The Elusive Quest for Diversity: Measuring Who, What and Where in the faiV

What gets measured gets managed? Not always. We tracked the diversity of the sources featured in our faiV newsletter, and here’s what we found. While we still haven’t made up our minds on what the right targets are or how to get there, we are convinced that more people keeping track of and reporting data on these dimensions is an important part of figuring out how to get it right. . . .

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Hopefully Not the Final Word on Microcredit (Part 2)

Despite the long-awaited publication of six impact evaluations of microcredit, there are still many questions to be answered. But I worry about whether we will ever get answers. I don’t think that anyone involved in the impact evaluations would consider them to be the “final word” but that may be, de facto, what they are. . . .

Why?

Back in 2011 the Development Impact blog published a survey of young academics which listed microfinance as the “least under-researched” topic in development. In other words, up-and-coming researchers were saying that enough work had been done on microfinance. You can be sure that ambitious economists looking to make their mark are not going to direct their limited energies toward a topic they think is well-covered. Indeed, while I haven’t done a thorough analysis of this, my impression is that there have been a declining number of papers devoted to credit in the last few years at NEUDC, one of the best places to see new academic work. Whether or not the impact studies are the final word on microcredit, they may be the final word in academic interest . . .  . . .

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Hopefully Not the Final Word on Microcredit

In January, the American Economic Journal: Applied Economics published a special issue devoted to impact evaluations of microcredit. You can see an overview and some of my thoughts here (and some other write ups here and here). Justin Sandefur, from CGD, titles a blog post on the issue, “The Final Word on Microcredit?” . . .

I really hope the answer to Justin’s (rhetorical) question is “No.” Because I still have a lot of questions. . . .

If you haven’t been keeping score on the microcredit evaluations, all of which have been circulating for a few years now, here’s the bottom line according to Esther Duflo (editor of AEJ:Applied and co-author of one of the studies) “These loans do help, but the changes are not transformative, certainly not transformative enough to justify charitable donations to the standard microcredit model.” . . .

To provide a bit more detail, while the six studies are quite different—who got access to credit, loan amounts and terms, local context, time, metrics, etc.—none found significant increases in income, consumption or spending on things like health or education . . .  . . .

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What We Talk About When We Talk About Savings

A few weeks ago I attended the first day of the New England Universities Development Consortium’s annual conference. It’s a good place to see the latest economics research on a pretty wide variety of development topics, including microfinance. During one session that included presentations of four papers, I noticed that three were about “savings” but each, on closer inspection, had a very different definition of “savings.” . . .

One paper was examining the demand for credit versus savings, but the savings in question was money set aside for less than two weeks. Another was evaluating a program to encourage savings among 8 and 9 year olds and measured account  balances at the end of a school semester. The third discussed savings accounts held in formal banks in Nigeria, with massive balances compared to the other papers. . . .

So what are we talking about when we talk about savings? . . .

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Hidden from View: Mobile Money and the Policy Agenda

The past few weeks have seen plenty of ruminations about Uber’s potential invasions of privacy and the amount of data Google collects from its users. The concern is that these companies could use this data for nefarious purposes (although your definition of nefarious may vary). An Uber executive, for instance, suggested that the company could “dig up dirt” on journalists who wrote negative stories and hinted that they’ve already tracked the movements of at least a few reporters to date. . . .

Felix Salmon writes that this is only the beginning of a wave of privacy scandals. What I found most remarkable in the various columns, threads, and postings is that I didn’t see a single mention of credit card companies or other financial institutions . . .  . . .

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When Regulators and Remittances Collide, Migrants Lose Out

Just about everyone agrees that international remittances should be cheaper. If you run the numbers on international remittance flows, incomes of recipients and transaction costs, you can make a case that reducing remittance costs would be among the highest ROI interventions for raising incomes of poor households in the developing world (and given what we’re learning about the use and benefits of cash transfers, there’s good reason to believe the money would be well spent). . . .

As this became clear over the last 10 years, the World Bank, IADB and plenty of NGOs have drawn attention to the issue—and have largely succeeded in dramatically reducing the cost of sending money home (costs do still vary widely depending on sending and receiving country). Still, most people I talk with think costs should fall even more . . .  . . .

