A 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 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 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 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 MoreIn an interview with FAI, economist Jenny Aker explained that effective commitment savings products are those that balance flexibility and restrictions: . . .
“If you give someone a savings product and it completely ties their hand, they don’t want to use it. They want to have a little bit of that tying of the hand so they can’t spend that money but they don’t want to be completely divorced from access to that money.” . . .
Much of the research on commitments focuses on savings products, which makes sense: when trying to save money, some “tying of the hands” helps. Like dieting, setting money aside requires the willpower to deny yourself something you want in the present to meet a goal in the future. To win the struggle for control between your present self and your future self, little commitment nudges can change behavior. Where product design gets tricky is in determining how restrictive the commitment should be. A study of savers in Kenya gives us one clue that it might not take much: when given the choice of letting neighbors hold the key to a savings lock box or holding the keys themselves, participants saved more when they chose the latter. Simply having the physical barrier of the box was enough to nudge them to save . . . . . .
Read MoreEconomist Jenny Aker explores the pros and cons of delivering aid via cash, voucher, or digital payment in two very different African programs . . . . . .
Read MoreDiscussions of migration and remittances often revolve around statistics that illustrate the sheer scale of migrants (231 million in 2013) or money flows ($404 billion that same year). But each one of the 231 million migrants is a person who leaves family members, friends, and the familiarity of their culture, and many of them retain strong ties with their home communities, sending money but also exchanging information. Sociologist Peggy Levitt studies these information flows and refers to them as social remittances. Social remittances are “defined as ideas, know-how, practices, and skills that shape their encounters with and integration into their host societies…and promote and impede development in their countries of origin.” They can come in the form of norms, practices, social capital, and identities. Unlike their monetary counterparts, social remittances are difficult to quantify and not yet well understood . . . . . .
Read MoreIn January, the Wall Street Journal reported that banks are to closing brick-and-mortar branches “at a record rate,” as new technologies and financial pressures drive them to transition many of their services to digital equivalents or ATMs. But against this broader backdrop of bank closings, the market is both fragmenting and polarizing, as a handful of banks redesign their branches for specific demographic groups. . . .
For the tech-savvy, middle-to-high income millennial who doesn’t carry cash and wants banking to be quick and convenient, Capital One advertises its new network of “360 Cafés” as places where customers can discuss account options with staff while drinking an espresso. Umqua Bank in San Francisco has a concierge at its downtown location, described in the local press as “a cross between an Apple Store, a Starbucks and a W Hotel lobby.” And Wells Fargo is piloting “mini-branches” in up-and-coming urban neighborhoods like DC’s U Street where customers, attended by trouble-shooting tablet-carrying bank employees, use sophisticated versions of self-service machines that dispense cash and take deposits, but also issue debit cards and loan applications . . . . . .
Read MoreI recently attended the launch event for Bill Easterly’s latest book, The Tyranny of Experts. His thesis is that international development policies have been determined by a group of so-called experts, who both ignore the rights of the poor and systemically violate those rights. After his presentation, Professor Easterly urged the audience to start more discussions that highlight a rights-based development agenda. . . .
This call to action prompted me to think about how the provision of financial services can advance the rights of the poor, and reminded me of my first-hand experience with Slum Dwellers International (SDI) in Uganda. SDI is a grassroots organization of the urban poor that started in India in 1996 but now works in 33 countries . . . . . .
Read MoreHere on the FAI blog we’ve written many posts on the shortcomings of financial literacy training programs, both in the US and abroad. When I came across a study from the World Bank’s Development Research Group evaluating a vocational training and entrepreneurship program in Malawi, I was prepared to add this to the stack of mounting evidence of training programs that show little to no effect on business development and personal finance and move on. But in this case, the study focuses on the gendered differences of participation in the training course, not just whether or not it was effective at facilitating new business activity. . . .
Like previous research, the Malawi study found no effects on self-employment*, but it did find significant differences in satisfaction and self-esteem between women and men after taking part in the program. The authors (Cho et al.) comment, “these differences are explained by both the conditions under which women participate in training, as well as gender differences in the training experience" . . . . . .
Read MoreMobile money supporters often tout the benefits of using transfer services to facilitate remittances. Many users are migrants who made the financial investment to live in a Western country and send financial resources back home. But that is only part of the story. According to a 2010 UN report , the number of South-to-South migrants (73 million) in 2010 was only slightly less than South-to-North migrants (74 million) worldwide. In Africa, one-tenth of remittances come from within the continent, and South Africa (a destination country) sees most of its remittances flow to neighboring countries. Where the people go, the money follows. The World Bank estimates the value of South-to-South remittances between $17.5 billion and $55.4 billion, or in other terms, 9 to 30% of all remittance traffic to developing countries. . . .
Sending these payments is not cheap – the average global money transfer fee is 9% while the average fee to send funds within South-South corridors is 12% . . . . . .
Read MoreImagine you enter a shoe store that is having a sale – buy any pair of shoes, get a second pair for free. Sounds like a great deal, right? Now imagine that same store had an offer to take 50% off any two pairs of shoes. Even though you are spending the exact same amount for the same two products, perhaps you react differently to the two offers. Perhaps there is something about removing “free” from the offer that might make you feel like you’re not getting as good of a deal. And how would you pay for these shoes – with cash? Credit card? Mobile wallet balance? Does it even matter? Research shows that people perceive $1 in mobile money differently than $1 in cash, and that these different perceptions DO influence spending habits. . . .
The process of mentally separating different forms of money and assigning value to them, keeping track of potential costs and benefits to transactions, and categorizing expenses into buckets like “food” and “healthcare” is called mental accounting . . . . . .
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