> Posted by Kelley Mesa
This summer a group of Dartmouth undergraduate students are working at The Tuck School of Business in coordination with the Center’s “Financial Inclusion 2020 campaign.” Through the Paganucci Fellows program, these students are working together to explore the state of financial inclusion through creating “scorecards” that define and paint a picture of financial access in various countries around the world.
You’ve already heard from Kal Kuchimanchi , the fellowship program manager, now let’s meet a few of the 2009 Paganucci Fellows…
Yang Wei Neo (Philosophy, 2012)— I grew up in Singapore, and prior to coming to Dartmouth I worked in the Singapore Navy for two years. I became interested in microfinance after attending a conference on social entrepreneurship that Ashoka organized back in Singapore. Significantly, I was impressed with the tangible results that can be achieved by marrying business efficiency with social aims. Thus, when the Paganucci Fellows Program presented itself, I jumped at the opportunity – it was to me a marvelous experience to deepen my understanding of the topic and to make a real contribution to this important industry.
One of the most challenging aspects of the project is in deciding what are the appropriate measures of financial access. For example, we decided to proxy financial access through its usage instead of through availability. Availability might seem like a more appropriate choice, but measures of it are inherently subjective depending on the surveyor’s judgments. Usage is by definition different, but measures of it are objective and unambiguous. This trade-off between conceptual accuracy and practical measurements is just one of the many methodological decisions we make every day in order to present as complete and as understandable a picture of financial access as possible. It is these processes that I have found the most interesting, both intellectually and personally.
James Wang (Economics and Philosophy, 2010)— I transferred from the University of California-Berkeley to move from a more traditional business-focused education to one with an emphasis on various aspects of social enterprise. I am deeply interested in integrating various means of private enterprise with socially focused ends—a pursuit that has drawn me to microfinance and ultimately, this fellowship.
When working on this project, there have been times where our work loses some of its romanticism. When we’re simply sifting through reams of data looking for what appear to be insignificant metrics, it often becomes difficult to appreciate the true significance of what we are doing. After all, these metrics we are researching are, when put on a page, just numbers. How important is the exact number of clients this insurer in Nigeria has, anyway? What possible significance can there be in the depository rates of Indian rural banks?
One of the greatest takeaways from this project is to realize that these statistics we are compiling are not merely cold numbers. To us, a “number” can just look high or low—for someone else in these countries, it is the crushing fee on a savings account or mandated interest rate cap that bars them from a loan. From these numbers, we are beginning to tell a story of financial need in these countries. We are taking a first step, however small, in advancing a far larger cause. It is this deeper purpose that drives me through the tedious task of sorting through hundreds to thousands of pieces of data—usually with far more noise than signal. My hope is that by working with ACCION on this project, we will truly be able to breathe life into these numbers, and make a difference in the lives of the people that lie behind them.
Chris Kendig (Economics and Philosophy, 2010)—Hello, my name is Christopher Kendig and I am a Dartmouth undergraduate majoring in economics and philosophy. This summer, I am working as a member of the Paganucci Fellows program, which is creating financial access scorecards for ACCION and the Center for Financial Inclusion. I became interested in the program because it seamlessly combines applied economics and socially beneficial enterprise, two topics that I am passionate about.
Throughout the first four weeks of my fellowship, one of the most interesting aspects has been seeing just how many different parties are invested in the goal of improving financial access. The Paganucci team has already had the privilege to meet several individuals who are working to improve financial access through the creation of microfinance NGO’s or the development of commercial finance. The incredible breadth of experience and diversity of vision demonstrated by these individuals has been extremely impressive, and strongly supports the idea that financial access is a concept that has appeal across large swaths of both the societal and ideological frameworks. Intensive research on our target countries, such as Brazil and Kenya, has further demonstrated this point, as a tremendously diverse group of institutions has helped to provide us with financial access data. Governments, central banks, NGO’s, commercial banks, and a variety of other organizations have all provided valuable knowledge and information for our study of financial access. All of these organizations seem to be enthusiastically behind the growth of access to quality financial services despite their vastly different institutional goals and compositions. Overall, the first several weeks of this program have been a fascinating tour of the tremendous number of individuals and organizations that are working to help expand financial access.
