The Webinars Edition
Editor's Note: There are several webinar links below, but let me start with a couple that are upcoming and worthy of note. On October 28th, we'll have the next edition of the faiVLive, focused on savings—specifically, what we've learned about how poor households save, and how much we still don't know about how to effectively support savings. I'll be joined by Jonathan, as well as Jessica Goldberg (development economist at UMd), Gen Melford (Aspen Institute's Financial Security Program), and Jonathan Lee (Neighborhood Trust Financial Partners). As the guest list implies we'll be talking about this from both a US and developing country perspective. Register here.
Also, if you're from the development wing of the faiV readership, don't forget to register for virtual NEUDC, coming up November 6 and 7.
Since so many of you were very interested in my links questioning resilience a few weeks back, and since I don't have space for another item in this edition, here's what looks like a great new paper: A Scoping Review of the Development Resilience Literature: Theory, Methods and Evidence (short version: resilience is too ill-defined as yet to be all that useful).
Oh, and I missed you.
–Tim Ogden
1. Microcredit:
A funny thing happened in the microcredit impact wars. For decades the dominant view in the practitioner community, most vocally from Grameen Bank/Grameen Foundation, was that impact evaluation, particularly RCTs, were a waste of time and money—there was ample evidence of people escaping poverty because of microcredit just by visiting some borrowers. Customers repaid their loans, and borrowed again, and you could find borrowers prospering by just walking around and talking to a few. That view eventually became untenable for a variety of reasons I won't rehash here, and we got a raft of microcredit impact evaluations published back in 2016, with a consistent message: the average borrower doesn't see much gain in income, but doesn't seem to be harmed; a few borrowers seem to see large gains. There's lots of nuance hidden in there, but I don't think anyone was holding their breath for another impact RCT.
And then there was one! Sponsored by GrameenUSA! Of a loan product that looks a lot like microcredit internationally: $500 to $1500 loans to women in groups.
I wish we had Eva Vivalt's prediction platform for social science in operation when this launched, because it's impossible to say now whether the results are surprising, or completely unsurprising. The bottom line: After 18 months participants saw increased income from businesses they ran, but there were no effects on overall income since borrowers reduced the amount of wage labor they did. Which is very similar to what the international RCTs show, especially when read in conjunction with Emily Breza and Cynthia Kinnan's paper on the effects of withdrawing microcredit. Plenty of questions linger, not least of which is that participants report lower levels of material hardship, but the unquestionably surprising thing is we now see a Grameen entity broadcasting an RCT that shows no impact on income. If you're interested in more about this RCT and how to make sense of it in relation to the international results and where we go from here, Jonathan and I had a 30 (okay, 40) minute conversation about that as part of CFI's Financial Inclusion week.
2. Microfinance:
The questions that are top of mind for everyone in microfinance these days, though, are probably less about impact than they are about survival. And there are a lot of different questions. For instance, what happens to borrowers as hastily imposed moratoria come to end? FAI's visiting fellow Beth Rhyne has a new post about that at CGAP. As Beth points out, the interaction between stressed borrowers and stressed lenders is key, but hard to predict. The Pakistani microfinance CEOs we interviewed as part of our paper back in the spring were already worried about that.
Another question is what is the real liquidity situation and portfolio quality of MFIs now? I'll admit I was really surprised at how well positioned many MFIs were in terms of liquidity when the pandemic first hit. But six months without repayments and new lending has a way of changing the picture. Here's M-CRIL's synthesis of their liquidity analyses in South Asia. But as they point out, the liquidity situation is completely dependent on what happens with repayment and whether an MFI can and does restart lending. Forecasts on those factors are probably not yet worth the paper they are printed on.
That's had me thinking. What happens for individual MFIs, the sector in a particular country, and the sector as a whole is a highly contingent dynamic process: repayment rates depend on what both individual customers do and how they react to the behavior of other customers, the behavior of customers is dependent on what the MFI they are borrowing from and other MFIs do, which is dependent on what customers and regulators and other MFIs do, as well as what investors do, which is dependent on all of those factors as well. The likelihood of good outcomes, I think, is unfortunately dependent on good data on each of these factors, while individual actors will have good reason not to disclose the data they have. What to do?
