Viewing all FaiV posts with topic: Subsidy  

Week of October 17, 2016

Editor's Note: I'm writing this week's faiV from Kigali and the MasterCard Foundation Symposium on Financial Inclusion. Last week's edition was supposed to be called "The Doha Round" which would make the name of this week's edition make much more sense.

1. News from Rwanda: An evaluation of the use of small-scale household solar panels in Rwanda finds that there are benefits but those are small and diffuse enough that subsidies will be needed to scale adoption. At the conference itself I learned that while 89% of Rwandans are "financially included" only 6% are "adequately served" according to recent FinScope data--a healthy reminder that heavy caveats are required when setting inclusion goals. The next step is to recognize (with a nod to James Scott) that in markets with high "inlcusion," under-served is a strategy not a condition. And while this isn't news about Rwanda, I learned about it in Rwanda: MFO is conducting garment worker financial diaries in southeast Asia which should help us understand a bit more of the difference between Blattman and Dercon's results in Ethiopia and Heath and Mobarak's results in Bangladesh. 

2. The Cost of Volatility: One of the common findings from financial diaries work around the world is the prevalence of income volatility, perhaps most surprisingly among US households. In the US Diaries data we see a lot of the volatility coming from variations in amount earned per week in the same job. There are lots of reasons to suspect that volatile schedules and the income volatility that flows from it is bad for households, but how bad? A new field experiment hints that it's really bad. Mas and Pallais randomize wage offers to potential staff for a national call center and find that workers aren't willing to sacrifice pay for a flexible schedule, but are willing to give up 20% of their wage to avoid having a schedule set by the employer with a week's notice.  

3. Measuring Poverty (over time):  Measuring poverty is tough and it's even harder to generate global estimates or cross-country comparisons. Some countries have official poverty lines, but use different methodologies to set them. Should those lines just be accepted? Should they be adjusted for purchasing power parity? If so, what data should be used to set the PPP? The World Bank's new report (commonly called the Atkinson report) with recommendations on how to handle these questions is out. Justin Sandefur interprets the recommendations as moving away from a global poverty line.

One of the reasons the World Bank cares about global poverty measures is to track poverty over time. Here's a new paper on the long-term (10 years) effects of cash transfers for households with children in Ecuador finding no improvement in test scores and only a 2% increase in school completion rates, which the authors say suggests that the cash transfers are not likely to affect intergenerational poverty (which seems a shockingly narrow channel for impact).

4. Reforming (Indian) Banking: Also in the realm of reports that may have an impact on more than a billion people, IFMR Trust has recommendations on modernizing India's banking system, primarily focused on changing how banks manage risk. Among the recommendations are allowing regional banks to use credit default swaps to hedge agricultural/commodity price risk and pushing the banking sector to use formal insurance against catastrophic weather risks rather than counting on the government to step in when large scale defaults occur.

5. Reform through Labor: Well, not quite. A few weeks ago we highlighted the Muralidharan and Niehaus work on NREGA. Here's a new paper on the effects of a public works jobs program for youth in Sierra Leone, finding big boosts in household income (e.g. not crowding out other income strategies), little increase in temptation goods and that many households use the increased income to set-up businesses. Reminds me a bit of Blattman et al in Uganda. Here's a new paper evaluating the effect of unemployment insurance requirements to be actively looking for new work on labor supply. It finds the requirements don't push people into lower wage jobs but do have a positive effect on lower-income workers speed to re-employment. 

Single papers shouldn't move your priors much, though. Here's a new systematic review of youth employment programs. It finds that about a third of programs succeed at helping youth get into the labor market, and that programs in middle- and low-income countries have a better success rate.

Bonus Update: Last week we had a piece on how hard it is to get people to buy insurance. Here's a new paper on pricing agricultural microinsurance. My tongue-in-cheek summary: Economists find that insurance companies and governments will need to hire economists ever year to figure out optimal pricing and subsidy.

In the midst of travel, conferencing and slow internet connections this week, I didn't come across any compelling graphics. So here's a picture of a mountain gorilla I took this weekend in Volcanoes National Park. I can highly recommend  gorilla trekking . Source: Me.

