Roughly half the adults in the world, about 2.5 billion people, have no bank account nor even access to a “semi-formal” financial service like microcredit. But what if they did?

In the June 10, 2011 issue of Science, Karlan and Zinman report on a randomized evaluation of microcredit in the Philippines. This article by Jonathan Morduch weighs in on the results of the Karlan-Zinman study and helps establish new frame for thinking about the ways in which microcredit can helping poor families borrow and manage cash flow.

Emergencies can derail families and prevent them from getting ahead. This study describes the design, implementation, and results of a pilot emergency (“hand”) loan product in India. The product achieved its original intent, but the pilot encountered considerable institutional and execution challenges. The experience generated lessons for future product innovation.

Can the poorest be reached with finance? “Ultra poor” members of society face a series of constraints and deprivations that distinguish them from the general poor. Limited social networks, chronic malnutrition, and reliance on patronage systems characterize a socioeconomic class that is hard to “bank.” Research now indicates that most microfinance institutions serve poor and lower-income customers, but not the poorest. In a new FAI Framing Note by Jonathan Morduch, “Targeting the Ultra Poor” discusses why the most disadvantaged citizens are missed by a system intended to serve the poor, reviews pilot programs that target the ultra poor in Bangladesh, India, and Haiti, and offers a preliminary assessment of the impacts these programs are having.

Randomized experiments are an increasingly popular way to evaluate the impacts of development interventions. They provide hope that we can overcome important biases common to nearly all statistical evaluations. When done well, randomized control trials (RCTs) can provide clear, transparent, and credible evidence in complicated contexts, but their design and implementation is subject to a number of challenges. This note reviews some of the technical issues surrounding RCTs, describes four examples from microfinance, and discusses their advantages and drawbacks relative to other evaluation approaches.

This Framing Note is the fourth in a policy series by the Financial Access Initiative exploring various dilemmas which policymakers face across several topics of great importance to financial inclusion. This paper describes the contours of the interest rate policy dilemma, updating previous sources with new theory about consumer behavior and new evidence from the demand side about how clients respond to interest rates; and from the supply side as to what drives the setting of rates. The focus here is not on interest rate policy in general, which would include its use in monetary policy, but rather the interest rate control regime applied especially to small or micro loans.

La conciencia pública sobre la inequidad global ha sido elevada por grupos indignados de ciudadanos, periodistas, políticos, organizaciones internacionales, yestrellas del pop. Los diarios informan regularmente sobre las tendencias de las tasas de pobreza en todo el mundo y sobre campañas globales dirigidas a reducir esas tasas a la mitad. Un ingreso diario de menos de dos dólares por persona se ha convertido en un indicador ampliamente reconocido para definir a los pobres del mundo. El Banco Mundial cuantificó 2,700 millones de personas en esta categoría en 2001 – dos quintas partes de la humanidad. Entre estos 2,700 millones de seres, los 1,100 millones más pobres a duras penas sobrevivían con menos de un dólar al día.

Para quienes no tenemos que hacerlo, es difícil imaginar cómo es vivir con un ingreso tan pequeño. Ni siquiera tratamos de imaginarlo. Suponemos que con ingresos en estos niveles tan imposiblemente bajos, es muy poco lo que los pobres pueden hacer por sí mismos más allá de sobrevivir de manera precaria. Sus posibilidades de salir de la pobreza deben depender, asumimos, ya sea de la caridad internacional o de su eventual incorporación a la economía globalizada. Los debates públicos más acalorados sobre la pobreza en el mundo, por lo tanto, son aquellos sobre los flujos de ayuda y la condonación de la deuda, y sobre las virtudes y los vicios de la globalización. La discusión sobre lo que los pobres pueden hacer por ellos mismos se oye con menos frecuencia. Si es difícil imaginar cómo sobreviviría uno con uno o dos dólares al día, es aun más difícil imaginar cómo se podría prosperar.

Microcredit markets in many regions are becoming more competitive. This is generally a good thing for borrowers.

These two commonly heard statements raise a number of questions for policy makers: How to measure the intensity of competition over time? And is competition among lenders always a good thing for borrowers? Or do credit markets, and microcredit markets in particular, have any special features which may change or modify the conventional view of competition? If so, what tools do regulators have to promote competition? The FAI Focus Note “Competition Policy in Microcredit Markets” provides some initial answers to these questions for policy makers who wish an introduction to the issue. To do this, the Focus Note combines general competition theory and policy with evidence from credit markets and microcredit in particular. Since competition involves winners and losers, the regulator’s dilemma here is identifying and making the tradeoffs necessary to find a level of competition appropriate to the stage of market development and in line with national objectives.

The first global estimate of its kind reveals that 2.5 billion adults do not use formal services to save or borrow.  Who are these ‘unbanked’ populations? Where do they live? How do they survive? And what lessons do these estimates hold for policymakers working to improve levels of financial inclusion for poor populations?

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This Framing Note is also available in Spanish and in French.

La première estimation de son genre démontre qu'il y a 2,5 milliards adultes qui n’utilisent pas de services financiers formels pour épargner ou emprunter. Qui sont ces populations non desservisses? Où est-ce qu’elles habitent ? Comment est-ce qu’elles y survivent ? Et quelles sont les leçons de ces estimations pour les décisionnaires qui cherchent augmenter les niveaux d’inclusion financière des populations pauvres ?