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> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities and Fellow, Ash Center, Harvard University
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
In the United States, it is financial literacy month, but all the talk these days is of financial capability. Why? Is this another fad to make the topic of financial literacy a little more interesting? Is it an effort by one group or another to differentiate themselves? Maybe. But there are also important, substantive, and practical reasons to be talking about financial capability, which means having the ability and opportunity to manage your money well. And there is no better way to understand this than to look to the pioneer of the capabilities approach, Amtya Sen, to see why it is important, both in the developed and developing world.
In brief, Sen’s capabilities approach:
- Forces a discussion of a multi-dimensional understanding of what it means to be a fully functioning member of society that takes into account not only what a person knows, owns, and earns, but also what they can do, and what they actually do
- Opens the door to thinking about financial capability in the broader development context that encompasses other capabilities such as being healthy, educated, and earning a sufficient income to support an individual and their family
- Recognizes that what it takes to be capable in one context is different from what it takes to be capable in another
The practical implications of this are important:
- A multi-dimensional understanding of what it means for an individual to manage their money well goes beyond being “literate” (having the right knowledge and skills). It also includes having an individual be able to act on that literacy (financial behavior) and having access to the appropriate financial instruments to fully realize their aspirations. In other words, the capability approach to money management includes a discussion of behavior and access. This means, practically, we have to understand the connection between financial literacy and financial behavior in all its complexity. It also means that talk of financial inclusion and increased access should focus on how they increase financial capabilities, which means a focus on financial service use, not just uptake. Read the rest of this entry »
> Posted by Sonja E. Kelly, Fellow, CFI
Courses featuring microfinance can be found in most colleges or universities, and the development of the syllabi for these courses has begun to create a sort of “microfinance canon.” As the next generation of microfinance professionals enters the market, there are a few things that many of them have read, and a few questions that many of them have been required to consider.
I took 10 syllabi (a small sample size, admittedly) and looked for trends in what is being taught, what is being read, and what is being assigned. Here are a few things I found:
- Students are reading Collins et al., Armendariz and Morduch, and Rhyne more than any other authors (Helms was a close fourth). These three authors represent a nice diversity of method and emphasis. Collins et al.’s Portfolios takes more of a client perspective, Armendariz and Morduch explain the more technical nuances, and Rhyne offers a more practical business approach.
- Guest speakers are a major part of class time. Given that microfinance is still very much practitioner (rather than academic) oriented, it is no surprise that guest speakers are used quite frequently in class time. Most, if not all, of these speakers are in top positions at well-known microfinance institutions.
- Assignments range from case study examples, to policy briefs, business plans, and product designs. In a few of the syllabi, students were required to make presentations, including one that assigned an investor pitch in lieu of a final exam.
Beyond these content-related observations, I noticed that microfinance classes don’t seem to have an agreed-upon disciplinary “home” in academia. Classes are typically hosted in business, economics, public policy, and international relations departments. In addition (and this is probably related), professors tend to not be tenure-track academics. Often, they are involved in microfinance as practitioners in some way.
> Posted by Guy Stuart, Faculty Council Member, The Center for Financial Inclusion
In her recent paper “The Financial Behavior of Rural Residents: Findings from Five Latin American Countries,” Jacqueline Urquizo segments the savings market at three levels. The first level identifies whether the individual saves or not. The second level identifies how they save – in constant, small amounts, in sporadically larger amounts, or by simply holding, statically, a sum that they accumulated in the past. The third level identifies the source of savings: money set aside before the individual makes their usual expenditures; money left over after all expenditures have been made; or money earned through extra, income-generating activities.
Though data I have collected using the Financial Diaries methodology, suggest that almost all people save, even if it is only from week-to-week to smooth consumption, the paper’s approach to segmentation offers a key insight. That is, its approach to market segmentation focuses attention on consumer behavior rather than their socio-economic characteristics, such as age, income or livelihood. Though the latter and the former are related, consumer behavior is far more important for financial service providers to understand than consumers’ socio-economic characteristics. Read the rest of this entry »
> Posted by Guy Stuart, Ph.D., Senior Advisor, Microfinance Opportunities
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.
