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Viewing all FaiV posts with topic: Customer Protection  

Week of June 14, 2019

The Colorblind Edition

1. FinLit Redux: A few weeks ago I had an op-ed in the Washington Post bemoaning the ongoing emphasis on financial literacy training. David Evans had an issue with one particular sentence in that op-ed, not about financial literacy, but about the effectiveness of information interventions. Here's his list of 10 studies where providing information (alone) changes behavior. And I suppose my inclusion of this is another piece of evidence supporting his point? On the other hand, here's a long, rambling essay from the president of the (US) National Foundation for Financial Education which is one of the finest examples I've ever seen of not just moving the goalposts but denying they even exist. He's got all the greatest hits: don't evaluate based on current practice because we're changing; don't evaluate based on average practice, because of course there are bad programs; don't evaluate based on standard measures because programs vary; don't pay attention to negative stories because they are "old and tired"; and even, "hey look over there!" Is there an emoji for scream of helpless rage?
The reason I find such defenses so enraging is because the huge amount of resources being poured into financial literacy could be put to so much better use that actually are likely to help people. Here's a piece looking at one of the specific trade-offs: financial literacy distracts from the very real need to protect consumers from bad actors. That's not just theoretical. The (US) CFPB is actually shifting from consumer protection to education. Where's that scream of helpless rage emoji again?

2. Household Finance and Regulation: Thinking about consumer protection and the role and value of financial literacy requires thinking about household finance. Fred Wherry, Kristin Seefeldt and Anthony Alvarez have a short essay on how to think about these issues, with several sentences I wish I had written, including, "Stop treating the borrowers as if they are ignorant or irresponsible. And start treating the lenders as if they are inefficient (and sometimes malicious) providers of needed financial services."
There is a tension there, however, that I think too often gets short shrift. Consumer protection regulation necessarily involves removing some choices, and therefore some agency, from consumers. I hope to write more about this, but here is Anne Fleming, (author of City of Debtors which I've been citing frequently) writing about the trade-offs in the caps on interest rates proposed by some prominent Democrats. Making those trade-offs also requires regulators to decide what consumers really want. And that's not always so clear--for instance, here's a look at how "social meaning of money" sociological frameworks do a better job of predicting behavior in retirement accounts than behavioral or rational actor models. And of course the needs and desires of consumers vary so you're not just trading-off between choice and protection but between the needs and desires of different consumers. Yes, this is a bit of a stretch, but here's an article about how women are carving out their own niche in a bit of the household finance world that has been dominated by white men.
Now I recognize that all of this so far is about things going on in the US. But as I frequently argue, the US has a lot more relevance to global conversations than is generally recognized. For instance, here's a story about Facebook turning into a platform for the kind of informal insurance networks we talk about so often in developing countries.
  
3. Digital Finance: That's a reasonable segue into digital finance, especially since the piece quotes Mark Zuckerberg's ambition to make money as easy to send as a picture (which, y'know, isn't actually very ambitious given that a billion+ people can already do that). But in Hong Kong a lot of them are choosing these days not to do it. Well, at least not to use digital tools to make purchases. Why? Because they are worried that the government will use the data trail to identify who is participating in protests. It's a well-founded worry not just in Hong Kong but around the world, and one that digital finance advocates should be taking much more seriously. And no, cryptocurrency is not in any way a solution for this.
Aside from the arguments I've frequently featured on that issue, here's an op-ed andTwitter thread from Rebecca Spang nominally about Italian proposals for a currency alternative to the Euro but really about alternative currencies and good and bad money, and the effects on the poor. Another thing all of us, not just digital finance advocates, could do more of is relearn the lessons of the past--none of the problems of finance are new! 
That doesn't mean that I don't think there is value and promise in digital finance. I do! Here's a story about Nubank, Latin America's largest fintech, now expanding from Brazil to Mexico, offering digital bank accounts and credit cards. Yet more proof (like the report a few weeks ago that Bangladesh has more mobile money accounts than Kenya) that digital finance has taken hold globally. But more relevant to most readers, here's a new report from the European Microfinance Platform on the promise of digital pathways for boosting financial inclusion based on the experiences of practitioners using digital tools. And here's a review of some hearty debates from the launch event for the report. So I do believe in the potential of digital finance, I just take issue when it seems that people believe the problems of finance magically dissolve in the face of bits and bytes. 

