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.
Type:
Framing Note
Date:
August 2010
Authors:
Jonathan Morduch
Country:
Bangladesh; India
Research Areas:
Reimagining Financial Access
Themes:
Ultra Poor
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Type:
Brief
Date:
June 2010
Authors:
Financial Access Initiative
Country:
Bangladesh
Research Areas:
Reimagining Financial Access
Themes:
Big Picture, Credit, Product Design
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Type:
Brief
Date:
May 2010
Authors:
Financial Access Initiative
Country:
Bangladesh; India; South Africa
Research Areas:
Reimagining Financial Access
Themes:
Big Picture, Consumer Protection, Product Design
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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.
Type:
Framing Note
Date:
January 2010
Authors:
Daryl Collins, David Porteous, Jeff Abrams
Research Areas:
Investment and Regulation
Themes:
Interest Rates
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This Framing Note is the third in a series exploring various dilemmas which policymakers face across several topics of great importance to financial inclusion. In the field of prudential regulation, as in the other areas of financial regulation discussed in the other Framing Notes in this series, policymakers therefore face another manifestation of the regulator’s dilemma: how to safeguard the health of the financial system, while encouraging access to financial services. The latter objective may require that there be a diversity of financial institutions with different risk and cost profiles but it is not easy to supervise numerous diverse entities. The dilemma is especially acute since small savers who have access only to informal often less stable alternatives, may be at greater risk of loss.
Type:
Framing Note
Date:
January 2010
Authors:
Daryl Collins, David Porteous, Jeff Abrams
Research Areas:
Investment and Regulation
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Describes finding from an experiment in rural India that suggest that the structure of microcredit loan contracts can help people with self-discipline problems who lack suitable savings products.
Access the full paper here.
Type:
Brief
Date:
December 2009
Authors:
Michal Bauer, Julie Chytilová, Jonathan Morduch
Country:
India
Research Areas:
Reimagining Financial Access
Themes:
Behavioral Economics
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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.
Type:
Framing Note
Date:
December 2009
Authors:
David Porteous
Country:
Global
Research Areas:
Investment and Regulation
Themes:
Credit
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The global financial crisis provides a sharp reminder of how weak lending practices not only affect the lives of many people but also can have severe systemic consequences. However, policies designed to protect may unintentionally restrict the extension of credit, especially to poorer borrowers.
While the financial crisis provides evidence of the need for greater consumer protection, adding costs and complexity to credit processes may slow renewed formal lending. Confronted by these growing pressures at a macro-economic level, policy makers and regulators face a “regulator’s dilemma”: how much and how to intervene in credit markets to protect not only those borrowers who already have access to formal credit, but also to protect access to credit itself. At the heart of successfully resolving this dilemma, as in all such dilemmas, is the process of carefully identifying and evaluating the trade-offs involved.
The FAI Policy Note “Consumer Protection in Credit Markets” advocates an evidence-based approach and provides pointers to help policy makers establish a regime of consumer protection appropriate to the state of development of different credit markets and in line with broader national objectives such as financial inclusion.
Type:
Framing Note
Date:
December 2009
Authors:
David Porteous
Country:
Global
Research Areas:
Investment and Regulation
Themes:
Consumer Protection, Credit
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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?
View and download accompanying infographic
This Framing Note is also available in Spanish and in French.
Type:
Framing Note
Date:
October 2009
Authors:
Aparna Dalal, Jonathan Morduch, Alberto Chaia, Tony Goland, Maria Jose Gonzalez, Robert Schiff
Country:
Global
Research Areas:
Reimagining Financial Access
Themes:
Big Picture, Participation, Research Methodology, Ultra Poor
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Using two new datasets, the authors examine whether the presence of banks affects the profitability and outreach of microfinance institutions. They find evidence that competition matters. Greater bank penetration in the overall economy is associated with microbanks pushing toward poorer markets, as reflected in smaller average loans sizes and greater outreach to women. The evidence is particularly strong for microbanks relying on commercial-funding and using traditional bilateral lending contracts (rather than group lending methods favored by microfinance NGOs). The authors consider plausible alternative explanations for the correlations, including relationships that run through the nature of the regulatory environment and the structure of the banking environment, but fail to find strong support for these alternative hypotheses.