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The Elusive Benefits of Training

Whether it is education generally or domain specific skills, it seems obvious that imparting knowledge and skills should be an effective approach for improving outcomes. What’s not so obvious is how to deliver useful knowledge and skills. A few new papers shed some light on two areas of specific interest to us: financial literacy and business training for microentrepreneurs. . . .

A new paper based on a two-year, in-school, financial literacy program for high school students finds increased use of savings over borrowing, increased likelihood of financial planning and spillover of financial knowledge to the students’ parents. There are two important things to note in these findings. First, this is a very intensive program, with training of teachers, significant investment in curriculum materials, and many hours of instruction. Second, the results are self-reported. So the impact noted is not whether, for instance, the students actually saved up for a large purchase rather than borrowing at expensive rates, but whether they report doing so (for fairly obvious reasons of time and expense, it is rarely possible to measure actual behavior in large samples). A cynical interpretation of these results would be that two years of financial literacy training is effective at teaching people how to respond to financial behavior survey questions . . .  . . .

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Commitments to Save - Effective but Dangerous?

Among the useful insights from behavioral economics (or behavioral science, if you prefer) is a greater understanding of the difficulties everyone faces following through on our good intentions to save for the future. People routinely say that they would like to save more—to build a cushion, for retirement, for a future vacation—but when the time comes to put money away, it gets spent instead. . . .

Some of the most well-known and oft-cited policies and products influenced by behavioral economics address this issue . . .

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The Life of the "Microentrepreneur"

There has been plenty written on the failure of microcredit-funded enterprises to grow or achieve more than minimal profitability. If you’re curious why microenterprises don’t grow, I recommend reading a new piece that provides some insight into the life of a microentrepreneur. It’s from an unexpected source: a Fast Company magazine article about the emerging world of task-based “entrepreneurship” in the United States. Companies like Uber, TaskRabbit, Postmates, AirBnB and Amazon (via its Mechanical Turk service) allow people to earn income by doing odd-jobs, renting out a room or running errands. The rosy view that all these companies present is that they are providing an opportunity for people to earn money on their own terms and in the hours that they are not otherwise occupied. And each prominently features stories of individuals who are doing quite well, even quitting regular jobs and substantially profiting from using these tools (not unlike, it should be noted, the stories that emanate from microcredit). . . .

But that is not the experience of the average user . . .  . . .

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Not For Free

Two weeks ago I attended a Payments Bootcamp put on by Glenbrook Partners (a 2-day class they hold several times a year) to learn more about how the payments industry works behind the scenes. There is a lot to learn. Two days allows more than just scratching the surface, but not much more. While the class is focused on the payments infrastructure in the United States particularly, the material illuminates the evolution of mobile money and digital payments in the developing world. . . .

A better understanding of the economics of the payments industry provided the foundation for a new longer-term research project on the future of digital payments innovation in developing countries. But one thing that immediately grabbed my attention was a conversation from the first day about why the payments system in the United States is so complicated and opaque (for instance, it is now virtually impossible for a small merchant to know what fees they will pay for a credit card transaction). According to Carol Coye Benson, a Glenbrook partner teaching the course, the root cause is the stubborn refusal of consumers to be overtly charged for payments. The attitude seems to be that no one should be charged for using “their own money" . . .  . . .

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Stop Saying That Customers Don't Know What They Want

Lately I've been noticing a lot of writing about innovation inanely citing Steve Jobs (“People don't know what they want until you show it to them”) and/or Henry Ford (“If I had asked people what they wanted, they would have said faster horses.”) quotations about customers not knowing what they want. An example last week, in an otherwise reasonable piece about how to measure economic progress, caused my frustration to boil over. . . .

I think this perspective on innovation rears its head a lot when it comes to financial services for poor households which is concerning because it is 90% (at least) dead wrong. . . .

Let’s start with the Ford quotation. First, it’s apocryphal . . .  . . .