4. Our Algorithmic Overlords: Speaking of problems that don't dissolve in the face of bits and bytes, how about the exploitation of children? YouTube is an app for that.
Meanwhile, Europe's data protection policies that were intended to help protect consumers seem to have further entrenched the power of BigTech.
Other problems that don't go away in the face of technology are the need for people to earn a living wage, and for businesses to have a business model that allows them to cover their costs. Uber is caught between those two problems and it increasingly appears that there isn't a way to navigate between the two. I'm increasingly convinced that the idea of negligible marginal costs in the digital realm is simply not true in most instances and that has huge implications for how we think about digital finance. Again, a topic I hope to return to.
In the meantime, here's a long essay from Vi Hart on how she has changed her mind about AI, UBI and the value of data. It's worth a close read. 

5. Global Development: I wasn't planning this but the transitions are really working today--since this is mostly going to be about cash transfers. In all of the stories about UBI and cash transfers, it had slipped my notice that Stockton, CA is running a test of a basic income guarantee. Stockton is one of those places that has a lot in common with many developing and middle-income countries, and very little in common with Silicon Valley, so the experiment is worth following.
In other transfer news, there's a new paper on a Targeting the Ultra-Poor experiment in Afghanistan which shows large effects. Of course, if I'm reading the charts right, the transfer was 5x ex-ante consumption so there darn well better have been large effects. Markus Goldstein has a nice write-up of the paper at Development Impact.
The big question about TUP, in my mind, is not about the near term impact of large transfers, but about the possibility of fade-out of effects, a la Blattman, Fiala and Martinez. Since TUP programs are very expensive, gains have to be sustained for quite a long time for them to be cost-effective. Imran Rasul notes that 4-year follow-up of one of the original TUP programs in Bangladesh showed sustained gains, and there is an 11-year follow-up forthcoming (though I'll admit I'm confused since the 4-year follow up was in 2016). But you should also read these results alongside this"different take on TUP programs" by Naila Kabeer (summary and further thoughtsfrom Berk Ozler) who does a qualitative study of two TUP programs.
Finally, late last week, Evidence Action announced that No Lean Season, a program to encourage seasonal migration in Bangladesh, based on a well-known impact evaluation finding large gains in income, was being shut down. There were two main issues: the discovery that the local implementer bribed local officials to get a license for the program, possibly with the knowledge of local Evidence Action staff, and that the program was not generating results at scale. Note that I have lots of ties here: I'm chairman of GiveWell who had recommended No Lean Season (here's their write-up), and I advised (pro-bono) Evidence Action on its communications.
 

L-IFT , a diaries research firm, is a proud sponsor of the faiV. See our video on  diaries research with 800 women microentrepreneurs in Myanmar .

L-IFT, a diaries research firm, is a proud sponsor of the faiV. See our video on diaries research with 800 women microentrepreneurs in Myanmar.

This is right up there with the most self-indulgent graphics I've ever included. I'm colorblind. Hence, I find most color-based charts enormously frustrating. So, a tear came to my (color-blind) eye when I came across this page for color patterns for use in R that are actually interpretable by the 10% of the male population that is like me. I promise that if you use this and then send me your chart/paper/whatever it will go in the faiV.  Source .

This is right up there with the most self-indulgent graphics I've ever included. I'm colorblind. Hence, I find most color-based charts enormously frustrating. So, a tear came to my (color-blind) eye when I came across this page for color patterns for use in R that are actually interpretable by the 10% of the male population that is like me. I promise that if you use this and then send me your chart/paper/whatever it will go in the faiV. Source.

Week of September 17, 2018

1. MicroDigitalFinance: A few weeks ago I wrote that small-dollar short-term loans have always been the bane of the banking industry. We're getting a new test of that. US Bank is launching an alternative to payday loans: loans are between $100 and $1000 and repaid over three months. Interest rates are well below payday lending rates, but still around 70% APR--interestingly on US Bank's page about the loan they very clearly say: "Simple Loan is a a high-cost loan and other options may be available." All of that is good news. But the loans are only available to people with a credit rating (even if it's bad), who have had bank accounts with US Bank for 6 months and direct deposit for 3 months. It will be fascinating to watch take-up, repayment rates, and outcomes--those are where banks have always struggled in this market. Here's Pew's Nick Bourke's take on the US Bank move and the potential for others, with some more regulatory action, to follow suit.
I occasionally remark on insurance being the most amazing invention of all time. It's astounding that it works at all, even in the most developed, trusting and well-regulated markets (see this attempt by one of the US's oldest life insurance providers to collapse the market); it's not surprising that it's a struggle to make it work elsewhere, in the places where households face more risk and would most benefit from access to insurance. So I'm always interested in new work on insurance innovation. Here's a new paper on a lab-in-the-field insurance experiment in Burkina Faso. The basic insight is that many potential purchasers struggle with the certain cost of an insurance premium versus the uncertain payoff. It turns out that framing the premium around an uncertain rebate if there is no payout--which makes both premium and benefit uncertain--increases take-up, especially among those that value certainty most. Yes, you probably need to read that sentence again (and then click on the link to see that even that obtuse sentence is marginally clearer than the abstract). If we want to delve into the details of insurance contract construction, there's also a new paper that delves into how liquidity constraints--a huge factor that hasn't generally gotten enough attention--affect the perceived value of insurance contracts, and how to adjust the contracts accordingly.
And finally, William Faulkner's dictum that "The past is never dead. It's not even past." applies to fintech. A new paper finds that common law countries in sub-Saharan Africa have greater penetration of Internet, telecom and electricity infrastructure, and thus much greater adoption of mobile money and FinTech. That's consistent with history of banking literature that finds common law countries do better on financial system development, financial inclusion and SME lending. 
For the record, I've clarified in my own mind the difference between the MicroDigitalFinance and Household Finance categories. The former provides perspective on providers, the latter on consumers. I reserve the right to break that typology as necessary or when it suits me.  