Access the research brief here.
Type:
Paper
Date:
September 2009
Authors:
Robert Cull, Asli Demirgüç-Kunt, Jonathan Morduch
Country:
Global
Research Areas:
Investment and Regulation
Themes:
Big Picture, Commercialization & Subsidy
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The authors describe important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, they find a basic tension between meeting social goals and maximizing financial performance. Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices – and thus embracing and weighing tradeoffs carefully.
Type:
Paper
Date:
September 2009
Authors:
Asli Demirgüç-Kunt
Country:
Global
Research Areas:
Investment and Regulation
Themes:
Commercialization & Subsidy
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A review of recent innovations that are improving the quantity and quality of financial access. Authors relate the innovations and empirical evidence to theoretical ideas, drawing links in particular to new work in behavioral economics and to randomized evaluation methods.
Access the full paper here.
Type:
Brief
Date:
June 2009
Authors:
Dean Karlan, Jonathan Morduch
Research Areas:
Reimagining Financial Access
Themes:
Big Picture, Insurance, Research Methodology, Savings
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This note reviews innovations in the provision of credit.
Type:
Framing Note
Date:
June 2009
Authors:
Dean Karlan, Jonathan Morduch
Country:
Global
Research Areas:
Mechanisms Matter
Themes:
Big Picture, Credit
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This note reviews why risk management is both important and difficult for the poor, and how access to insurance is being expanded.
Type:
Framing Note
Date:
June 2009
Authors:
Dean Karlan, Jonathan Morduch
Country:
Global
Research Areas:
Mechanisms Matter
Themes:
Big Picture, Insurance
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This note reviews ideas and evidence about expanding access to saving products.
Type:
Framing Note
Date:
June 2009
Authors:
Dean Karlan, Jonathan Morduch
Country:
Global
Research Areas:
Mechanisms Matter
Themes:
Big Picture, Savings
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Replication of seminal studies on the impact of microfinance.
Access the research brief here.
Type:
Paper
Date:
June 2009
Authors:
Jonathan Morduch, David Roodman
Country:
Bangladesh
Research Areas:
Measuring Impact
Themes:
Credit
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Foreword to The Pledge: ASA, Peasant Politics, and Microfinance in the Development of Bangladesh, by Stuart Rutherford
Type:
Brief
Date:
August 2008
Authors:
Jonathan Morduch
Country:
Bangladesh
Research Areas:
Reimagining Financial Access
Themes:
Big Picture
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Type:
Framing Note
Date:
December 2007
Authors:
Dean Karlan, Sendhil Mullainathan
Research Areas:
Mechanisms Matter
Themes:
Credit
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The “m-Finance” appeal rests on two possibilities: (1) mobile phones will allow banks to conduct business more cost-effectively, and by cutting costs, the technology will make it feasible to reach a broader population; and (2) mobile phones and related technologies will alter the nature of banking relationships themselves, and doing so will mean going back to the basics and rethinking assumptions about the financial demands of poor households. Economists Kappor, Morduch, and Ravi explore the mobile technology revolution and discuss its application for improving banking services for the poor.
Type:
Paper
Date:
April 2007
Authors:
Jonathan Morduch, Shamika Ravi, Mudit Kapoor
Country:
Global
Research Areas:
Reimagining Financial Access
Themes:
Product Design, Technology Adoption, Ultra Poor
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Type:
Paper
Date:
November 2006
Authors:
Dean Karlan, Jonathan Zinman
Country:
Global, Global
Research Areas:
Mechanisms Matter
Themes:
Credit, Interest Rates, Marketing
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Highlighted Publications
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Type:
Framing Note
Date:
October 2009
Authors:
Aparna Dalal, Jonathan Morduch, Alberto Chaia, Tony Goland, Maria Jose Gonzalez, Robert Schiff
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