Although micro-credit has been perceived as effective in reducing poverty, in reality, its impact has been modest. One reason could be that most microloans extended to the poor are term loans, which are not well-suited for borrowers with variable or risky income streams, for example, traders needing working capital for purchasing inventory, or farmers who earn lump-sum income after harvest. While the Indian government has been encouraging banks to provide credit in the form of over-draft, term loans continue to remain the predominant credit product.
In 2013, the Rural Financial Institutions Programme represented by GIZ and the National Bank for Agriculture and Rural Development (NABARD), partnered with Mann Deshi Mahila Bank to launch a new overdraft facility serviced through banking agents to traders and farmers selling groceries in rural markets in Maharashtra, India.
Read More“If you build it, he will come.” Unfortunately, this line that worked so well in Field of Dreams is less effective in the world of social enterprise. Simply producing and having the networks to distribute a product does not guarantee its success—to be successful, a product must address a customer need.
What better way to understand customers’ needs, wants, and limitations than to involve them in the design process? This customer-centric philosophy is also known as human-centered design (HCD). I work with Proximity Designs, a social enterprise that sells locally manufactured solar lanterns and low-cost irrigation products to smallholder farmers in rural Myanmar. Before we launched these products at scale, our team presented prototypes to farmers in the field. Farmers could see, hold, and operate the products and give us immediate feedback on size, color, weight, price, and wattage.
But when Proximity launched its microfinance services in 2010, we had to come up with a different approach . . .
Read MoreIn his recently published paper, “Accounting for the Poor,” MIT Economist Robert Townsend uses an impressive dataset to make the case for “accounting” for the economic contributions of the poor. Most interesting to me is how he analyzes this data to show the lifecycle and consumption needs of both the rural and urban poor – and shows that urban and rural lives are more intertwined than I had assumed . . .
Read MoreThis post is written by Bindu Ananth and Amit Shah. Bindu Ananth is President of the IFMR Trust and Amit Shah is Head of Business Intelligence at IFMR Rural Finance. They co-edited the recently published book “Financial Engineering for Low-Income Households.”
Five years ago when we set up the KGFS model of financial institutions in remote-rural India, we wanted to make a fundamental shift in the way financial services were offered to households. We wanted the organising principle to be suitability, i.e., how do we make sure that every single customer receives the portfolio of financial services that is most suitable given her needs and preferences? This is essentially what wealth managers are supposed to do for ultra-rich individuals but we wanted to do it for clients with a mean income of USD 1000 per year through staff with twelve years of formal education . . .
Read MoreLast month Oxfam America, Freedom from Hunger, and the Strømme Foundation released the results of a three year in-depth study evaluating their joint Savings for Change (SfC) program in Mali. The study, implemented by IPA and the Bureau of Applied Research in Anthropology at the University of Arizona, combined an RCT and ethnographic research techniques over a period of three years resulting in arguably the broadest and deepest rigorous evaluation of a savings program we have.
SfC currently operates in 13 countries in West Africa, Latin America, and Asia but the program in Mali is one of the largest. Since 2005, women in the program have formed small groups that meet regularly and require members to contribute to a joint savings fund. Members then take out loans from the pot at an agreed upon interest rate. At a predetermined annual date, the fund is divided among members and returns can be anywhere from 30-40% or higher. The timing of the payout usually coincides with planting season, festivals, or other periods when there is a greater need for increased cash flow. For this study, researchers randomly selected villages to receive the SfC program from a pool of 500. They also conducted ethnographic case studies and the quantitative data necessary for the impact evaluation . . .
Read MoreA very interesting microfinance experiment is in the new issue of the American Economic Review, one of the premier journals in the field (Published, but gated, version here. Ungated version here). The paper is by FAI Affiliate Xavi Giné, Jessica Goldberg (see her recommended reading on savings here), and Dean Yang. It's not often that microfinance makes the pages of AER; it's a testament to the work that Xavi, Jessica and Dean did to set up this experiment and their careful analysis of the data.
In brief, the experiment tested the effects of fingerprinting borrowers from a microcredit program in rural Malawi. I had the opportunity to interview Xavi and Dean (separately) for my upcoming book on economic field experiments and we talked about this work. I’ll let them explain the project and its implications in their own words . . .
Read MoreCritics of microfinance have knocked down an army of straw men in recent years, and 2011 was no different. But it’s high time for microfinance practitioners to stop being defensive. We know enough about the perils and potentials of poverty-focused microfinance to address the real needs of the poor.
Early champions, including Sir Fazle Hasan Abed of BRAC, Mohammad Yunus of Grameen and Ela Bhatt of India’s Self-Employed Women’s Association, recognized that financial services alone would not be sufficient to break the bonds of poverty. Critics of microfinance became more shrill in 2011, but as a recent article in The New Republic points out, “the growing backlash is in danger of overcorrecting.”
Going into 2012, the microfinance field faces three key challenges . . .
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