Much of the dialogue around microfinance suggests that the poor are universally credit constrained and that cash shortages drive a monolithic demand for credit. As such, microfinance is often treated as a technical, rational and linear process that is characterized by an “if-you-build-it-they-will-come” mindset. Too often overlooked are the contextually specific and nuanced processes that influence consumers’ demand for microcredit in a variety of social, moral, cultural, and political contexts. . . .
A fascinating new paper, “Explaining Participation and Repayment in Microcredit Schemes in Rural Morocco: the Role of Social Norms and Actors,” from the Institute of Research for Development at the Sorbonne University explores exactly these dimensions of microfinance. Drawing upon evidence collected from rural Morocco, the team of authors explores the socio-cultural factors that influence a household’s use of microcredit services . . . . . .
Read MoreIn last week’s blog post, I suggested that self-reported data should be supplemented with objective sources of information from independent third-party entities. Sometimes, however, independent data sources simply aren’t available and researchers have no choice but to base their analysis on self-reported data. Under these circumstances, some data collection methodologies might be more useful than others in ensuring that self-reported data are reliable. In this post, I discuss several studies of the potential of the diaries methodology and alternative strategies to capture accurate self-reported data. . . .
Klaus Deininger, Calogero Carletto, Sara Savastano and James Muwonge examine the effect of personal diaries on the quality of self-reported agricultural data in their study, “Can Diaries Help in Improving Agricultural Production Statistics? Evidence from Uganda.” In Uganda, a large part of crop output consists of continually harvested crops such as cassava and banana. Since these crops are harvested over long periods of time, farmers who are asked to report harvest data may have trouble recalling events that happened several months earlier . . . . . .
Read MoreProgram evaluations and policy proposals are only as good as the data upon which they are based. Although we all know this to be true, discussions about the reliability of data, especially self-reported data, have only recently emerged in the field of development economics. The other week, I highlighted two papers from the Journal of Development Economics’ Symposium on Measurement and Survey Design which discussed how recall bias might undermine the reliability of self-reported data. Even when recall bias is not at play though, self-reported data might be threatened by respondents’ desire to misreport their activities so as to portray their behaviors in a more positive light. . . .
Sarah Baird and Berk Özler explore this phenomenon as it relates to education in their study, “Examining the Reliability of Self-Reported Data on School Participation.” Many Conditional Cash Transfer (CCT) programs are evaluated based on self-reported data about school enrollment and attendance rates. However, the desire to give socially desirable answers or the belief that program funding is linked to evaluation results might lead survey participants to over-report their level of school participation. Baird and Özler test the extent to which self-reported data of school enrollment rates can be considered reliable in CCT evaluations of this nature . . . . . .
Read MoreIn a recent post, Tim Ogden and I discussed the importance of having solid, reliable data on which to base program evaluations and policy decisions. The Journal of Development Economics explored this theme in last year’s Symposium on Measurement and Survey Design which featured more than a dozen papers on improving data quality in development research (Hat tip to Berk Ozler of the World Bank’s Development Impact blog for pointing us to it). . . .
An important discussion at the symposium was the extent to which self-reported data can be considered accurate and reliable. Because study participants are usually asked to report information after significant time has elapsed, self-reported data are often subject to recall bias and can be inaccurate or misleading. This post is the first in a three-part series that will explore the reliability of self-reported data through a discussion of papers featured at the symposium . . . . . .
Read MoreThe mobile money revolution has been greeted with great excitement in some circles for the potential it holds to increase financial access for the world’s poorest. Women may especially benefit from expanding financial inclusion through mobile financial services (MFS). Women not only handle a lot of cash to provide for household needs in many societies, but they may be explicitly or implicitly discouraged from using bank branches. A new report (sponsored by Visa and the GSMA mWomenProgramme) by FAI affiliate Daryl Collins explores just this theme. In “Unlocking the Potential: Women and Mobile Financial Services in Emerging Markets,” Collins and her coauthors explore the untapped potential of woman as a strategic consumer base for MFS providers. . . .
A summary of the report’s conclusions . . . . . .
Read MoreWhether the result of variable incomes, liquidity constraints or reduced access to formal financial services, poor households face unique financial constraints that undermine their ability to effectively guard against risk and accumulate meaningful savings. There’s been a lot of research into these questions in the last few years. Two important papers, “Barriers to Household Risk Management: Evidence from India” and “Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya,” circulating for a few years have finally been published this month in the American Economic Journal: Applied Economics. Now that they’re “official” it’s worth revisiting them . . . . . .
Read MoreLast November, the Consumer Financial Protection Bureau’s Office of Financial Empowerment hosted a conference on “Empowering Low-Income and Economically Vulnerable Consumers: Making the Case through Access, Data and Scale.” A key highlight of the conference was a breakout session about the incentives and obstacles to collecting data in the field. Leading the session were representatives from LISC, NeighborWorks, CGAP and the University of North Carolina’s Center for Community Capital. Everyone agreed that we need more rigorous data. What was less clear was exactly how to get there. Two key questions emerged throughout the day:What outcomes are we measuring? And, how do we collect data? . . .
What outcomes are we measuring? . . .
Read MoreAt FAI, we’re big advocates for data. Why? Because you can’t make good policy without data. Data can be collected in many ways and come in many forms: transaction records, panel surveys, financial diaries, or field experiment results. We get excited about the opportunity to collect or analyze data about the financial behavior of poor households. . . .
While we often lament the lack of data, it is equally important to remember that quality of data is just as important. Poor quality data leads to decisions just as bad, if not worse, than no data. Two recent posts on data quality are a good reminder of the lingering problem of data quality even where data does exist . . . . . .