Stay tuned for comments from the remaining two fellows…
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
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July 30, 2009 at 12:13 pm
Peter Burgess
Great to see the messages … and it does raise the question “What is all this about?” As James Wang observed:
“When we’re simply sifting through reams of data looking for what appear to be insignificant metrics, it often becomes difficult to appreciate the true significance of what we are doing. After all, these metrics we are researching are, when put on a page, just numbers. How important is the exact number of clients this insurer in Nigeria has, anyway? What possible significance can there be in the depository rates of Indian rural banks?”
Good question … for which I have a terrible answer. Most of the metrics being researched are a total waste of time and very expensive … and while a lot of work is being done doing rather useless research some really important key questions cannot get answered.
I want to know for every socio-economic activity: (1) What is the cost? and (2) What is the value?. I want to know how the aggregate of socio-economic activities adds up for the community and if the community is successful. I want to know how the activities add up for the organizations and whether they are profitable and sustainable. These are pretty key questions … but nobody is doing much work on them as far as I can tell. We are putting these together as a System of Community Analytics … a paradigm shift for people who are interested in the role of socio-economic metrics.
Sincerely
Peter Burgess
Tr-Ac-Net Community Analytics
July 31, 2009 at 9:17 am
James Wang
I couldn’t agree more. Many of these metrics are expensive to gather… and what exactly do they tell us?
Cost and value are ultimately what we should be measuring.
However, how do we go about doing so? Let’s start with cost: a relatively simple economic metric, correct?
However, cost is as a measurement has proven time and time again as an elusive target. What exact cost are you referring to?
If you’re referring to savings deposits, is it the fee to open an account? Is it the bribe you need to pay the agent to open one for you? Or is it the minimum deposit or balance you need to open an account—which might never count as a “cost” but remains a significant barrier to financial access to the poor. And if those actual financial measurements weren’t difficult enough to reconcile, how do you account for geographic isolation? Or even more damning, how do you account for women lacking access in, say, Morocco, because of cultural barriers and because their husbands legally can bar them from economic activities outside of the house?
Financial access and lack of it remains a complex and multifaceted puzzle. These numbers can’t simply be “added up” into a simple cost.
So how do you account for these things and still have a meaningful measure? To aggregate these various, non-compatible measures into some sort of simple to understand metric—an index—would be ideal… but would involve, inevitably, some degree of arbitrary assignment of weights—something that I hesitate to do, as those weights rely on our soft, qualitative stories and accounts about the financial situation in a country.
What value is qualitative rigor if its underlying methodology is backed primarily by anecdotes?
If as “simple” and solidly quantitative a concept as cost is so fraught with difficulty, how will we possibly measure value?
I have the unfortunate answer here: we can’t.
The plague of aid agencies and “double-bottom line” organizations everywhere, value has proven to be an impossible measure, loaded with preconceptions and moralistic weights when actually “measured.”
Even if we walk away from the amorphous concepts of “making lives better,” or whatnot and restrict ourselves to “financial access,” what exact services add the most “value” to the lives of the poor? Is it credit? Is it savings? Is it insurance? Can you answer this is a definitive and uncontroversial fashion?
Right now, the policies of the rich world and its NGOs, MFIs, and alphabet soup of agencies work with preconceived or assumed expectations about what services will provide the most value.
The reality is, no one knows what provides the most value. We muddle through and learn as we go along.
As for us, with our expensive and, individually, rather meaningless measures, we are also muddling through. However, if we are to understand something this complex, which has eluded armies of researchers and policy makers’ best attempts at simplification, there has to be some degree of vagueness.
What is the exact significance of that client number for Nigerian insurers or those depository rates in Indian banks? Individually, they do us little good, and to be honest, are rather meaningless measures that give us little to nothing in terms of causality.
However, together with many other metrics—breakdowns of financial access between rural and urban, information about the friendliness of financial regulation towards mobile banking… we begin to paint a picture of financial access and what goes into it.
Ultimately, it is a hazy picture with many questions answered in an unsatisfyingly vague manner—and even more simply not answered at all.
In the end, what we would have created is an “anecdote” of sorts, in and of itself. However, the realities on the ground, as we strive towards the lofty goal of lifting up the poor from their poverty, cannot be captured with any sort of richness of detail without this story-telling quality. We are using proxies for financial access, necessarily, as the “value” of these activities can never be perfectly captured by any single number, even if we could observe it.
