1. Income Volatility: New research based on transaction data confirms findings from the US Financial Diaries (USFD) on income volatility - households' incomes vary from month to month and savings are inadequate to cover the mismatches in income and spending. FAI's Jonathan Morduch notes that in the USFD sample, income volatility is greatest for poorer households but remains high even as households increase their incomes. The Wall Street Journal
2. Entrepreneurship: Middle-class families account for 60 percent of new business ventures. But rising income and wealth inequality may be constraining the middle-class and preventing business expansion, economic growth, and job creation. Center for American Progress
3. Migration and Household Finances: Families working and/or living on both sides of the Mexican-American border must continuously navigate transactions in different currencies, both monetary and social. New research focuses on these exchanges and their functions in various cultural contexts. IMTFI Part 1 and Part 2
Week of May 11, 2015
1. Ultra-Poor: A RCT involving more than 10,000 households in six countries reports improvements in livelihoods for participants in a "graduation model" poverty intervention. While the programs didn't show effects in all contexts, cost-benefit analysis suggests promising returns on investment. Nature and Science
2. Savings: When participants in a study in India received compensation directly to a personal account, they reported higher rates of savings and consumption (regardless of gender) than peers receiving cash. However, when account holders were switched to cash payments, savings and consumption activity reverted to their original patterns. VoxEU
3. Social Networks: A new working paper from Angelucci et al. uses data from the Progresa evaluations to assess the degree to which family and social networks insure each other and provide funding for investment. They find that for every dollar received from Progresa, by a member of the network, food expenditures rise by .60 to .70 cents and investments in children also rise. J-PAL
When Social Networks Are Everything, but Not Enough
We know that the path out of poverty is rarely a smooth one. The poor are buffeted by a wide range of shocks, pushing them backwards along the way. Exploring the world of risk in the Kenya Financial Diaries, we learned that for many of the poor, navigating a world of risk is actually not only about how you manage your money. It’s also about how you manage relationships with friends and family who can come to your aid when things go wrong. Consider Greta’s story:
Greta and her husband had saved money for a caesarian section she would need to deliver her baby. But public health facility workers went on strike just she was due, and the cost of care at a private facility was five times higher, much more than Greta could finance without hard and dangerous sacrifices. Through friends and family Greta was able to raise roughly 75% of the additional funds needed.
For low-income Kenyans, social network financing of risk is incredibly powerful . . .
Read MoreThen They Tell Two Friends: The Power of Networks in Microfinance
If asked to picture a savings group, the images, like the one below, that most likely would come to mind are ones of circles of women sitting on the ground, maybe under a tree. That’s how we typically conceptualize savings groups (and microfinance clients) - as a single, essentially independent, unit . . .
Read MoreWeek of May 4, 2015
1. Financial Inclusion: This week, InterMedia released the results of its research on digital financial inclusion within eight of the poorest countries across Africa and Asia, focusing on gender divides, customer engagement, and financial behaviors. Financial Inclusion Insights
2. Mobile Money: Data from 2014 reports 13.4 million registered bKash accounts in Bangladesh...but only 5.1 unique users. A deeper look at agent and user behavior begins to explain this 8 million user gap. World Economic Forum
3. Gender and Development: "Not to empower these missing men is to condemn the poor woman in their lives to have to do absolutely everything for their families, from making all the money to changing all the diapers. Is that right or fair?" CFI
ICYMI: A Deeper Look at Microcredit Research (Part 3)
The next installment of our series on microfinance innovation research brings us to Ulaanbaatar. The motivating question of most microcredit evaluations is the impact on poverty for the “average” microcredit borrower. But “average” microcredit doesn’t typically serve ultra-poor . . .
Read MoreWeek of April 27, 2015
1. Impact Investing: There's no clear definition of "impact investing," made apparent by the US Council on Foundations' annual conference and the Milken Institute Global Conference both having impact investing tracks this week populated by quite different people. Read Tim Ogden's reflections from the Council on Foundations (Part 1, Part 2 and Part 3) where the emphasis was on starting small, and Jean Case's take on Milken Institute's theme of going big.
2. Microinsurance: Does the microinsurance industry have anything to show after 10 years of experiment, investment and excitement? Not much, according to Peter Gross. CGAP
3. Remittances: Since their initial launch two years ago, Orange and MTN's cross-border mobile money transfer services have exhibited rapid adoption rates and transfer activity in West Africa. Does this success signal potential disruption in the African remittance market or does the preexisting socioeconomic integration of the region make this a unique case? GSMA
Week of April 13, 2015
1. Commitment Savings: FAI's Managing Director Timothy Ogden discusses the world’s largest and most successful commitment savings program for low-income households - the US tax system.
2. Financial Inclusion: The number of "unbanked" individuals dropped 20% between 2011 and 2014 to 2 billion adults, according to the recently released Global Findex report.