2. Household Finance: I suppose another way to distinguish between the two categories is that MicroDigitalFinance features bad news only most of the time, while Household Finance is just all bad news. At least that's the way it feels when I come across depressing studies like this: Extending the term of auto loans (e.g. from 60 months to 72 months as has become increasingly common during this low-quality credit boom) leads to consumers taking loans at a) higher interest rates, and b) paying more for the vehicle. Liquidity constraints mean consumers pay much more attention to the monthly payment and get screwed.
It's not just auto loans where liquidity constraints lead to people making sub-optimal choices (yes, I'm thinking a lot about managing liquidity lately). For instance, when people move from traditional health insurance to high-deductible plans they suddenly reduce spending on health care--but not in the ways you want. People don't learn to price shop, even after two years, and they don't reduce spending only on optional or low-value services. And here's the JP Morgan Chase Institute study that shows how much liquidity constraints or their removal affect health care spending using a different approach.
Now if you are a loyal faiV reader, I know you're not thinking, "We need financial literacy training!" But just in case, here's some more bad news: "peer-to-peer communication transmits financial decision-making skills most effectively when peers are equally uninformed, rather than when an informed decision maker teaches an uninformed peer." Or this: "provision of effective financial education to one member of a pair...does not lead to additional improvements in the quality of the untreated partner's decisions." 
If you're thinking, "That hasn't ruined my Friday yet, Tim, give me more," don't worry. How about "Twenty-four million homeowners think it's acceptable to tap into home equity to cover everyday payments." Granted, that's from one of those ridiculous bankrate.com surveys that should be taken with several kilos of salt, but still. 

3. Our Algorithmic Overlords: Here's a quick story about an egregiously bad algorithm the State of Idaho was using to determine how much assistance Medicaid recipients should receive. You can probably already guess--bad data, bad software, bad implementation. But it took a lot of work, and a lawsuit, to figure that out. 
Stories like that emphasize that before handing over decisions to our algorithmic overlords we should want those algorithms to be understandable and fair. Here's a new paper from Jon Kleinberg and Sendhil Mullainathan developing a model that shows you have to pick between simple and equitable. You can't have both.
And here's the "Anatomy of an AI System" that in some ways is a visual proof of the Kleinberg and Mullainathan paper. It's also one of the coolest visualizations I've seen in a while--both in scope and because it isn't reductionist about AI. It takes into account all of the surrounding processes as well. You won't regret clicking on this, unless you have something else really important to do.

4. Global Development: So many things to include this week. Let's start with the biggest: Asher, Novosad and Rafkin have assembled an incredible dataset on incomes in India that allows them to measure intergenerational mobility in a country of more than a billion people, down to the level of 5600 rural districts and 2300 cities and towns. One key finding: increasing mobility among scheduled castes is offset by decreasing mobility among Muslims.
At a necessarily smaller scale, but still big in terms of scope and time, Casey, Glennerster, Miguel and Voors have a long-term follow up on the results of a large scale experiment on Community Driven Development in Sierra Leone, finding that CDD doesn't break down traditional autocratic governance mechanisms enough to allow full exploitation of human capital, which as I understand it was part of the motivation for CDD, and there are easier and cheaper ways to to do so. Of note, they also look at the "prior beliefs of experts on likely impacts"--which, given the "Everything Is Obvious" responses research like this often generates, is pretty cool. Here's Rachel's Twitter thread summary.
Another of the arguments I've heard both for and against CDD-style programs is side-stepping difficult targeting questions--just let the community decide who needs help. Rema Hanna and Ben Olken have a new paper on targeting, specifically on the relative welfare gains of universal basic income versus means-testing. They find means-testing wins using data from Indonesia and Peru, despite some issues; and they discuss adding community-targeting to means-testing.
Meanwhile, here's a piece by Josh Blumenstock that tries to deflate some of the excitement around using high-tech means of targeting, like satellite maps, social networks and call records. In summary, data without theory is useless, and so is data + theory without anthro/soc (or at least anthro/soc informed economics).

