1. The Case For Social Investment in Microcredit: Four years ago, at the suggestion of Alex Counts, I started working on a review of operationally relevant academic research specifically for practitioners. I finally finished it this month [sad trombone]. One of the reasons for the long delay was that the world kept shifting. Over the last 18 months it became clear that the need was not just to document the opportunities for innovation in microfinance but to specifically address whether additional social investment in microcredit was justified given the published impact evaluations.
So I ended up making the case for social investment in microcredit. I believe the case for additional social investment is strong—not despite, but because of, what we’ve learned from impact evaluations. Obviously there’s much more in the paper, but here’s the one sentence summary (there’s a one-page summary in the paper): Microcredit is a cheap intervention with modest but generally positive effects with a great deal of scope for evidence-based innovation that could materially improve impact. The kicker, though, is that the innovation required to boost microcredit’s impact is unlikely to happen without targeted social investment.
Please take a look and argue with me, publicly or privately, about it.
2. Digital Finance and Household Behavior: I lied, I admit it. A few weeks ago the faiV featured "the most interesting" papers from NEUDC. But the most interesting paper wasn't ready for circulation so I couldn't include it. It is now. Tomoko Harigaya studied what happened when savings groups in the Philippines were transitioned to digital finance tools--in other words, group leaders stopped taking cash deposits, instead directing members to make deposits themselves using mobile money. Members could now also make withdrawals without traveling to a bank branch. The result was a significant drop in savings deposits and savings balances and an increased reliance on informal loans. In other words, "convenience" went up and usage went down. The effects seem to be driven by those closest to bank branches ex ante, by the loss of positive peer effects and by increased salience of fees for transactions. Now there are some obvious ways to potentially counteract these effects but it is an important cautionary insight into how little we know about how digital stores of value and transactions affect household financial behaviors--and an especially important finding for the bank itself which would have seen it's funding costs rise from a program designed to reduce operational costs since it relied on deposits as a cheap source of capital.
3. Pro-Poor Digital Finance?: One of my long-standing concerns about the move toward digital finance is that unlike the microfinance movement, the leading players in the mobile money world have never had any pretensions of being pro-poor. Don't get me wrong, there's value in poor households being treated as customers. But it's also concerning if the companies treating them as customers don't have reasons to care about the households' well-being. Wayan Vota cuts to the core of the question: Are You Guilty of Helping Safaricom Prey on Rural Women? At the European Microfinance Week recently Graham Wright exclaimed that fintech's primary current use is "rapacious consumer lending...and I'm tired of it, I'm fed up." That's the central dilemma of digital finance: pro-poor organizations can't afford to build out their own infrastructure (and that wouldn't work even if they could) but an open infrastructure is agnostic to the motives of the people using it.
Bonus Update: Some news on the Indian demonetization.
4. Reconsidering the Elephant Graph: Branko Milanovic's elephant chart showing rapid gains in income for the world's wealthiest and most of the rest, with stagnating incomes for the middle classes in developed economies has become one of the signal economic explanations for growing populism in wealthier countries. Caroline Freund of the Petersen Institute of International Economics dives into the data to show that the majority of the apparent stagnation is attributable to the aging of Japan and the slump after the collapse Soviet Union. Her charts suggest that things haven't been as bad for the middle classes in developed countries as the elephant chart implies. Of course, if you look at the national level data on incomes in say, the United States, it's clear that there's been 20+ years of wage stagnation. Here's Milanovic's and Lakner's formal response to an critique similar to Freund's.
On a related note, given what we're seeing in the political realm, I'm truly baffled that Benjamin Friedman's Moral Consequences of Economic Growth and Hirschman's Tunnel Effect are not the dominant frame for discussion.
5. Intergenerational Poverty and Safety Nets: Generational poverty is a problem even when average incomes are growing, but it's an even bigger problem in eras of wage stagnation. Philadelphia magazine profiles a grandmother who grew up in poverty, her poor grandparents and the grandchildren she is now raising in poverty through the lens of a program specifically focused on intergenerational poverty. And here's a new paper on the household response to SNAP benefit increase in 2009 finding that the additional funds increased spending on housing, transportation and education. And here's an Evansian review of the spending on cash transfers on temptation goods finding that if anything, cash lowers spending on alcohol and tobacco.