3. Impact Evaluations: "The debate cannot stop with whether or not transformation has occurred... The debate has to include how we define transformation and how we measure it...If there is no silver bullet for reducing poverty, neither does there appear to be a silver bullet for measuring transformation."
Read MoreWeek of April 20, 2015
1. Digital Consumer Protection: Last week we learned about the drivers of demand for M-Shwari. This week, a follow-up post takes a deep dive into customer's understanding of the service, including risk, privacy, security, and terms of use. CGAP
2. Business Training: Research on business training rarely picks up significant effects. A team of business school researchers look at what happens if a training program is more targeted both in participant selection and in curriculum. International Growth Centre
3. Labor Markets: Issues of asymmetric information and the prevalence of gender-based violence in some areas may be contributing to why women are "missing" from rural labor markets. Microlinks
You Say M-Shwari, I Say Payday Loan
Over at CGAP, Julie Zollman has a terrific post on M-Shwari, the Kenyan borrowing and saving platform built on M-Pesa, examining the underlying customer needs that have led to M-Shwari’s success. Here’s a key passage:
The appeal [of M-Shwari] was the possibility of being able to borrow on demand, in real time, to stretch families’ ability to make ends meet in the short term. M-Shwari offered liquidity bigger than credit from local shops; faster, more private, and more reliable than friends and family, and cheaper than moneylenders. Here was a product that … solved a very real financial need while also getting delivery right: being accessible, having simple rules…Read More
ICYMI: A Deeper Look at Microcredit Research (Part 2)
The third study for our spotlight on current microfinance research is a working paper by Afzal et al. presented at the 2014 NEUDC which delves into the similarity between savings and credit products. The authors conduct a lab experiment among women in rural Pakistan who are or have been microfinance clients.
The experiment runs in three sessions . . .
Read MoreWeek of April 6, 2015
1. Digital Payments: A body of research contains evidence that people spend more with credit cards than cash because the former reduces the "pain of paying." Do mobile wallets like Apple Pay increase or relieve this pain?
2. G2P Transfers: The US doesn't drug test farmers receiving crop subsidies or requirePell Grant recipients to limit their field of study - so why do the poor have to prove they are worthy of aid?
3. Mobile Money Agents: Agents in Uganda use creative ways to "bend the rules" in order to meet the needs of a diverse customer base.
Linking Wage Labor and Savings: Evidence from Sri Lanka
We often talk about how access to financial instruments may complement entrepreneurship. Financial instruments such as vehicles for savings and loans may help to encourage entrepreneurship and investment by making it possible for individuals to make larger investments and to hoard returns for the future. Less has been said about the interaction between financial access and wage work, but a recent paper by Michael Callen, Suresh De Mel, Craig McIntosh and Christopher Woodruff shows, perhaps surprisingly, that a strong link can exist between financial access and wage labor as well.
In their experimental study, individuals in Sri Lanka were offered access to an improved savings product in which weekly deposits could be made to deposit collectors operating door-to-door with digital point-of-service terminals to record deposits. As in previous studies, access to the savings product increases savings and expenditures. The authors however also find that access to this savings product increased incomes while simultaneously encouraging disinvestment in microenterprises . . .
Read MoreWeek of March 30, 2015
1. Microfinance: FAI’s Jonathan Morduch discusses the limitations of microfinance, the promise of new technologies, and the need for quality, effective financial services for the poor. The Wall Street Journal
2. Student Debt: A burgeoning student loan repayment strike is gaining attention from the US government. It bears a striking resemblance to microcredit repayment crises, with much bigger implications: the US government guarantees billions in student debt.The Washington Post
3. MFI Transparency: Microfinance Transparency announced that after six years, it will no longer continue collecting global MFI pricing data. CEO Chuck Waterfield explains what led to that decision and what it means for industry transparency. NextBillion
4. Social Impact Bonds: "[E]ven skilled nonprofits and intermediaries will have trouble translating great ideas into contracts that really provide the right incentives. When you look at how the parties do the accounting, how they measure "savings,"... it gets inelegant, to say the least." Chronicle of Philanthropy
5. Remittances: Understanding the behavioral mechanisms behind migrants' decisions to use specific transfer services (both formal and informal) can potentially inform the design of more effective services for the poor. MicroSave
Week of March 23, 2015
1. Ultra-Poor Programs: A newly published paper from Jonathan Bauchet, Shamika Ravi, and FAI's Jonathan Morduch looks at "ultra-poor" programs and how labor markets affect outcomes. Journal of Development Economics (paywall)
2. Development Research: Couldn't make it to Oxford's 2015 CSAE conference? No worries, David Evans provides a round up of the sessions, neatly summarizing and categorizing papers in two (or fewer) sentences. The World Bank: Development Impact
3. Mobile Money: Will agents become a permanent part of mobile money or are they the equivalent of training wheels? GSMA
4. Product Innovation: In crowd-sourced innovation news, the 2015 Innovation Fund for Mobile Money Challenge is officially open and OpenIdeo has a current challenge focused on financial empowerment and inclusion. NextBillion and Ideo
5. Savings: Why do 75% of Kenya's PostBank youth savings accounts remain dormant? The answer may lie with how involved young people are (or are not) in intra-household financial management. World Savings Bank Institute
WSJ: Financial Inclusion in Asia and Microcredit's Impact
This week, The Wall Street Journal featured a pair of articles on current issues in microfinance. The first highlights the varied strategies governments across Asia are employing to promote financial inclusion, including mobile technologies and India's policy of universal bank accounts. However, some are concerned about the $80 overdraft feature of these accounts, and liken the potential risk of indebtedness to the past failures of microfinance. FAI's Executive Director Jonathan Morduch notes that indeed, microfinance's impact on poverty alleviation to date has been "disappointing" . . .
