In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.

The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.

Most of the participants represented a cross-section of the financial inclusion sector in Colombia – many banks, several microfinance institutions, and the public sector Banca de las Oportunidades program were present. The financial inclusion market segment is increasingly contested territory in Colombia, and every major bank has had some experience trying to create products and channels to reach it.

To launch the conversation, we asked several experts to recount their experiences in introducing “client-centric” innovations, bringing in the work of additional organizations, this time associated with the U.S. West Coast – Stanford and Silicon Valley. Included were proponents of human centered design and Juntos Finanzas, an entrepreneurial start-up that uses data analytics to provide tailored financial capability messages to clients of financial institutions. Finally, two more homegrown experiences from the Accion Latin America network were represented – one involving savings and the other financial education for microinsurance.

Some lessons immediately popped out. In several cases, well-crafted products, designed with deep understanding of client behavior were not implemented due to snags encountered inside the implementing financial institutions. And even those that succeeded faced major challenges before gaining a secure place within their organizations. Challenges ranged from changes at the CEO level, to pressure for faster return on investment, to unsupportive frontline staff.

We thought this needed further exploration, so we posed some hypothetical products with integrated behavioral insights and asked participants in small groups to assume the roles of various actors within a financial institution. Each group’s task was to design and roll out the proposed products. It was at this point that participants began to talk over each other. The legal department and the IT department, the HR department and the finance department, the product department and the marketing department – everyone had crucial and legitimate issues, each needing solutions before the product could proceed. At that stage the behavioral experts in each group tended to step back and watch the simulated institutions battle it out internally as questions about behavioral economics took a back seat to the practicalities of implementing change inside institutions.

The overarching takeaway of the day was that no matter how inspired or close to the client, good product design is only the first step toward a successful offer. Experts who bring important new insights cannot assume that their work ends with product design. As Gerhard Coetzee wrote in this blog space on the very same day as this workshop, a new product is primed for success only after thorough analysis of the inner workings of an institution and a plan is aligned with the interests of its various areas. Behavioral insights and other customer-oriented product features must make it through the “noise” within the institution, competing with all of the other things a bank must attend to in order to survive.

From my (perhaps biased) position as someone who has worked at Accion, this kind of analysis and planning is exactly the know-how Accion has built up over the years as it has worked to build healthy microfinance institutions. Accion, for its part, has not particularly embraced behavioral economics insights. So opportunities for mutual learning exist.

Many specific lessons emerged from the day’s discussion, and we would like to continue to share them with you. CFI will assemble them into a brief note within a few weeks. Please stay tuned.

Have you read?

Kate McKee: On the Behavioral Economics of Poverty and Implications for Financial Inclusion

Behavioral Approaches to Product Innovation at the Base of the Pyramid

Financial Capability Stakeholders Join J.P. Morgan in New Solutions Lab

“Everything should be as simple as it can be, but not simpler.” This aphorism credited to Albert Einstein inspires our call to Lean Research.

Two Fridays ago at MIT a group of 50 of us met to hash out some principles that, if followed, might generate better research in development and social science contexts. NGOs, universities, foundations, corporations, government, and multi-lateral agencies were represented in our group.

Our analogy of choice was Toyota. If “the Toyota way,” or lean manufacturing as it has come to be called, could cause profound and beneficial disruptions in production processes, might lean research cause equally profound and beneficial disruptions in research processes?

Much of our discussion that day traveled along four paths, which grew into a starter set of principles:

Lean Research is right-sized. The sample and method are perfectly suited to the research objectives. Unnecessary questions are cut, and necessary activities are added in. It also means much homework must be done to ensure the study is necessary at all and that the information could not have been gathered through secondary research or through key informants.

Lean Research is relevant. The information gathered must be understandable to a wide range of stakeholders, including the subjects researched. It must be accessible and actionable, able to drive changes in policy or practice. Again, this means much homework must be done before the research even begins. Researchers must identify stakeholders who will actually use the information.

Lean Research is respectful, even delightful. Human subjects might enjoy a six-hour interview during harvest or they may not. Enjoyment depends on the benefits they get from the research experience (in Lean Research, we assume every research is a treatment). How do we maximize the experience of the human subject to get better, more accurate results?

Lean Research is rigorous. As one of our colleagues from MIT’s JPAL said: the most respectful research is rigorous. And that is true. Research that uses faulty protocols is a complete waste of a subject’s time and undermines findings that could advance knowledge. Lean Research does not permit cutting corners. Samples must be representative of the population, and methods unbiased. The research must be reproducible.

Alex Counts of Grameen Foundation goes a step further to ask: how do we give subjects the chance to rebut or confirm findings from their perspective (see this for his ideas)? He also proposes an annual top ten examples of research that has driven practice and/or policy, which seems like a great idea.

What does this all have to do with financial inclusion? First, many folks in the room represented institutions that dealt directly with financial inclusion such as Bankable Frontier Associates, CGAP, The Bill & Melinda Gates Foundation, SEEP, The MasterCard Foundation, and MasterCard Worldwide.

Second, it was easy to see how Lean Research principles might guide intelligence gathering in financial inclusion. For example, if a large-sample survey produces roughly the same evidence as a series of financial diaries, then such a survey may be more right-sized (efficient), while still following a rigorous system of protocols. If a study team has the objective of helping an MNO and a bank to develop a successful mobile money platform, then the team is obliged to find the result categories that are actionable or relevant, before even conducting the study. In fact to inform the study design, they must map backward from the go/no-go decisions that suppliers would need in order to take their next step. In terms of respect of the human subject, how about this example?