In the midst of travel, conferencing and slow internet connections this week, I didn't come across any compelling graphics. So here's a picture of a mountain gorilla I took this weekend in Volcanoes National Park. I can highly recommend gorilla trekking. Source: Me.

Week of September 19, 2016

1. Microfinance Subsidy: Back before there were impact evaluations the heated discussions in microfinance were about costs and subsidies (and business model, which is really a conversation about cost and subsidy). Those conversations have died down as the focus shifted to impact evaluations--appropriately!--but cost and impact are equally important when it comes to policy choices. Cull, Demirguc-Kunt, and (our very own) Morduch have a new paper that does the painstaking work to accurately measure subsidy in microfinance. They find that subsidy is pervasive and long-lasting, but small: meaning the modest impact of microfinance has to be viewed in terms of even more modest cost. I could write the whole faiV this week just on findings from the paper which is another way of saying: read it! Bob Cull has a short overview of the findings here for those with short attention spans, or a day full of meetings.

2. But Wait, There's More Microfinance: While most eyes have been turned to tracking the growth of digital financial services, the microfinance industry in India is growing rapidly again. The industry association reports 60% year-over-year growth, with the majority coming from the large incumbents like SKS and Ujjivan. Apparently the banking correspondent model is playing a significant role in growth. Let me pause for a moment to roll my eyes at the finding that clients say that 94% of loans are for "income generating activities."
Meanwhile, Jonathan Morduch has a review of Lesley Sheratt's new book on achieving an ethical balance in microfinance, a balance that a 60 percent growth rate calls into question.  

3. Financial InclusionBack in August I noted a paper about low-take up of no-frills savings accounts in a number of countries. A new paper from Brune et al. using the Malawi commitment savings experiment data to look at what happens with account usage and spending composition when funds are direct deposited into accounts or delivered in cash, and the delay between when the household learns the deposit is coming and when it is delivered. Higher account balances for direct deposit persist for only a few weeks, and there is no meaningful effect on the composition of spending, which, they say, suggests "that households manage cash effectively without the use of formal financial products."
And in a connection that perhaps only my brain makes, here's a new paper about a job training program in Argentina that tracks effects on employment for 4 years. Gains are large in the short run but fade out over time. The effect seems to come from "persistence of employment." In case you're wondering here's the connection I make: financial inclusion matters most to those with income, and the benefits of financial inclusion are related to the volatility of income in the short- and long-term, which, of course, is affected by the persistence of employment.

4. Education: Like financial inclusion, education is about more than access. Liberia, where 60% of children aren't in school, and only 20% of women who reached fifth grade can read a sentence, is experimenting with turning over some schools to Bridge International Academies (not unlike charter schools in the US). Here's a story about an ActionAid visit to one of the schools and the aftermath. There is an external impact evaluation underway of Liberia's experiment. As Justin Sandefur notes in describing the situation and the evaluation, "when the status quo is unacceptable, experimentation is an obligation." But which educational experiments are obligated? 3ie is about to release a systematic review of education intervention evaluations. Here's a paper from David Evans from earlier this year where he notes there are a lot of "systematic reviews" that have little overlap in their systems and come to very different conclusions about which experiments to implement.

5. Evidence-Based PolicyIt always comes back to policy eventually, even among anarcho-capitalists. The Liberia situation makes me think of my interview with Angus Deaton where he talks about the issues of where, on whom and what types of experiments are conducted. Here's Deaton's and Cartwright's newest paper on RCTs. Here's the new second edition of Impact Evaluation in Practice (free!). And the Urban Institute is launching a new Evidence-Based Policymaking Collaborative (with Brookings, AEI and the Pew-MacArthur Results First-Initiative) "to create tools to inform evidence-based policymaking at all levels of government." I wonder if a primer on Deaton & Cartwright will be one of those tools? 

The JP Morgan Chase Institute has a new report  tracking cash flows  of small businesses in the US. This is a look at daily inflows and outflows of these businesses by industry.