5. Methods and Evidence-Based Policy : That's a good lead-in to methods. Let's start with some quick hits. Brian Wansink, whose scandals I've covered in this item in the past, has resigned from Cornell. Noah Smith has a column on the replication crisis in Economics though it's about a very different kind of replication crisis than the one Wansink faced. Now that I type that, it occurs to me that it was in fact easy to replicate Wansink--just making up numbers that matched his would apparently be both a literal and conceptual replication. And here's a new paper on improving diff-in-diff methods to account for effects changing over time.
The idea of evidence-based policy sort of requires that there is evidence of something working. But y'know, nothing does. Encouraging women to get mammograms? Those most likely to respond are those least likely to need one, and because of false positives, the net welfare effect is negative. The health effect of better trade and transport links in the United States in the early 19th century? So negative that it made it people shorter (I mean, as a whole, not specific people). What else? Oh, those gains we all know of like improved water and sanitation, and food safety standards during the early 20th century...no effect on total or infant mortality. That last one reminds me of an old LantRant about assessing whether development interventions matter based on whether they were important in the history (or present) of developed countries. Shall we scratch food safety and urban sanitation off that list? 
I suppose we can hope that these results won't replicate, like the examples that Noah Smith cites. But on the other hand, it's already too late. Once a result is published, no one (or at least no doctors) changes their mind, or changes their behavior.
Wow, this has been bleak. So here's one hopeful note on something that did work. Women's suffrage caused large gains (via demand for more spending on education) in educational attainment of poorer/disadvantaged children, and long-term earnings gains. So go out this weekend and help a woman register to vote (and then go back and make sure she has everything she needs to follow through and vote on election day).

I would have had the Anatomy of an AI visualization here, but it's way too big, and  Justin Sandefur  created this really great example of how simple choices in the visual representation of data can radically change the way we interpret it. The two charts are of the same data, on the left from the World Bank and on the right from The Economist. Via  Justin Sandefur .

I would have had the Anatomy of an AI visualization here, but it's way too big, and Justin Sandefur created this really great example of how simple choices in the visual representation of data can radically change the way we interpret it. The two charts are of the same data, on the left from the World Bank and on the right from The Economist. Via Justin Sandefur.