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The Curious Case of the Falling Remittances

Global remittance flows command a rightfully growing amount of attention. Recently Pew published a visualization of World Bank data on international remittances that helps show the scale and corridors of transfers. Of note, FAI’s Alicia Brindisi has been writing about south-to-south remittances and the huge market they represent. . . .

Remittance flows are, of course, primarily driven by migration patterns. The largest country-to-country corridors for remittances—from the US to Mexico ($22 billion in 2012), from the UAE to India ($17 billion) and from India to Bangladesh ($7 billion) for instance—match the flow of migrants. In the US to Mexico corridor, remittance flows fell during the Great Recession as there was a net outflow of Mexican migrants. Curiously though, while migrant flows have returned to pre-recession levels, remittances have not. Meanwhile major banks, which had invested in providing remittance services to that corridor, are cutting back services . . .  . . .

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Why Aren't Users Paying with Mobile Money?

On the Center for Financial Inclusion blog, Ignacio Mas and Beth Rhyne are discussing a central question in the evolution of electronic payments in developing countries: why aren't people using it to pay? Even in countries like Kenya with very high rates of adoption of a electronic payment platform, the vast majority of money that goes into the system come back out into physical cash in 24 to 48 hours. Ignacio makes a case that electronic payments systems need to be more integrated into other financial behaviors, like savings and credit, before they will be used for routine payments. The reason is fairly simple: unless you are storing value in the electronic system (as with a savings account) using the electronic system for a payment involves at least one extra step to turn cash into electronic form. . . .

Beth responds that if people are receiving their income in electronic form in the first place, like benefits payments or paychecks, and the merchants they frequent take payment in electronic form then there is good reason for users to keep their money in the electronic system. Using Ignacio's same logic, cashing out involves an extra step if the inflow is electronic and the outflow can be electronic. Beth's argument is one of the reasons organizations like the Better than Cash Alliance are focused on encouraging governments to use electronic payments to pay salaries or benefits to households . . .  . . .

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Who Will Pay for Financial Inclusion?

A dinner I attended on Monday night previewed the upcoming Financial Inclusion 2020 Global Summit in London. The Summit’s ultimate goal is to include 2.5 billion more people in the formal financial system by 2020.  It was an interesting (off the record) conversation. Without violationg the rules of engagement, I want to focus in on a topic I raised: Who is going to pay for financial inclusion?  . . .

Providing financial services to poor households has been and will continue to be expensive. While technology (like electronic payments) and innovative approaches (like KGFS) can reduce costs, they cannot make serving poor customers cost- or profit-competitive with serving wealthier customers.  The bottom line is that including 2.5 billion people in the financial system is going to cost money. Someone will have to pay. . . .

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Some Thoughts on Scarcity

Underlying, sometimes deeply underlying, much of the conversation about financial services for poor households is the question of how much control poor households have over their lives and how capable they are of making good choices. The Yunus theory of microcredit assumes that the poor have a great deal of control--the only thing they lack is credit. Once they have it, they can make smart, informed choices about how to use capital to improve their lives. The growing enthusiasm for cash-transfer-style programs is built on similar foundations. Paul Niehaus, one of the founders of GiveDirectly, a new charity that focuses on unconditional cash transfers for poor households in Kenya (if you don't know GiveDirectly, do listen to the This American Life story about them), often talks about a core motivation of the approach being the belief that poor households know better how to spend cash than outsiders do. . . .  . . .

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Rigorous Evaluation: Not an Afterthought

There's a new piece in Foreign Policy magazine which takes a tough look at Jeff Sachs and the Millenium Villages Project--not in regard to results or interventions, but in regard to evaluation. The project was always pitched as a demonstration of a "different" approach to ending poverty that could provide a blueprint for addressing poverty globally.  . . .

As the piece explains--citing FAI's founder Jonathan Morduch, FAI Affiliate Michael Clemens, Ted Miguel from UC-Berkeley and Nancy Birdsall from CGD, among others--that is no longer a realistic option. The project wasn't structured to allow for the kind of rigorous evaluation that would give it credibility as a demonstration or a justification for scale-up. While it seems there is now an effort to do more rigorous evaluation, for most aspects of the project it is simply too late to establish the comparisons and baselines necessary for credible claims of impact . . .  . . .

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