Although micro-credit has been perceived as effective in reducing poverty, in reality, its impact has been modest. One reason could be that most microloans extended to the poor are term loans, which are not well-suited for borrowers with variable or risky income streams, for example, traders needing working capital for purchasing inventory, or farmers who earn lump-sum income after harvest. While the Indian government has been encouraging banks to provide credit in the form of over-draft, term loans continue to remain the predominant credit product.
In 2013, the Rural Financial Institutions Programme represented by GIZ and the National Bank for Agriculture and Rural Development (NABARD), partnered with Mann Deshi Mahila Bank to launch a new overdraft facility serviced through banking agents to traders and farmers selling groceries in rural markets in Maharashtra, India.
Read MoreThe irresistible force of commitment savings met its immovable object. In every pilot, the products rarely moved off the shelf, and when they did, it was for reasons other than the value of the product itself.
Read MoreFew objects signal middle class like housing. More than a car, more than clothing or other life accoutrements, there’s nothing like owning a modest home to send the message that the family has achieved this near-universal dream.
In wealthier countries, the issue of housing is largely seen through the lens of ownership – families who own their homes are likely to see their assets grow far more than families who rent, even if their incomes are identical. Home ownership (or lack thereof) is the reason why the wealth gap is so much greater than the income gap.
Read MoreA key concept in economics is fungibility – that a “dollar is a dollar is a dollar.” However, money also carries cultural and social significance. In The Social Meaning of Money, Viviana Zelizer argues that people attach different meanings to different income sources. A new publication from FAI Executive Director Jonathan Morduch reviews Zelizer’s book and applies key lessons to the economic study of poor households
Read MoreIn honor of Angus Deaton's Nobel prize announcement, below is an excerpt from the forthcoming book Experimental Conversations, to be published by MIT Press in 2016. The book collects interviews with academic and policy leaders on the use of randomized evaluations and field experiments in development economics. To be notified when the book is released, please sign up here.
Read MoreIn a new paper, Exploring the Business Models Behind Microsavings, FAI affiliate Daniel Rozas seeks to disentangle some of the existing complications in the microsavings story by exploring several key questions:.
- How might one define the different models by which MFIs provide savings?
- How are they distinguished, where are they more prevalent, and which institutions are more likely to adopt them?
- And is there a difference in outcomes—in terms of cost, outreach, and profit?
Read MoreRecently, The New York Times Magazine ran a feature on the bail process for petty crimes, with a focus on the Brooklyn, NY court system. Although bail was historically set as a bond to ensure a defendant will return to court for trial, it is increasingly used as a tool for incarceration. According to the article, at any given time, 450,000 individuals in the U.S. are held in detention awaiting trial because they were unable to pay their court-assigned bail. A disproportionate number of these are poor.
Read MoreIn the past, we've talked about peer effects and low adoption rates of mobile money banking accounts in Bangladesh. Our research exploring these issues (as well benefits for migrant workers) is in full swing! It is a randomized evaluation, which means that half of the sample is randomly assigned to a control group, while half of the sample is randomly assigned to the treatment group, which receives training and assistance with signing up for mobile money accounts.
In this video, co-investigator Dr. Abu Shonchoy audits the training by re-interviewing a woman who was part of the treatment group to make sure that the training was thorough and made the service understandable to the participant . . .
Read MoreThe 2014 Global Findex data has been a hot topic of conversation around the FAI offices since its release last month. While there is a lot to dissect in the 97-page report, the biggest headline is the 20% decrease in the number of unbanked worldwide - approximately 700 million people worldwide.
However, there are concerns that this number is overstated and the data leave us with outstanding questions as to why certain trends occur over the last 4 years. One reason is we do not yet have access to the microdata. When we can only use broad strokes to tell a nuanced story, many of the finer points are lost, like regional differences in financial inclusion changes.
Another example is the data around gender . . .
Read MoreWe 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 MoreIf 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 MoreThe 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 MoreOver 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 MoreThe 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 MoreWe 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 MoreThis 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 MoreGiven 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 MoreThis 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 MoreLast week a coalition of NYC-based nonprofits released a report on the financial status of immigrants in Queens. It’s part of a growing body of research drawing attention to how financial service providers can meet the distinct needs of America’s massive immigrant market. Just last summer the Center for Financial Services Innovation published a national, in-depth analysis of immigrants’ financial needs and recommendations for addressing them . .
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