Book Review Special Edition: Automating Inequality

1. Algorithmic Overlords (+ Banking + Digital Finance + Global Development) book review: I'd like to call myself prescient for bringing Amar Bhide into last week's faiV headlined by questions about the value of banks. Little did I know that he would have a piece in National Affairs on the value of banks, Why We Need Traditional Banking. The reason to read the (long) piece is his perspective on the important role that efforts to reduce discrimination through standardization and anonymity played in the move to securitization. Bhide names securitization as the culprit for a number of deleterious effects on the banking system and economy overall (with specific negative consequences for small business lending). 
The other reason to read the piece is it is a surprisingly great complement to reading Automating Inequality, the new book from Virginia Eubanks. To cut to the chase, it's an important book that you should read if you care at all about the delivery of social services, domestically or internationally. But I think the book plays up the technology angle well beyond it's relevance, to the detriment of very important points.
The subtitle of the book is "how high-tech tools profile, police and punish the poor" but the root of almost all of the examples Eubanks gives are a) simply a continuation of policies in place for the delivery of social services dating back to, well, the advent of civilization(?), and b) driven by the behaviors of the humans in the systems, not the machines. In a chapter about Indiana's attempt to automate much of its human services system, there is a particularly striking moment where a woman who has been denied services because of a technical problems with an automated document system receives a phone call from a staffer who tries very hard to convince her to drop her appeal. She doesn't, and wins her appeal in part because technology allowed her to have irrefutable proof that she had provided the documents she needed to. It's apparent throughout the story that the real problem isn't the (broken) automation, but the attitudes and political goals of human beings.
The reason why I know point a) above, though, is Eubanks does such an excellent job of placing the current state in historical context. The crucial issue is how our service delivery systems "profile, police and punish" the poor. It's not clear at all how much the "high tech tools" are really making things worse. This is where Bhide's discussion is useful: a major driver toward such "automated" behaviors as using credit scores in lending was to do an end-run around the discrimination that was rampant among loan officers (and continues to this day, and not just in the US). While Eubanks does raise the question of the source of discrimination, in a chapter about Allegheny County, PA, she doesn't make a compelling case that algorithms will be worse than humans. In the discussion on this point she even subtly undermines her argument by judging the algorithm by extrapolating false report rates from a study conducted in Toronto. This is the beauty and disaster of human brains: we extrapolate all the time, and are by nature very poor judges of whether those extrapolations are valid. In Allegheny County, according to Eubanks telling, concern that case workers were biased in the removal of African-American kids from their homes was part of the motivation for adopting automation. They are not, it turns out. But there is discrimination. The source is again human beings, in this case the ones reporting incidents to social services. The high-tech is again largely irrelevant.
I am particularly sensitive to these issues because I wrote a book in part about the Toyota "sudden acceleration" scare a few years ago. The basics are that the events described by people who claim "sudden acceleration" are mechanically impossible. But because there was a computer chip involved, many many people were simply unwilling to consider that the problem was the human being, not the computer. There's more than a whiff of this unjustified preference for human decision-making over computers in both Bhide's piece and Eubanks book. For instance, one of the reasons Eubanks gives for concern about automation algorithms is that they are "hard to understand." But algorithms are nothing new in the delivery of social services. Eubanks uses a paper-based algorithm in Allegheny County to try to judge risk herself--it's a very complicated and imprecise algorithm that relies on a completely unknowable human process, that necessarily varies between caseworkers and even day-to-day or hour-to-hour, to weight various factors. Every year I have to deal with social services agencies in Pennsylvania to qualify for benefits for my visually impaired son. I suspect that everyone who has done so here or any where else will attest to the fact that there clearly is some arcane process happening in the background. When that process is not documented, for instance in software code, it will necessarily be harder to understand.
To draw in other examples from recent faiV coverage, consider two papers I've linked about microfinance loan officer behavior. Here, Marup Hossain finds loan officers incorporating information into their lending decisions that they are not supposed to. Here, Roy Mersland and colleagues find loan officers adjusting their internal algorithm over time. In both cases, the loan officers are, according to some criteria, making better decisions. But they are also excluding the poorest, even profiling, policing and punishing them, in ways that are very difficult to see. While I have expressed concern recently about LenddoEFL's "automated" approach to determining creditworthiness, at least if you crack open their data and code you can see how they are making decisions.
None of which is to say that I don't have deep concerns about automation and our algorithmic overlords. And those concerns are in many ways reinforced and amplified by Eubanks book. While she is focused on the potential costs to the poor of automation, I see two areas that are not getting enough scrutiny.
First, last week I had the chance to see one of Lant Pritchett's famous rants about the RCT movement. During the talk he characterized RCTs as "weapons against the weak." The weak aren't the ultimate recipients of services but the service delivery agencies who are not politically powerful enough to avoid scrutiny of an impact evaluation. There's a lot I don't agree with Lant on, but one area where I do heartily agree is his emphasis on building the capability of service delivery. The use of algorithms, whether paper-based or automated, can also be weapons against the weak. Here, I look to a book by Barry Schwarz, a psychologist at Swarthmore perhaps most well-known for The Paradox of Choice. But he has another excellent book, Practical Wisdom, about the erosion of opportunities for human beings to exercise judgment and develop wisdom. His book makes it clear that it is not only the poor who are increasingly policed and punished. Mandatory sentencing guidelines and mandated reporter statutes are efforts to police and punish judges and social service personnel. The big question we have to keep in view is whether automation is making outcomes better or worse. The reasoning behind much of the removal of judgment that Schwartz notes is benign: people make bad judgments; people wrongfully discriminate. When that happens there is real harm and it is not obviously bad to try to put systems in place to reduce unwitting errors and active malice. It is possible to use automation to build capability (see the history of civilization), but it is far from automatic. As I read through Eubanks book, it was clear that the automated systems were being deployed in ways that seemed likely to diminish, not build, the capability of social service agencies. Rather than pushing back against automation, the focus has to stay on how to use automation to improve outcomes and building capability.
Second, Eubanks makes the excellent point that while poor families and wealthier families often need to access similar services, say addiction treatment, the poor access them through public systems that gather and increasingly use data about them in myriad ways. One's addiction treatment records can become part of criminal justice, social service eligibility, and child custody proceedings. Middle class families who access services through private providers don't have to hand over their data to the government. This is all true. But it neglects that people of all income levels are handing over huge amounts of data to private providers who increasingly stitch all of that data together with far less scrutiny than public agencies are potentially subject to. Is that really better? Would the poor be better off if their data was in the hands of private companies? It's an open question whether the average poor person or the average wealthy person in America has surrendered more personal data--I lean toward the latter simply because the wealthier you are the more likely you are to be using digital tools and services that gather (and aggregate and sell) a data trail. The key determinant of what happens next isn't, in my mind, whether the data is held by government or a private company, but who has the power to fight nefarious uses of that data. Yes, the poor are often going to have worse outcomes in these situations but it's not because of the digital poorhouse, it's because of the lack of power to fight back. But they are not powerless--Eubanks stories tend to have examples of political power reigning in the systems. As private digital surveillance expands though, the percentage of the population who can't fight back is going to grow.
So back to the bottom line. You should read Automating Inequality. You will almost certainly learn a lot about the history of poverty policy in the US and what is currently happening in service delivery in the US. You will also see lots to be concerned about in the integration of technology and social services. But hopefully you'll also see that the problem is the people.

