In the past, we've talked about peer effects and low adoption rates of mobile money banking accounts in Bangladesh. Our research exploring these issues (as well benefits for migrant workers) is in full swing! It is a randomized evaluation, which means that half of the sample is randomly assigned to a control group, while half of the sample is randomly assigned to the treatment group, which receives training and assistance with signing up for mobile money accounts.
In this video, co-investigator Dr. Abu Shonchoy audits the training by re-interviewing a woman who was part of the treatment group to make sure that the training was thorough and made the service understandable to the participant . . . . . .
Linking Wage Labor and Savings: Evidence from Sri Lanka
We often talk about how access to financial instruments may complement entrepreneurship. Financial instruments such as vehicles for savings and loans may help to encourage entrepreneurship and investment by making it possible for individuals to make larger investments and to hoard returns for the future. Less has been said about the interaction between financial access and wage work, but a recent paper by Michael Callen, Suresh De Mel, Craig McIntosh and Christopher Woodruff shows, perhaps surprisingly, that a strong link can exist between financial access and wage labor as well. . . .
In their experimental study, individuals in Sri Lanka were offered access to an improved savings product in which weekly deposits could be made to deposit collectors operating door-to-door with digital point-of-service terminals to record deposits. As in previous studies, access to the savings product increases savings and expenditures. The authors however also find that access to this savings product increased incomes while simultaneously encouraging disinvestment in microenterprises . . . . . .
Read MoreBorrower Identification vs. Product Design: Does "Who" or "What" Matter More?
Given the mixed results of recent randomized evaluations of microfinance, an open question is whether there are broad limits to the benefits of microloans or whether programs can be tailored in specific ways to maximize impact. Two features of microfinance programs that may matter are targeting and product design. A recent working paper by Pushkar Maitra, Sandip Mitra, Dilip Mookherjee, Alberto Motta and Sujata Visaria investigates the role of these features by studying a microfinance program they term TRAIL, or Trader Agent Intermediated Lending. . . .
The paper compares the impacts of a traditional group-based lending microfinance model to a more innovative and targeted model in the context of smallholder farming in West Bengal. The TRAIL model targets loans by incentivizing local traders to identify high potential borrowers for unsecured individual loans. The loans also have some innovative terms . . . . . .
Read MoreHarvard’s New Entrepreneurial Finance Lab
There’s a new weapon in the fight to expand financial access. . . .
he Entrepreneurial Finance Lab, founded by faculty and students from the Harvard Kennedy School and Harvard Business School, is pioneering new personality-assessment based tools to expand credit access. Survey-based measures of personality characteristics – such as ethics, character, intelligence, attitudes and beliefs – combined with measures of business skills turn out to be powerful predictors of loan repayment in real-world settings. The Entrepreneurial Finance Lab creates alternative credit scores based on these characteristics to expand credit access in partnership with banks and microfinance institutions from around the world. . . .
The approach originates from research in both psychology and business administration . . . . . .
Read MoreMeet the Bangladesh Project Team
I write this from Dhaka, where I am visiting for the second time to help get our mobile banking impact evaluation in motion. I am not here alone, however, and I wanted to devote this post to introducing the truly outstanding Bangladeshi economists, research staff and organizations who are our partners in this research study. . . .
First, we are uniquely privileged to be working with Dr. Hassan Zaman as a co-principal investigator on this study. Dr. Zaman is the chief economist of Bangladesh’s central bank, although he will soon be returning to Washington, DC to take a director-level advisory position on South Asia at the World Bank. He spent much of his career prior to Bangladesh Bank at the World Bank and earlier worked for BRAC. He has generated a body of policy and academic work that reflects a diverse mix of interests in development, including on development and finance, and will lead the World Bank’s work on poverty reduction and human development in his new role . . . . . .
Read MoreIn Mexico, Naïve Consumers Get Bad Loan Information
A recently released World Bank Policy Research Working Paper presents results of an audit study of Mexican banks, investigating whether bank employees hide the lowest cost options from potential customers in order to turn a higher profit. . . .
Financial products can vary widely in cost while providing more or less the same services. The dispersion in prices for products that offer essentially the same benefits – checking accounts, savings accounts, loans, and index funds – is thought to at least partly reflect a lack of information on the part of consumers. Savvy and informed consumers would gravitate to the lowest cost option, and competition would then drive prices down to the same level for equivalent products. . . .
A key potential source of information on financial product attributes and prices is bank employees. Bank employees presumably know their products, but may strategically choose not to divulge information about lower cost options . . . . . .
