA few weeks ago I attended the first day of the New England Universities Development Consortium’s annual conference. It’s a good place to see the latest economics research on a pretty wide variety of development topics, including microfinance. During one session that included presentations of four papers, I noticed that three were about “savings” but each, on closer inspection, had a very different definition of “savings.”
One paper was examining the demand for credit versus savings, but the savings in question was money set aside for less than two weeks. Another was evaluating a program to encourage savings among 8 and 9 year olds and measured account balances at the end of a school semester. The third discussed savings accounts held in formal banks in Nigeria, with massive balances compared to the other papers.
So what are we talking about when we talk about savings?
Read MoreThe past few weeks have seen plenty of ruminations about Uber’s potential invasions of privacy and the amount of data Google collects from its users. The concern is that these companies could use this data for nefarious purposes (although your definition of nefarious may vary). An Uber executive, for instance, suggested that the company could “dig up dirt” on journalists who wrote negative stories and hinted that they’ve already tracked the movements of at least a few reporters to date.
Felix Salmon writes that this is only the beginning of a wave of privacy scandals. What I found most remarkable in the various columns, threads, and postings is that I didn’t see a single mention of credit card companies or other financial institutions . . .
Read MoreLast 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 More1. 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
Read MoreToday, The New York Times featured research from the U.S. Financial Diaries as well as other sources to explore the issue of income volatility and how it is affecting the financial lives of Americans. The complete article is available here.
For millions of Americans, including USFD households, income fluctuates monthly, weekly, and seasonally. In fact, 61% of the time (for those in the study), there is a mismatch between spending needs and income flows. According to principal investigator Jonathan Morduch, “This is a hidden inequality that often gets lost.”
Read MoreToday researchers and national experts will share early findings from the U.S. Financial Diaries (USFD) project, which tracked every dollar earned, spent, borrowed, saved, and shared by 235 low- and moderate-income households in five states over the course of a year—thus providing a powerful picture of how millions of Americans work to make ends meet. At the event, you will have first access to USFD findings. . .
Read More1. 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
Read More1. 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
Read MoreBudgeting can be a daunting task for the poor. Poor families must stretch low, often-volatile income to meet basic consumption needs, and handle unforeseen expenses. Despite these challenges, the poor are able to save. They often do so in small amounts for short periods of time, adding to and spending down savings frequently. But short-term saving seldom results in long-term assets—it is not a tool for building up larger sums.
The poor have an acute need for savings tools to amass lump sums of money, yet the supply of useful products often falls short, in part because formal providers face barriers to entry in this market. Savings groups are (and have been) a traditional method used by households around the world to save. But what makes these groups effective? What value do they provide for members? Can lessons from savings groups inform the design of products that reduce cost, reduce risk, and help consumers save?
Read More1. Mobile Money: Ignacio Mas thinks allowing independent cash in/cash out agents would be a huge boost to mobile money. Would loosening regulations spur mobile money take-up and innovation? NextBillion
2. SDGs: Is full financial inclusion a means or an end? The Guardian
3. Financial Inclusion: Peru, Colombia, and the Philippines top The Global Microscope 2014's list of the most conducive environments for financial inclusion. The Economist Intelligence Unit
Read MoreThe latest household profile from the U.S. Financial Diaries project presents the story of Mateo Valencia, 31, and Lucia Benitez, 30. Mateo and Lucia are an unmarried couple currently living in Queens, New York after moving to the U.S. from Ecuador in 2005. They live with their four-year-old son Pablo in a three-bedroom, one-bathroom townhouse, and they rent out rooms to friends and relatives who are between homes or jobs. Mateo and Lucia are in many ways emblematic of the American immigrant experience. They came to the U.S. with hopes of building a better life and while they are not truly secure yet, they are finding opportunities. They each work multiple jobs and actively seek additional income earning opportunities. But Mateo and Lucia live much of their financial life outside the formal financial system. They deal primarily in cash, so there is little information to support a credit score and they do not have long-term savings or health insurance. Their undocumented status also undermines their ability to invest in the long-term . . .
Read More
Editor's Note:
If you were hoping that the faiV would be a pleasant distraction from the overwhelming flow of AI-related content, sorry. For the record, the faiV had “ai” built in before Anthropic existed. And a housekeeping note: we’ve finally jumped ship from Mailchimp to NYU’s mailing platform—I guess if you’re reading this it’s been a seamless transition and if you’re not, well, you’re not. Feedback on the faiV’s content and format and delivery methods is always welcome, just drop me an email.
- Tim Ogden