Week of November 27, 2017

Editor's Note: Two weeks ago, I told you that the faiV would be off for two weeks, and that's technically still true, because this isn't the faiV.--Tim Ogden

1-4. An Experimental Podcast: Every month or so someone asks me if I've considered doing the faiV as a podcast. The answer is not really, because the faiV doesn't lend itself to audio at least when I'm not ranting. Also because I rarely listen to podcasts because I don't commute and realistically I'm never going to sit at my desk and listen to audio for 30 minutes or more.

But because of the Thanksgiving holiday and travel this week to European Microfinance Week I wasn't able to the faiV. So I thought it was a good time to experiment with an addendum to the faiV in podcast form. Thankfully Graham Wright of Microsave agreed to experiment with me. So we recorded a conversation about digital finance, its potential and its pitfalls, inspired by Graham's post, "
Can Fintech Really Deliver On Its Promise For Financial Inclusion?"

We discuss whether mission matters, barriers to adoption, the tensions in building agent networks and why everyone who says "X is not a silver bullet" is lying. All in just over 30 minutes. Give it a listen and let me know if you'd like to hear more conversations like it.

 

Table of Contents:
1:45 - Can Digital Finance be Transformational for the Rural Poor?

3:51 - Does it matter that most DFS providers have never had a "pro-poor" mission?

7:54 - Does the US and microfinance experience foretell the future of digital finance?

13:42 - Biggest challenge for DFS: Lack of Education, Lack of Infrastructure or Lack of Consumer Protections?

21:50 - The Tensions of Agent Networks

27:00 - Financial Inclusion and Silver Bullets

31:13 - The Consequences of Removing Frictions

And because I can't stop myself, here are links to some of the things we talk about:

Graham's original post that inspired the conversation
Cathy O'Neil's book Weapons of Math Destruction
Cull, Demiguc_Kunt and Morduch: Microfinance Meets the Market and The Microfinance Business Model
[Note: Jonathan and I had a long email discussion today about whether my description of for-profits serving more poor customers overall, while non-profits are more likely to serve poorer customers and women is true given how the microfinance industry has rapidly evolved and the limitations to data. We didn't resolve the question.]
Mersland et. al. on loan officer "mission drift"
Don't Swipe the Small Stuff
MicroSave work on agents: Solving Agents' Liquidity Problems; Improving Agent Network Performance; Enhancing Agent Networks


5. the faiV Live: And if you really miss the faiV, the closest you'll get this week is the livestream of the closing session from European Microfinance Week where I'll be discussing the future of microfinance with Paul DiLeo, Renee Chao-Beroff and John Alex at 09:30 EST/15:30 CET.

Week of July 25, 2016

1. Financial Institution Behavior, Part I: Xavi Gine and Rafe Mazer pull together audit studies of banks conducted in Ghana, Mexico and Peru. You will be shocked, shocked to discover gambling--I mean, failure to disclose true product costs or best-fit and cheapest products--in these establishments.

2. Financial Institution Behavior, Part II:
The recovery in home prices in the United States since the housing bubble has left one part of the market untouched: homes with values below $100,000. Banks won't originate loans for mortgages of this size because the fees they can charge are capped below profitable levels, so owners can't refinance or sell. There is a non-profit turned hedge fund that's taking on this market though.

3. Financial Institution Behavior, Part III: OK, so they're not financial institutions, but debt collectors are part of the financial infrastructure. And they've behaved so badly--harassing debtors, pursuing people who don't actually owe the debt, etc.--that they generate more complaints to the CFPB than even payday lenders or frauds. So the CFPB is drafting new rules to govern debt collection

4. Hope, Aspirations and Poverty: Travis Lybbert and Bruce Wydick have a new paper providing a framework for empirical and experimental work on the role of hope and aspirations in development interventions. They have some preliminary tests of what happens when a microfinance institution tries to raise hope and aspirations of clients. Hey, this one's about financial institution behavior too!     

5. Research and Fear: Barbara Magnoni wonders about the ways researchers and product designers and testers convene focus groups and conduct research, and suggests the need for more guidelines on how to convene people respectfully, recognizing power dynamics and cultural context--and not scare them. Whaddaya know, turns out this is about financial institution behavior too.

Speaking of hope, here's a video of Esther Duflo's talk on hope and aspirations (from 2013) at the Stanford Center for Ethics in Society.