Read MoreGrants Double Income but not Empowerment for Ultra-poor in Uganda
A new paper by Chris Blattman (Columbia) and co-authors provides optimistic new evidence on the returns to providing cash grants to impoverished women in northern Uganda. The new experiment varied whether the ultra-poor, largely women, were offered a business grant worth $150, training and supervision, and found dramatic impacts of the cash grant on entrepreneurship, hours worked, individual earnings, and household consumption. . . .
The paper stands out from previous studies in that it finds strong positive impacts for women, and that it does so among the most impoverished people in the village. Only those people identified by a local nonprofit as the poorest fifteen people in each village (86 percent of whom were women) were eligible for the study. Previous studies of cash and in-kind small enterprise grants delivered to women in Sri Lanka and in Ghana find more mixed effects. Grants to female-owned microenterprises had, on average, no impact in Sri Lanka, and in Ghana, only in-kind grants or grants made to initially more profitable female microenterprises appeared to benefit recipients . . . . . .
Read MoreCompetition Yields 7 Pilot Mobile Money Projects
In early April we blogged about BRAC’s new Innovation Fund for Mobile Money, which solicited ideas from the public for pilot projects using mobile money technologies to deliver services. The seven winners have now been announced, and project descriptions are on the BRAC blog as well as the Innovation Fund website. . . .
The winners span a variety of sectors, but all seek new ways to use mobile money to serve the needs of the poor. Here are the descriptions of the winning projects from BRAC. We’ll report on the progress of these projects from Bangladesh, where we’re carrying out an experiment on the impact of mobile banking, this summer . . . . . .
Read MoreThe Economist vs. The Snowball
Popular financial advice guru Dave Ramsey has long advocated for what he calls the “debt snowball” approach to repaying debt for financially stressed households: order your debts by amount, smallest to largest, and repay them in order, ignoring interest rates. This sounds decidedly unscientific, and from a classical economics perspective it is bad advice. Rational actors should settle debts with highest interest rates first, regardless of the size of debt, in order to minimize the total amount they will have paid when all debts are finally settled. But, argues the snowball, if the debt never gets paid off at all because the debtor is daunted to the point of paralysis by the prospect of paying off a huge debt, then the classical advice is irrelevant . . . . . .
Read MoreIs There Hope for Financial Literacy Training if We Reach the Right People at the Right Time?
We at FAI have been closely following work on financial education and financial literacy to better understand whether financial education can improve financial capability. So far, the evidence has been mixed at best. A recent meta-analysis, largely focused on the United States, finds overall little evidence for impacts of financial literacy education on financial behaviors, and effects that attenuate over time. . . .
Is financial literacy education doomed to failure? One possibility is that programs aren’t always well-targeted towards populations that could benefit most from financial education programs – the less financially sophisticated, and those newly facing important financial decisions – and that the effects of financial education programs among these populations could be significantly greater. It’s possible that reaching the right people, in the right circumstances, could make all the difference . . . . . .
Read MoreIs Piketty too Pessimistic on Financial Development and Inequality?
Thomas Piketty’s recent book on inequality, the enormously popular best-seller Capital in the Twenty-First Century, explores the historical evolution of income and wealth inequality and its possible drivers. The book demonstrates that developing as well as developed economies have seen a big upswing in income inequality in recent years, as measured by the share of total income accounted for by the top percentile . . . . . .
Read More“But Is It Scalable?” Some Good News on Digital Payments for Large Government Programs
One of the most promising innovations in the digital payments space has been on the delivery of government benefits through electronic payments systems in developing countries. Now, an impact evaluation of digitization of government payments in India by Karthik Muralidharan (UCSD), Paul Niehaus (UCSD) and Sandip Sukhtankar (Dartmouth) finds encouraging results. . . .
In one of the largest randomized impact evaluations to date – covering 19 million people – Muralidharan and colleagues study the recent rollout of the “Smartcards” project in the state of Andhra Pradesh in India. The Smartcards project introduced biometrically-authenticated electronic benefit transfers into two large Indian social welfare programs: the well-known National Rural Employment Guarantee Scheme (NREGS) and the Social Security Pensions (SSP). The research team worked with the government to implement a randomization of the order in which districts received the program, allowing for a rigorous evaluation of program impacts half way through the implementation . . . . . .
Read MoreEverybody’s Doing It: Peer Effects in Mobile Money Adoption
Last week we blogged about the puzzle of low adoption of mobile banking accounts in Bangladesh. When we ask, people say they’re interested in mobile banking accounts. So why don’t they adopt the new technology? And why are rates of adoption so high in some places, like Kenya, and so low in Bangladesh? . . .