Read MoreBorrower Identification vs. Product Design: Does "Who" or "What" Matter More?
Given the mixed results of recent randomized evaluations of microfinance, an open question is whether there are broad limits to the benefits of microloans or whether programs can be tailored in specific ways to maximize impact. Two features of microfinance programs that may matter are targeting and product design. A recent working paper by Pushkar Maitra, Sandip Mitra, Dilip Mookherjee, Alberto Motta and Sujata Visaria investigates the role of these features by studying a microfinance program they term TRAIL, or Trader Agent Intermediated Lending.
The paper compares the impacts of a traditional group-based lending microfinance model to a more innovative and targeted model in the context of smallholder farming in West Bengal. The TRAIL model targets loans by incentivizing local traders to identify high potential borrowers for unsecured individual loans. The loans also have some innovative terms . . .
Read MoreWeek of March 16, 2015
1. Savings Groups: In an evaluation of savings group outreach programs in Kenya, NGO-led groups had better attendance rates, saved more, had larger payouts, and lower rates of reported loss than groups formed spontaneously. FSD Kenya
2. Mobile Money: Kenya may be the current media darling when it comes to mobile money, but Tanzania's success story is due for its share of the spotlight. CGAP
3. Poverty in the US: "Our economy increasingly requires that people be flexible in the workplace, understand more complex processes, and communicate and work well with others. As consumers, many people living in poverty aren’t prepared to manage all the choice and temptations in the marketplace, such as mortgages, auto loans, and cell-phone plans." Stanford Social Innovation Review
4. Sharing Economy: Will low-income consumers benefit most from new peer-to-peer rental marketplaces or will they face barriers to growth and prosperity as microentrepreneurs? The Washington Post
5. Payments: Facebook announced it is adding a payments feature to its messenger app that allows American users to link their debit cards to the service and send money as easily as sending text. The New York Times
Mobile-izing People in Bangladesh
This post written by Shamsin Ahmed and Kazi Amit Imran
Bill and Melinda Gates’ 2015 annual letter bets that over the next 15 years mobile banking will have a transformational effect on the lives of the poor. In Bangladesh, about 70% of the population is unbanked, yet an equivalent percentage of the population—not necessarily the same people though—has access to mobile phones. Put two and two together and mobile money is a no-brainer from our perspective.
Since the launch of the first mobile money product in 2011, mobile banking has been made possible in part by the efforts of the government’s mandate to create a ‘Digital Bangladesh’, and the subsequent policy support from the Central Bank to promote the growth of the mobile finance industry . . .
Read MoreWeek of March 9, 2015
1. Peer Lending: A new study reports lenders in online peer-to-peer lending models were able to predict a borrower's credit worthiness with 45% more accuracy than traditional credit scoring. NextBillion
2. Microcredit: Growing incidences of over-indebtedness in Cambodia are causing some to worry the country may face the next microfinance crisis. Is Cambodia the new Chiapas or can regulation cool down the market? The Guardian
3. Financing for Entrepreneurs: If you've ever traveled to major cities in East Africa, you may have dealt with the economics of the boda-boda while bargaining for a good fare rate. But drivers who rent their bikes pass on almost all profits to a "bike lord." A new business model offers drivers lease-to-own financing combined with elements of group lending. How We Made It In Africa
4. Tax Refund: While many Americans report on surveys they will use their expected tax refund to save or pay down debt, there is some evidence these responses are more aspirational than reflective of actual behavior. (Learn more about what US Financial Diaries researchers learned about tax refunds and financial behavior here.) Marketplace
5. Mobile Money: A recent collusion scandal in Uganda illustrates that internal fraud is a much more serious risk that individual end user fraud in mobile money systems. CGAP