The urge to boil all of this complexity into a few simple metrics, cost, value, and the like, is extremely tempting. And if your company intends to embark upon the task of doing so, I wish you the best of luck and do sincerely hope you will find something truly meaningful—however, I’d venture that even if you come with the true number for some sort of “cost” (however you end up defining it), it will mean just as little, if not less, than the number of those insured in Nigeria.
Best regards,
James Wang
August 3, 2009 at 2:12 pm
Peter Burgess
Dear James Wang … Colleagues
Cost is NOT a simple construct … but without fully understanding cost, then almost every decision made in the socio-economic arena is likely to be sub-optimum, if not completely wrong.
In a system of metrics that is founded on value rather than money cost, money revenue and money profit … cost is the consumption of value and revenue is the creation of value.
The example of cost of a savings account being a fee, a bribe, a minimum balance to be kept … and the costs of isolation, costs of culture, etc is totally valid. All of these costs are important … all of these constraints may be reflected in the “value” that exist in the society … in these examples with the “value” being negative. In money accounting the balance sheet has both assets (positive) and liabilities (negative). In the community “state” balance sheet there are positive values and there are negative values.
In Community Analytics (CA) we use standard values … and we can add up standard values. Because the standards are new and evolving, the adding must be done with caution. It will take some time before the standards are corrected to reflect reasonable reality … maybe around 6 iterations of use.
What is a meaningful measure? In CA a meaningful measure is one that helps to get good decisions made reliably … and usually good measures are ones that relate to reality. The modern world has a proliferation of simple to understand indexes that are absolutely useless for decision making … we need help in getting closer to the cause and effect so that small good decisions can be made at a local level without the intervention of experts a world away.
What is qualitative rigor? Statistical methods enable small amounts of questionable data to be converted into some derivative that masquerades as reliable sound qualitative analysis. It is not. Rather it is nothing more than sophisticated expensive GIGO.
Anecdotes are great … but they need to be organized … they need to be validated. An accounting transaction is a very small anecdote … which is then treated in a very disciplined way and incorporated into financial reports together with all the other accounting anecdotes (transactions). CA is a system that treats anecdotes as if they are accounting transactions … with the internal check to sort out what is valid and what is not. CA is not PR, where a suitable anecdote is used to sell something. CA has data … including anecdotes … that aim to be neutral, rather than being in support of any hypothesis.
CA comes at the problem from a different place … from the perspective of society rather than the perspective of the organization, the activity, the program or project. CA reports with the community as the reporting entity. An organization working in the community produces value for society or it does not … and this is very visible when looked at from the perspective of the community. Einstein addressed this issue in his work … I believe.
Financial services add something to a community … financial access adds something … but probably not very much compared to, for example, something that enables the farmers to triple their production and get their product to market. Hard infrastructure probably adds much more value through improved productivity than financial services ever will … people in financial services (and the development experts) need to get real about where value is created, and how value is destroyed.
Sadly as there is muddling along … there is very little learning. Most of the issues talked about today were talked about 30 and 40 years ago! But there can be learning if the metrics are designed so that they will help.
The phrase “granularity” has been used to describe what is needed, and I think I understand what this is … my view is that a data system aggregates or rolls up in a logical way … and there is also drill down to more and more useful data. This is how corporate accounting works … but the ideas of this have been applied in such a slipshod way by economists for society that the data are almost meaningless … and I therefore share frustration.
Take GNP for example … why are health costs in the GN Product when the product (a value) ought to be good health. Why don’t we have GNC … GN Cost as somewhere for the costs that now constitute the US health sector to be put!
And then … why does profit become a cost … which of course it does unless there is serious value chain analysis that breaks out real costs from money profits.
And why does risk disappear when a financial instrument hides it …
And why does someone get rich merely by owning the same house for fifty years … same house …
I am fascinated by what I refer to as the “behavior of costs” and the “behavior of value” … understanding this will help us make good decisions.
I can go on … I am trying to get all this sorted out and organized into a comprehensive system of Community Analytics (CA) … and will be using the malaria health sub-sector as the first sector case for CA deployment.
Sincerely
Peter Burgess