The JP Morgan Chase Institute has a new report tracking cash flows of small businesses in the US. This is a look at daily inflows and outflows of these businesses by industry.

Week of July 20, 2015

1. Transfers and Subsidies: India's plan to provide subsidies electronically through bank accounts, biometric ID cards, mobile transfers (also know as JAM) can reduce leakage and increase efficiency but what are its limitations? Does it really have the potential to be "the holy grail of efficient and equitable welfare policy?" The New York Times

2. Evidence-Based Policy: The study of deworming pills that launched the RCT movement in development has come into question. But there are a lot of questionsabout the questions.

3. Credit: For rural farmers in India, increasing productivity often means purchasing expensive equipment with a loan, which may be difficult to obtain without collateral or a credit history.  Could a financing model based on demand aggregation delivered through a local cooperative/bank partnership help? NextBillion

4. Poverty in the US: A new report shows child poverty in the US is worse now than it was before the Great Recession, especially for African-American and Native American children, despite strides toward economic recovery. PBS Newshour

5. Mobile Money: Mobile money penetration and growth varies dramatically from country to country. In both Indonesia and South Africa, regulatory complexities contribute to the sluggish adoption rates for digital financial products. The Wall Street Journal  and TechCentral

Week of July 13, 2015

1. Savings:  A new report from the US Financial Diaries project provides evidence that lower income households are saving up for frequent, short-term emergencies that prevent the growth of long-term savings. Could 401k style auto-enrollment programs help to manage both long- and short-term savings goals? AARP

2. M-Pesa:  Is M-Pesa merely a fintech service or [cue foreboding music] "a stealth political coup by a private operator which profits only from enforcing discipline, control and transparency (via massive data capture) over a wayward system?"... Financial Times

3. ...Regardless of its characterization, new regulations could cause Safaricom to separate its mobile money service from its voice, data, and infrastructure businesses. The changes could weaken Safaricom's market position, but may be a win for competitors like Airtel. Quartz

4. Anti-poverty Policy: What is an effective way for service providers to assist low income households? For starters, cut the bandwidth tax - the time, money, and mental costs of making ends meet. Ideas42

5. Cash Transfers: The Dutch city of Utrecht is the latest to test out a basic income benefits program. But they are tweaking the experiment, offering either conditional or unconditional transfers to treatment groups. Quartz

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 February 16, 2015

1. 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

4. Ethics and Investing:  The recent movement for socially-conscious investors to steer clear of "vice stocks" may have backfired - avoidance has depressed their share prices, offering higher returns in the long run for those without ethical concerns. Capital Finance International

5. Labor Standards:  Could MFIs be an effective entry point to improve working conditions for entrepreneurs in the informal economy that operate outside of the purview of labor laws and regulation?  ILO 

Week of December 8, 2014

N.B.  This will be the last issue of 2014 for The FAIV, which will return on January 9th.  FAI wishes all of our readers a happy and safe holiday season and a prosperous New Year! 

1. 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

4. Microinsurance:  New research examines the profitability and client value of banking and retail correspondents in four countries as alternative insurance distribution channels.  ILO

5. The Unbanked:  Argentina is experiencing an uptick in armed robberies due to its citizens' distrust of banks and tendency to operate mainly in cash.  NPR

Week of December 1, 2014

1. 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

4. Financial Inclusion:  India's ambitious effort to bank the unbanked might create millions of new account holders, but true financial inclusion is more elusive goal than issuing plastic cards and numbers.  The Indian Express

5. Big Data:  Individuals can now willingly sell their marketing data to fund microfinance initiatives abroad - social enterprise or clever marketing scheme?  Forbes

*If you're in the New York area and are interested in further discussion on cash transfers, please join us for FAI and MFCNY's event - How Unconditional Cash Transfers are Transforming International Development on Monday, December 8.

The image below is the first place winner in the 2014 CGAP photo contest aimed at visually capturing impact of microfinance and financial inclusion around the world.  The complete list of winning photography is available here.