A gift that people like – but rarely get – is a portrait. So during the second round of our survey, we took individual portraits of each grain trader (415 in all) and then distributed them during the debriefing phase. When I visited one trader he said “But how does this help me? I have four wives so I need one for me and one for each of them!” (And the researcher, Dr. Jenny Aker complied.)

The next steps of our initiative are emerging. Several participants volunteered to crystallize Lean Research principles and guidance in a clear, readable way, so that they could form a kind of checklist. Others wanted to push forward the idea of a prize for Lean Research. A few agreed to identify research that are starting soon so that they may press them through the Lean Research sieve, with peers commenting along the way. MIT and Tufts are interested in convening a process mapping of the experience of the human subject, just as one would map a consumer experience. We are confident that other expressions of Lean Research will bubble from our participants and we hope from well beyond those who could attend.

If you are reading this post and were not among us on August 1 but would like to be part future conversations, please contact us: leanresearch-admin@mit.edu.

Kim Wilson is a lecturer at The Fletcher School and a Fellow with the Center for Emerging Market Enterprises and the Feinstein International Center at Tufts University.

Have you read?

The Holy Grail of Microfinance Research?

Measuring (and Missing) Financial Inclusion

Measuring Financial Inclusion: The “Basic Set” Solution

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I am a sometime skeptic about the proliferation of microfinance conferences, but the upcoming Microcredit Summit in Merida, Mexico seems particularly important and timely. Personally, I am very excited about it. (In the spirit of full disclosure, I should add that I will be a speaker, and of course piqued vanity can certainly lead to bias, but I don’t suspect this is the case here.)

After reading the recently-released 2014 Microfinance Banana Skins report, which I think is excellent, I couldn’t help but come away with the feeling that the practitioners, regulators, and investors who listed the 19 risks confronting microfinance, leading with overindebtedness, missed a most important risk. Not that the risks like poor governance, overindebtedness, and staff competence that are enumerated in the report are not incredibly important; they certainly are. But I would argue that a failure of vision for a better world is the mother of all risks and that without vision, stagnation and decline inevitably set in.

I believe that financial services that MFIs provide are instrumental in helping the poor have better lives, but I also believe that they should never be seen as an end in to themselves. The Microcredit Summit Campaign shares this client-centric outlook. While sustainability and profitability are certainly important measures of an MFI’s success, it is of precious little importance if the poor client, “the end user” does not achieve a better quality of life – or at least have a chance for such.

Of course I am well aware that the advent of randomized control trials (RCTs) as discussed in the new Banana Skins eviscerated some of the triumphalist claims of the 1990’s and 2000’s of microfinance as the sine qua non of poverty alleviation tools. The extravagant claims of some in the industry do us no favors when they boast of “lifting millions of people out of poverty,” or putting “poverty in a museum,” as Muhammad Yunus once proclaimed. But as one of the RCT doyennes Esther Duflo (of the Poverty Action Lab at MIT) says, this does not mean that microfinance is not making an important difference in the lives of the poor.

Indeed, if poverty is made more bearable, if children of our clients have slightly better prospects than their parents, that is an achievement to shout about from the rooftops. Incremental change, not utopian change, is still change and is far better than sitting on our hands doing nothing. We live in an imperfect world and very few reforms in any realm lead to conclusive slam dunks – whether it’s in education, health delivery, or poverty reduction.

But back to why I am enthusiastic about the upcoming Microcredit Summit. To put it simply, more than any other microfinance conference I know of it keeps the idealism of the industry’s founding mothers and fathers alive. It is not afraid of having a vision for a better world and holding microfinance practitioners accountable as change agents.

Indeed, at the 2013 Summit in Manila the Campaign asked for Campaign Commitments from attendees to improve the lives of the poor in some concrete, tangible way. In line with the mission of the Campaign and the Summits, commitments declared the ways that the attending institutions and organizations would help 100 million families lift themselves out of extreme poverty and thereby make a major step forward in ending poverty by 2030.

For our part, the Center for Financial Inclusion committed to publishing a series of disability inclusion tools and trainings, developed with our strategic partners Fundación Paraguaya and Handicap International, for use by MFIs around the world. We also committed to customizing the Center’s Roadmap for Disability Inclusion for the Indian MFI market, implementing it at three MFI partners, and then disseminating these findings around India.

We have taken this commitment seriously and are doing our best to fulfill it by the end of the calendar year.

Other commitments included:

• Microfinance Council of the Philippines: By 2014, conduct and capacitate the Council’s members on social audit and client protection tools including standards on social performance management.
• BRAC Tanzania: By the end of 2014, double the number of both clubs and participants in the Empowerment and Livelihood for Adolescents program from 180 clubs reaching 7,600 girls to 360 clubs reaching 14,800 girls.
• The Arab Gulf Program for Development (AGFUND): Open an AGFUND bank in the Sudan by the end of 2013, as well as two new AGFUND banks in Palestine and the Philippines by the end of 2014.

If the Summits’ rhetoric sometimes seems a little grandiose, I personally quibble with the language of “lifting themselves out of extreme poverty,” as you might guess. Though to me this is a venial not mortal sin. What would a mortal sin be? Being so weighed down by cynicism that a dream for a better world becomes a subject of quiet irony or outright derision.

The Microcredit Summit Campaign reminds all of us that the success of our MFIs is ultimately measured by whether they extend responsible financial services to more of the unbanked so that they have a chance to improve their lives. It is the wellbeing of the client that must always come first. If we lose sight of that, we might as well go out of business.

Click here to learn more about the plenary session “Reaching the Excluded” and other topics presented at the Summit.

Have you read?

To End Extreme Poverty? Focus on Integrated Services

Microfinance CEOs Make Six Major Commitments at 2013 Partnerships Against Poverty Summit

The Financial Inclusion 2020 Global Forum: A Letter to Microfinance Institutions