Last night FAI had the pleasure of co-hosting a lively and informative panel discussion on the impact of cash transfers in international development with the Microfinance Club of New York. The panel (moderated by FAI's Timothy Ogden) included Paul Niehaus and Jeremy Schapiro, co-founders of GiveDirectly, Jenny Aker, Assistant Professor of Development Economics at The Fletcher School, and Johannes Haushofer, Assistant Professor of Psychology and Public Affairs at Princeton University.
As is to be expected when you mix practitioners and academics, the evening's conversations had a good mix of thoughtful insights, debates, and allusions to other bodies of work for futher research. Below is a list of what was mentioned as well as some additional items we feel are a nice complement for the issues raised by the panelists, including a new FAI infographic showing what we know so far about microcredit. . .
Read MoreA new paper by Chris Blattman (Columbia) and co-authors provides optimistic new evidence on the returns to providing cash grants to impoverished women in northern Uganda. The new experiment varied whether the ultra-poor, largely women, were offered a business grant worth $150, training and supervision, and found dramatic impacts of the cash grant on entrepreneurship, hours worked, individual earnings, and household consumption.
The paper stands out from previous studies in that it finds strong positive impacts for women, and that it does so among the most impoverished people in the village. Only those people identified by a local nonprofit as the poorest fifteen people in each village (86 percent of whom were women) were eligible for the study. Previous studies of cash and in-kind small enterprise grants delivered to women in Sri Lanka and in Ghana find more mixed effects. Grants to female-owned microenterprises had, on average, no impact in Sri Lanka, and in Ghana, only in-kind grants or grants made to initially more profitable female microenterprises appeared to benefit recipients . . .
Read MoreUnderlying, sometimes deeply underlying, much of the conversation about financial services for poor households is the question of how much control poor households have over their lives and how capable they are of making good choices. The Yunus theory of microcredit assumes that the poor have a great deal of control--the only thing they lack is credit. Once they have it, they can make smart, informed choices about how to use capital to improve their lives. The growing enthusiasm for cash-transfer-style programs is built on similar foundations. Paul Niehaus, one of the founders of GiveDirectly, a new charity that focuses on unconditional cash transfers for poor households in Kenya (if you don't know GiveDirectly, do listen to the This American Life story about them), often talks about a core motivation of the approach being the belief that poor households know better how to spend cash than outsiders do. . . .
Read MoreThe original theory of microcredit was that it offered the opportunity for poor households to create profitable microenterprises. But there were always households left behind—those that were too poor to create a microenterprise or plausibly repay even the very small loans on offer.
One attempt to address these households, usually called the “ultra poor,” was to create an asset transfer and training program that would allow them to “graduate” into standard microcredit. BRAC’s Targeting the Ultra Poor program is perhaps the best known of these. Evaluations of TUP-style programs have been mixed – with some showing no effect and others strong effects. It seems that a major factor is local labor markets—when ultra poor households have good wage labor alternatives, asset transfers do not help much. When local labor markets are thin or non-existent, asset transfers can make a big difference . . .
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 . . .
Read More"Half the World is Unbanked" for the first time presented data proving that more than 2.5 billion people (half the world’s adult population) don’t have access to a bank account. Many of these individuals fall into a category we typically call “the poorest of the poor.” In the past five years, FAI and other researchers have set out to find out if this population can be helped—and how.
Those making less than $1.25/day have been called the “ultra poor.” They are members of society who face a series of constraints and deprivations that distinguish them from the general poor. Research now indicates that most microfinance institutions serve poor and lower-income customers, but not the poorest . . .
Read MoreA previous post introduced projects that focus on ultra-poor households, in Bangladesh and India. The post ended with a promise to share the results of the impact evaluation of the project implemented by SKS in Andhra Pradesh, India. The results I share here are preliminary. Additional data and finer analyses are on the way, but I wanted to deliver on that promise.
In a nutshell, the Targeting the Ultra-Poor (TUP) projects being implemented around the world are an attempt to reach destitute households, who are often too poor to participate in microfinance, and help them create a sustainable livelihood based on a modest economic activity. Participants receive food, free health care, training, savings help, and assets (a cow, a few goats, working capital to start a small business) over a period of 18 to 24 months. The programs are not microfinance programs, both because of the population that they target and the activities that they include. Their main goal is to attack ultra-poverty holistically, although they also aim to help successful participants take advantage of microfinance . . .
Read MoreIt may seem callous to segment people living on under $2 a day—there’s no doubt these people are poor—but its an important thing to do. The daily realities of life for someone living on less than a dollar a day are quite different from someone earning $1.75 a day. Income also doesn’t capture the whole picture. Assets, in the shape of anything from furniture to jewelry to land to livestock, or the lack thereof play a big role in the daily quality of life of people living under the $2/day threshold. That’s why within the microfinance community there is a distinction between the poor and the ultrapoor. While there are many different definitions that vary by country and culture, you can think of the ultrapoor as women-headed households (often widows) with little or no land or livestock who earn under a $1 a day. Microcredit has never been a good product for the ultrapoor, who unlike those slightly higher up the ladder are close to living hand-to-mouth.
BRAC, an NGO commendable for its commitment to monitoring, evaluation and research, created a program to target the ultrapoor with the hope of helping them “graduate” into microfinance clients. The BRAC ultrapoor program involved, among other efforts, transferring assets (such as livestock), cash transfers, education (such as health/hygiene, animal husbandry, financial literacy) and assistance with building savings. The results of BRAC’s ultrapoor program have been promising, prompting the replication of the basic model in 10 different contexts, with assistance from CGAP and the Ford Foundation.
Results of evaluations from two of those replications in India (programs run by Bandhan and SKS Foundation) were presented at the conference. Both of the programs were explicitly modeled on the BRAC program.
Both programs showed encouraging gains for the beneficiaries . . .
Read MoreIn a previously posted video, FAI’s Jonathan Morduch talks about providing the “ultra poor” – people who live on $1.25 a day or less – with financial services.
As Jonathan said, BRAC’s program, Challenging the Frontiers of Poverty Reduction – Targeting the Ultra-Poor (CFPR-TUP), has been a trailblazer in reaching extremely poor households. At the same time, the question of the program’s impact must be taken up more rigorously. BRAC has made valuable efforts to measure the impact of this program, and published several working papers providing insights into whether and how CFPR-TUP works. A new working paper came out in June 2010, investigating the long-term impacts of the program with panel data.
These evaluations, however, did not rely on a randomized controlled trial methodology (RCT). . .
Read MoreCan 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."
Read More“Can magical microfinance eradicate poverty?” asks India’s Financial Express this week. Magical. Herein lies the problem that microfinance faces today. Recent researchhas revealed that microfinance might not be what we thought – or what many hoped it was. It turns out we still haven’t proven that microfinance eradicates poverty, improves health, education levels, women’s empowerment, or achieves any number of other development goals and dreams we had pinned on it. And maybe we never will.
But even if ultimately we find that microfinance doesn’t achieve these original objectives, this doesn’t mean it’s not achieving anything, and doesn’t add tremendous value to the lives of the world’s poor. Through the work of FAI and others, we’ve learned that increasing access to financial services might, for instance, allow poor people to do things like smooth out erratic income, prepare for emergencies, and plan for big ticket expenses like housing or weddings.
Of course it’s still early days . . .
Read MoreIt’s no secret few MFIs have had much success mobilizing the “poorest of the poor” into their programs. This failure has remained a persistent irritant in an otherwise phenomenally successful industry.
Microfinance advocates have generally taken one of two approaches to the problem...
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