Week of November 17, 2014

1. 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

4. Mobile Money: Interoperability (in its many forms) is a necessary but insufficient step for digital financial inclusion.  NextBillion

5. Wages:  In the U.S., "near minimum-wage workers" (those that make more than $7.25 per hour by less than $10.10), are young, earn close to $10 an hour, and are most likely employed by the restaurant and food industry.  Pew Research Center

Data Source:  Global Findex database, 2012
House by John Caserta for the Noun Project
Hammer by Edward Boatman for the Noun Project

Week of October 27, 2014

1. Financial Inclusion:  Lisa Servon asks: Are banks too expensive to use? The New York Times

2. Savings:  A newly launched micro-pension platform in India links employers and domestic workers to a streamlined enrollment process for a National Pension Scheme product. CFI

3. Human-Centered Design:  Seven human-centered design projects in eight countries testing 30 prototypes for 175 concepts for financial products or services. All in one report. CGAP

4. SMEs: A companion case study to the Doing Business 2015 report underscores the importance of credit reporting and secured transactions for small and medium firms around the world.  The World Bank

5. Cash Transfers:  An early evaluation of Family Rewards 2.0, the second iteration of a conditional cash transfer program active in New York City, suggests that tweaks to the program have been successful in engaging more families. MDRC

Savings groups are a popular and effective way of helping poor households increase their savings. But why do they work? We explore the mechanisms that make savings groups effective in this video. 

Week of August 11, 2014

1. Cash Transfers: Conditional cash transfers in the US encounter ridicule and skepticism, but this "foreign import" for the war on poverty has promise. Politico

2. Payday Lending:  A new app allows hourly workers to immediately access wages they’ve already earned, without having to wait for their employer’s standard pay cycle or relying on payday lenders for quick cash. Wired

3. Mobile Banking: How can regulatory “best practices” in digital financial services move away from focusing on enabling participation in the market to fostering competition?  Ignacio Mas outlines a few strategies. The World Bank - All About Finance

4. Credit: Wealthy man lectures poor people about the evils of consumption. Financial Mail 

5. Microfinance: Janalakshmi, an MFI headquartered in Bangalore, successfully completed the largest in Indian microfinance since the 2010 Andhra Pradesh crisis.  Microfinance Focus

Source: Twitter

Source: Twitter

Week of May 26, 2014

1. Cash Transfers:  Opponents of cash transfers argue the poor waste their funds on alcohol and tobacco. But a review of 44 estimates of consumption across 19 studies and 13 interventions does not show evidence of increased spending on these goods. The World Bank - Development Impact Blog

2. Mobile Banking:  Sometimes mobile banking is a little too helpful. The New Yorker

3. Financial Access: The bank branch may make a comeback after all - new research on issues relating to financial access among communities of color shows individuals surveyed greatly preferred to bank in person rather than use online services, even if they owned a smartphone. National Council of La Raza 

4. Social Innovation:  "If there is a fortune to be made at the bottom of the pyramid, it remains elusive. Partly that's because doing business with the poor is unavoidably complex, and partly that's because the notion was oversold." The Guardian

5. Targeting: Stories from study participants often complement quantiative data. In this case, they provide insight into the messiness  of social science research and the difficulties of accurately targeting interventions. Give Well

Week of April 21, 2014

1. Payments: Wal-Mart launched Walmart-2-Walmart this week – a new service that will allow customers to send and receive up to $900 at a time at more than 4,000 stores.  The Wall Street Journal

2. Financial Inclusion: Shawn Cole of Harvard Business School stresses the importance of design in serving poor customers, specifically how the process of creating products meant to “bank the unbanked” is unique. CFI Blog

3. Cash Transfers: Christopher Blattman and Paul Niehaus discuss the latest developments in the world of cash transfers, including how they can serve as index funds for international development. Foreign Affairs

4. Microfinance: FAI affiliate Daniel Rozas examines equity exits in MFIs and what characterizes one as responsible. CGAP

5. Digital Financial Services:  Facebook may be entering the payments space, but it's not the first time it has dipped its toes in these waters, nor are the challenges different.