My work using the Financial Diaries methodology has made me very cognizant of how much cash low-income people handle daily – more cash, in real terms, than a middle-income person in a developed country handles. If we are to increase financial inclusion by increasing low-income individuals’ use of savings products, we have to find ways to channel some of the large amounts of cash they handle into those products, in ways that they value. Monique Cohen and I have written about this in our recent article “Channeling Cash: Towards a New Business Model for Low-Income Savings Mobilization.”
In the article, we first had to step back and define what we really meant by savings. In the paper, we assert that low-income people use savings for three different purposes: Read the rest of this entry »
> Posted by Guy Stuart and Monique Cohen
Rose lives in a village about 5km from the provincial town of Murang’a in the Central Province of Kenya. Her husband works in Nairobi. During the time when our diaries study interviewed her, between November 2009 and June 2010, she earned very little, less than $10 per week. But her husband sent her 29 remittances through Safaricom’s M-Pesa mobile money service from Nairobi over a 33-week period. He also brought cash home on visits. Rose contributed about Ksh.270 ($5.70) to a merry-go-round (a type of ROSCA) about 25 times during the course of our study. At the end of February her husband sent her Ksh.10,500 (about $210) in three remittances in one week. She withdrew all but Ksh. 500 in the same week and spent it on construction materials. Her husband came home that week and stayed for two weeks. He then returned to Nairobi, and on his return he sent Rose more money.
Rose is one of the 92 respondents Microfinance Opportunities (MFO) tracked during an eight-month Financial Diaries study in Kenya. This study yielded detailed transactional data that enabled us to better understand the economic lives of low-income individuals and households in two rural areas and one urban area.
The diaries also provide a close look at how low-income Kenyans actually use the now-famous mobile money service, M-PESA. M-PESA is an SMS-based mobile money transfer system owned and run by Safaricom, the leading mobile phone operator in Kenya. There are 30,000 M-PESA agents nationwide through whom people can deposit cash into or withdraw cash from their M-PESA accounts. Once they have cash in their accounts, customers can text their money to anyone in the country who has a mobile phone. The recipient can then either on-send the money to someone else or cash it out at an agent. There are over 13.5 million M-PESA accounts. The adult population of Kenya is 20 million.
As with our other financial diaries study in Malawi, and studies performed by other researchers such as Stuart Rutherford, Daryl Collins, and Orlanda Ruthven, the data from Kenya show that the poor handle a lot of cash, often more than twice their income. Furthermore, they use a wide variety of informal financial services, including intra-family loans and gifts as well as rotating savings and credit associations. Read the rest of this entry »
> Posted by Guy Stuart, Lecturer in Public Policy, Harvard Kennedy School
Karlan and Appel’s book More Than Good Intentions is an easy, and often compelling, read. Initially, you are drawn in by the anecdotes that start each chapter, which Karlan and Appel use to illustrate a broader development issue that they then tackle in the rest of the chapter. But the stories that really drive the chapters forward, and make the book compelling, are the ones which start with Karlan describing how he teamed up with people with “good intentions” – people trying to deliver goods and services to poor individuals and families in developing countries, to gather data in an effort to address a problem they both want to solve. In essence, this is the strength of the work Karlan and Appel describe in this book: For researchers to help in efforts to solve the problems confronting poor people, they have to begin with the problems they and the people who are trying to help them face, and gather evidence regarding what works and what does not work in solving those problems so that they then can act on that evidence.
This is a pretty simple message, but it is an important message, because this is not how research is necessarily done. Professional researchers tend to want to answer a particular question that fits their research agenda or the agenda of the organization for which they work. It may be the case that these agendas coincide with the problems facing the poor, generally, but even if that is the case, it is unlikely that the research will be specific enough to be useful, nor will the results of the research be reported in such a way that anyone can act on them.
Karlan and Appel want us to believe that Randomized Control Trials (RCTs) are an essential tool in identifying solutions to problems through research. In fact, there is clear evidence that they think this is the only way to do research. They continuously, and condescendingly, equate “rigor” with the use of RCTs, which begs the question: Are all the people who generate evidence about what works and what does not work without using RCTs not doing rigorous work? Are RCTs the only way to get to the truth of the matter? Read the rest of this entry »
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