Read MoreNew Remittance Data, Ripe for Analysis
A collaboration between the Gates Foundation and the Gallup World Poll has gathered new data on remittances for a broad set of countries in Sub-Saharan Africa and in South Asia, home to many growing markets for mobile banking and money transfers. . . .
Collected jointly with the Global Findex data, the new data include answers to questions such as: . . .
- “Have you personally brought money in person or sent money to a family member or friend living in a different city or area in [your country of residence] in the last 30 days?”
- “Have you personally brought money in person or sent money to a family member or friend living in a different country in the last 30 days?”
- “Including any charges you may have incurred, was the largest amount of money you personally brought in person or sent to a family member or friend living in a different country in the last 30 days?”
Bangladesh’s bKash Adoption Puzzle
On a recent trip to Bangladesh, one question kept pestering me: if mobile bank accounts are so good for the poor, why haven’t they adopted them already? After all, financial products and services for the poor have the potential to improve lives, but only if they are actually adopted and used. . . .
I traveled to Bangladesh to set up a randomized controlled trial to test for the impacts of mobile banking on financial management, food security, health and self-reported well-being for poor households . . . . . .
Read MoreBRAC Innovation Fund Announces Idea Challenge
On my recent trip to Bangladesh, I had the good luck to cross paths with and chat over dinner with Maria May and Amanda Misiti, two members of the Social Innovation Lab at BRAC who are engaged in advancing the organization’s mobile money agenda. Founded in 1972 in a rural village in Bangladesh, BRAC is one of the world’s largest and most influential nonprofits, serving by its estimates over 135 million people in need . . . . . .
Read MoreIMTFI Conference Highlights Latest in Mobile Money Research
One of the issues we follow closely at FAI is the rapidly expanding use of mobile money in the developing world. As Jean Lee recently noted, a growing body of research on mobile money has a lot to say about its potential to smooth risks and facilitate transfer programs. . . .
In the interest of keeping a finger on the pulse of the latest results from the field, FAI's Managing Director Timothy Ogden and Deputy Managing Director Laura Freschi recently attended IMTFI's Fifth Annual Conference for Funded Researchers . . . . . .
Read MoreRegulatory Regimes Matter for Mobile Money Usage
At a recent Microfinance Club of New York event with Michael Joseph, the former CEO of Safaricom in Kenya and now the Director of Mobile Money for Vodafone, Joseph cited regulatory barriers as the principal reason that mobile money has not taken off in India, the largest market in the world and his current project. A new paper from Eva Gutierrez and Sandeep Singh at the World Bank confirms his intuition, finding evidence for the importance of regulation for mobile money usage by combining the World Bank’s Global Findex database with cross-country variation in regulatory regimes. . . .
The authors argue that both regulatory certainty — stability in regulation — and regulatory openness — policies that favor the introduction of new technologies — are necessary for mobile money adoption. They construct an index of regulatory favorability towards mobile money and look at the relationship between their index and actual end user behavior using the Global Findex to track outcomes for 35 countries, finding that overall, regulation is a significant factor in explaining mobile money usage among both the banked and unbanked . . . . . .
Read MoreA Roundup of Recent and Ongoing Mobile Money Research in Economics
A growing body of research on mobile money has a lot to say about its potential to smooth risks and facilitate transfer programs, but a definitive experimental study on what it means for the financial lives of the poor remains undone – a gap we would like to fill with our future work at the Financial Access Initiative. . . .
In recent years, mobile technologies have rapidly expanded in the developing world, bringing information and other transformative services with them to the previously isolated and the poor (Aker and Mbiti, 2010; Aker, 2010; Jensen, 2007). Rapidly adopted in most developing country contexts, mobile technologies have the potential to serve as a broad-distribution platform for other services and products. For example, a growing literature looks at the potential for mobile technologies to serve as a vehicle for the delivery of information and reminders in a variety of contexts, including for loan repayment and health . . . . . .
Read MorePayments from Domestic Migrants Dwarf International Remittances
Despite a lot of excitement about global payments, we are just beginning to learn the most basic facts about them– how much money is sent by whom, to whom, where, and how. International remittances flows could reach $515 billion by the year 2015 and are slowly starting to receive the attention they deserve from policymakers. Now, a new set of Gates reports on payments in Africa and Asia shows that domestic remittances may far surpass international remittances in frequency and magnitude . . . . . .
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