Read MoreWe do our best (not always successfully) to keep up with new research relevant to finance, poverty and development. Today, I’ll be sharing highlights from some new papers by FAI affiliate Sendhil Mullainathan. . . .
In “Behavioral Design: A New Approach to Development Policy,” Mullainathan andSaugato Datta advocate for employing a behaviorally-informed economic perspective to design development policies and programs. Since behavioral economics helps us understand why people behave as they do, analyzing development policies through a behavioral lens allows us to make better policy diagnoses, which in turn lead to better-designed policies. . . .
Mullainathan and Datta outline three ways in which behavioral economics can improve program design. First, it can change how we diagnose problems . . . . . .
Read MoreAfter nearly 30 years of the microcredit movement, we've finally started seeing rigorous impact evaluations in the last few years. Randomized control trials of some variant of microcredit have been conducted in India, Morocco, Mongolia and the Philippines. Each of these trials adds to the evidence, but each is in a specific context, with differences in contracts, eligibility, loan size and structure, and most importantly among the borrowers. That’s why it’s still exciting to see new trials which provide evidence in a different context. . . .
“Microfinance at the Margin: Experimental Evidence from Bosnia and Herzegovina,”a new working paper presented at the 2012 Innovations for Poverty Action (IPA) Conference, gives us yet another different context to examine how households use microcredit and its impact on their lives. The authors of the study – Britta Augsburg, Ralph De Haas, Heike Harmgart and Costas Meghir – look at a group of randomly-selected loan applicants who normally would have been rejected during the loan screening process, in many cases because they lacked the necessary collateral to secure a loan . . . . . .
Read MoreIn microfinance circles, people tend to be fond of asking the question, “Does microfinance work?” Over the last decade, countless studies have attempted to answer this question by studying the net impact of microcredit on the lives of borrowers. Yet, these impact studies don’t necessarily tell us much about the nuances of how organization-level factors might influence the final impact of microcredit. NYU Economist Hunt Alcott and FAI Affiliate Sendhil Mullainathan have a recent paper that notes that the MFIs that participate in rigorous impact evaluation aren’t like MFIs in general. But there is a very important deeper level of analysis that is important. Little attention has been paid to how individual groups and actors shape the nature of microfinance services – that is, how the behaviors of funders, bank executives, and front-line loan officers might fundamentally alter the delivery and outcome of microlending. . . .
Here at FAI, we’re not just interested in financial products but in how systems and people interact to make the right (or wrong) products available (or unavailable). For example, why do loan officers behave as they do? What incentives affect a loan officer’s job performance and how? How does the relationship between the loan officer and the client influence the borrowing and repayment process? . . .
Read MoreDavid Roodman’s conversation with Jonathan Morduch is coming up tomorrow. If you haven’t read David’s book yet, you should. But we can be realists. You probably don’t have time to buy and read the whole book in the next 36 hours. So, here’s a quick cheat sheet of some highlights from David’s blog over the past few years. Reading these posts will get you up to speed (but you should still read the book!). . . .
Perhaps David’s most famous post is an October 2009 post titled “Kiva is Not Quite What it Seems,” about the online microlender, Kiva. The post kicked off a wide-ranging debate about the role of transparency in the framing of NGOs’ operations and ultimately changed the way the organization presents itself. In the post Roodman explained there was significant divergence between Kiva’s rhetoric and marketing and how it actually did its work . . . . . .
Read MoreOn October 3rd, FAI will host a conversation with Jonathan Morduch and David Roodman, a senior fellow at the Center for Global Development (CGD). The conversation will focus on Roodman’s new book, Due Diligence, which has been widely praised (but you should also check out some of the critiques) for its detailed, evidence-based look at the state of microfinance today. . . .
Those familiar with Roodman from his work in microfinance may be unaware of his influential work in other areas of development. We thought we’d provide a quick overview to the other sides of David Roodman (though all of the sides feature an exceedingly careful attention to detail and data). . . .
In addition to his work on microfinance for CGD, David also manages the Commitment to Development Index . . . . . .
Read MoreThe concept of social investment has received growing attention over the last decade. The core idea is simple: investing in organizations that produce a substantial positive soal outcome -- and at least some financial return. Advocates for social investment frequently use the phrase “doing well while doing good.” . . .
While there has been much discussion of social investment, there has been relatively little actual investment. The one area where substantial flows of capital have emerged under the social investment umbrella is microfinance. Thus, there are important lessons and insights for social investment as a whole to be gained by examining the experience of the microfinance industry in trying to marry profit and social returns. . . .
Over the last two decades, microfinance has grown from a promising experiment to a burgeoning industry that serves over 200 million people worldwide. The early hope was that microfinance would drive toward full sustainability, earning all the necessary funds for their operations and growth. Microfinance banks would earn solid profits and wouldn’t need subsidies after the banks were fully established to keep going. Muhammad Yunus himself has voiced support for the concept of “social businesses” – businesses designed to produce some financial return (which gets re-invested in the business) while delivering social returns. But it has turned out that social investors (and the subsidies they bring) remain critical if social goals are to be achieved . . . . . .
Read MoreIn most of the developing world, the poor are disproportionately vulnerable to risk. Whether these risks come in the form of the death of a family member, severe illness, the loss of an asset such as livestock, or a natural disaster, these events have a particularly debilitating affect on the poor who are less able to financially absorb and recover from such shocks. . . .
Increasingly, providing the poor with access to reliable and reasonably priced insurance instruments has become viewed as an integral component of inclusive financial sectors. This type of insurance is commonly referred to as microinsurance and is defined as “the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.” ("Protecting the Poor: A Microinsurance Compendium " 2006, Churchill, C.) . . .
The field of microinsurance is still relatively new and in its infancy stage . . . . . .
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