Week of March 28, 2016

1. Income Volatility:  Churn in health insurance coverage imposes a lot of costs on individuals, administrators and providers. Dhruv Khullar illustrates how income volatility is a major driver of churn and suggests some ideas for reducing the impact of income volatility on health insurance coverage. NYT

2. Digital Inclusion (or not): Direct digital payments to poor households can theoretically be a tool for financial inclusion, but not if the programs turn those households off. Silvia Baur and Jamie Zimmerman review risks in digital payments programs that can limit their effect on inclusion. CGAP

3. Tax Returns: How would millions of lower income Americans spend time and money that they didn't have to spend filling out a tax return? We may never know because while tax service companies run experiments on how to help them save their tax refunds, they also lobby against simplifying returns.
The Atlantic

4. Digital Consumer Protection: Advocates for digital financial services note that a digital trail allows poor consumers to resolve problems. But that only works if the providers actually care about resolving those problems for poor customers. MicroSave reviews consumer protection in India and finds only 47% of consumers were aware of recourse options. MicroSave

5. Replications and Altruism: I ran a "conceptual replication" of Bruce Wydick's child-drowning/Give Directly/cellphone experiment with college students. But couldn't resist turning the screws a bit more.  Medium

Week of August 3, 2015

1. Financial Management: Communities in which social contracts are strong commonly use "social money" (non-cash modes of saving, storing, and transferring wealth) in daily transactions instead of cash. IMTFI

2. Consumer Protection: Isabelle Barrès, Director of the Smart Campaign, discusses the progress in developing and implementing consumer protection policies globally. NextBillion
 
3. Business Development: The world's most popular attempt at policy ranking might not actually tell us much about the reality. The Wall Street Journal

4. Mobile Money: One Colombian town's (rocky) attempt to go cashless is in some ways a metaphor for the slow growth of mobile money in many parts of the world. Fusion

5. Evidence-based Policy: If preregistration has an impact on medical research, what effect would it have on economic research? The Chronicle of Higher Education

In this animated video, CGAP explores 4 rules of thumb poor people use to manage their money.

Week of July 6, 2015

1. Transfers: Cash transfers are a more common form of benefits for the world's poor than you might think. In fact, Sub-Saharan Africa is the only region where food and other in-kind transfers are more prevalent than cash transfer programs. The World Bank

2. Global Poverty: Between 2001 and 2011, the global middle-income population (those living on $10-$20 per day) almost doubled while those living on less than $2 per day halved from 29% to 15%. However, the poor just became slightly less poor as the portion of people living on $2-$10 increased 6 percentage points during this time while high income categories barely changed. Pew Research Center

3. Digital Literacy: A new report finds many women rely heavily on their social circles for instruction and trouble-shooting when it comes to accessing mobile internet, an important finding for mobile money and digital content providers. GSMA

4. Microcredit: Interest rate ceilings are in place to protect poor customers from excessively costly loans. But how much do they push riskier customers out of credit markets in the first place? Macrothink Institute

5. SME Financing: Since 2008, the outstanding portfolio of online lenders in the US has grown about 175% a year (compared to a 3% decline in the traditional banking sector). But more does not always equal better - what does this explosive growth mean for borrowers, particularly small businesses? The Huffington Post
 

Week of June 22, 2015

1. Mobile Money: What risks do customers perceive when using digital financial services and what are the consequences of those risks? A new brief explores these questions through the lens of lower-income customers in 16 markets around the worldCGAP

2. Financial Literacy: Most financial literacy programs are geared toward steady paycheck earners with long-term savings goals. But how can programs assist households that are struggling with volatile incomes and unpredictable expenses? Mediaplanet

3. Savings: A new survey raises the benchmark for emergency savings from 3 months to 6 months and unsurprisingly find few people meet the target. New research from the US Financial Diaries suggests that we're thinking about and measuring emergency savings the wrong way. Bankrate

4. M-Shwari: Is M-Shwari a revolutionary product or just a high-cost loan in disguise? CFI

5. Small Dollar Credit: A partnership in Jackson, MS is linking employers, banks, and educators to offer small loans and financial literacy courses to consumers as an alternative to payday loans. The Huffington Post

The photo above, by Rafael Hernandez, received an honorable mention in the 2014 CGAP Photo Contest. Entries are now open for the 2015 contest and can be submitted here.

Week 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

4. Research and Practice: At FAI, we often think about the best way to bridge the gap between academics and practitioners. These ten tips for presenting to different audiences are a great place to start. The World Bank - Development Impact

5. Borrowing/Saving: Seventeen percent of US Millennials have borrowed against their retirement account, and 40 percent of those who do go on to cut back their contributions. The Atlantic

Week of February 2, 2015

1.  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

4.  Bitcoin:  The recent collapse of bitcoin prices and the introduction of third-party agents to process transactions is leaving many in the cryptocurrency community disillusioned.  Is this the beginning of the end for bitcoin?  Financial Times

5.  Debt:  Croatia canceled the debts of over 300,000 of its poorest citizens, allowing them to access their blocked bank accounts.  However, some economists are concerned that if lenders think mass debt relief is a future possibility, they will charge low-income borrowers very high interest rates.  Washington Post

Week of July 28, 2014

1. Language of Money: The nuances of financial jargon provide clarity in conversation, but exclude many. The New Yorker

2. Biometric Identification:  Many countries, including India and Nigeria, continue to roll out biometric identity cards which can improve access to financial services. Alliance for Financial Inclusion

3. Islamic Microfinance:  How can Sharia-compliant microfinance help bring financial tools to the 650 million Muslims living on less than $2 a day? The World Bank

4. Immigrant Finance: The prospect of comprehensive immigration reform highlights the opportunity for financial institutions to build long-term relationships with immigrants. Center for Financial Services Innovation

5. Financial Innovation:  In developing new products, when is it better to follow than to lead? Next Billion

A new report from   The Urban Institute   finds 5.3% of Americans have debt past due; the share is higher in the South. 

A new report from The Urban Institute finds 5.3% of Americans have debt past due; the share is higher in the South. 

Week of June 9, 2014

1. Financial Services:  An audit study of financial institutions in peri-urban Mexico found staff voluntarily provides little information about avoidable fees and clients are almost never offered the cheapest product. The World Bank

2. US Income Inequality: "'Economic despair' provides a decisive blow to the nation’s mythical identity as the land of opportunity: for many children at the bottom, it suggests, opportunity is not just out of reach. It is inconceivable." The New York Times 

3. Digital Payments: 10 days in Kenya. No cash. 1 mobile phone. Business Week

4. Financial Inclusion:  Ronald Brownstien's first lesson from "navigating the archipelago of check cashers, payday lenders, and discount store money desks"? It’s expensive to be poor. National Journal

5. Mobile Money: Three major telecoms in Tanzania announced the launch of the first interoperable mobile money service in Africa, allowing users to send and receive funds across networks. Business Daily Africa

Week of May 31, 2013

This week’s mostly new and definitely notable list includes a new report on health insurance in Ghana, investigations into calculating global poverty figures, and new thoughts on financial inclusion.
 

  • Recently the Consortium on Financial Systems and Poverty sat down with Emmanuel Maliti, a researcher and seed grant recipient, to discuss his work in Tanzania. Maliti is investigating the efficacy of direct and indirect punishments on repayment performance among informal savings groups in Dar es Salaam.
  • In this article for the Boston Review, Pranab Bardhan reviews four books on development and poverty alleviation released in the last few years and compares two major approaches - the macro-political camp versus the micro experimentalists.
  • CGAP released the third blog post in its series highlighting themes from its recently approved five-year strategic plan. This installment describes CGAP’s approach to “building an enabling and protective policy environment” for financial inclusion and includes video clips from interviews with Philippine central bank Deputy Governor Nestor Espenilla and his colleague Pia Roman.   
  • new report from the ILO Microinsurance Innovation Facility evaluates the impact of consumer education on health insurance enrolment in Ghana. Researchers found evidence that convenience of registration and timing of premium payments were more common challenges to enrolment than lack of knowledge of health insurance. See also FAI’s Jonathan Bauchet on an experiment marketing life insurance in Mexico. In a forthcoming paper, Bauchet discusses evidence from a natural experiment that ease of payment was a major factor in insurance purchases.
  • MicroSave released a report this week exploring the role of information sources in poor household’s decision-making processes. Researchers review what decision making paths people use to reach a decision, and how information sources accessible to them influence the process in an effort to inform better approaches for increasing financial literacy.
  • The World Bank released a working paper, authored by Asli Demirguc-Kunt, Leora Klapper, and Dorothe Singer, documenting and analyzing gender differences in the use of financial services using data from 98 developing countries. The data, drawn from the Global Financial Inclusion (Global Findex) database, highlights the existence of significant gender gaps in ownership of accounts as well as usage of savings and credit products.
  • Using a RCT of a large-scale micro-entrepreneurship program in Chile, the Consortium on Financial Systems and Poverty assessed the effectiveness s of training and asset transfers on individuals’’ employment and income. The results of the research indicate an increase in both for participants in the program. 
  • In a recent blog post for the Center for Financial Inclusion, Ignacio Mas makes the case that financial inclusion involves both formal and informal channels. He uses a cake analogy "to represent the idea of platforms, of capabilities arranged horizontally and interworking with each other."