I've been contemplating something I'm thinking of as "the Sentinel Project": a group of knowledgeable researchers and analysts of the sector who will conduct ongoing interviews with leaders of important MFIs to gather information on what is happening. I don't think a general survey will do the job--we need in-depth, nuanced information from actual (only semi-structured) interviews. Those interviews will be confidential while the crisis is ongoing but anonymized analysis of what the group is hearing could be shared. Later, say a year from now, once disclosure won't affect the viability of the MFI (they either survived or they didn't) those interviews could be turned into case studies which would be very very useful for the future evolution and development of the sector. If you would be interested in a) being one of the researchers or analysts conducting the interviews, b) being one of the MFIs that is interviewed, or c) providing some funding for such a project (I don't think it would take much money), please reach out.
Now, back to the questions about what happens next. Another is about digitization and how it interacts with the pandemic. You know I have some concerns on that front. On Tuesday, I was part of a webinar put on by FinDev Gateway, nominally based on the new-ish Future of Microfinance book I contributed to, but mostly focused on digitization. I lost my temper a bit. You can watch the recording here.
3. Digital Finance:
That's as good a transition as any to touch on some of those concerns particularly. First, here's an overview on mobile money from Kelsey Piper at Vox, where I try to play the cautionary voice: the rapid growth of mobile money in some countries should not have shifted base priors about technology adoption so much.
You know that I worry a lot about security. Here's a story about how hackers in Uganda stole $3.2 million via lots of small mobile money transactions that were then immediately cashed out. The most important detail is that the weak point of entry into the system was a fintech firm, the people who should be the most secure and capable of preventing something like this. This isn't just an emerging markets problem. DFS fraud is apparently rising quickly in the US on platforms like Venmo and Square's Cash app. Those scams are largely based on users making mistakes, but keep in mind these are users that are likely far more familiar with technology than the average user in developing countries. And what happens when money is stolen? Shall we say the customer service of fintechs leaves a bit to be desired.
Keep in mind that this isn't just about setting up complaint lines or training customers to better avoid scammers. The number of points of entry that are well beyond the individuals ability to control are large. Say for instance a flaw in the Snapdragon chip that powers more than a billion Android phones which allows data to be stolen.
Beyond security, there are other things I worry about as well. Specifically, as Greg Chen put it in our webinar on DFS, that digital can be a bridge to include some people who are not yet included and at the same time be a moat excluding those it doesn't reach. Here's a new paper examining agent banking transactions in DRC finding that women have a "robust preference" for transacting with women agents. Well, that's fine. All we have to do is recruit more women agents. Except that it's a little more complicated than that. Here's a new paper from Francis Annan on agent transactions in rural Ghana, which finds that 20% of transactions are overcharged. And that women agents are 40% more likely to overcharge, and it's their female customers that they overcharge.
The issue of access remains very important. The basic infrastructure of electricity and cell towers still doesn't exist in many rural areas. And the same issues that make those areas costly to serve physically, makes it costly to build out and maintain the digital infrastructure to lower the marginal costs of transactions: they are remote, with poor access and low population density. Remember that we haven't come close to solving the rural digital divide in countries like the US and UK.
The point is not that digital finance can't or won't help. It's that digital finance has as many challenges as traditional finance—and if we are blind to those challenges or don't take them seriously then digital finance won't fulfill its promise. If we do take them seriously, DFS can be an important tool to augment and extend the work of financial inclusion. What does taking those challenges seriously look like? After being a bit discouraged on Tuesday morning, I got a boost of hope Tuesday afternoon via, you guessed it, a webinar. It was put on by Aspen FSP, SaverLife and Neighborhood Trust Financial Partners and detailed the reality of what taking the challenges of digital seriously [passcode: p0^9c?m%] (specifically in terms of making a cash grant and helping participants manage and spend it safely) looks like.
4. SMEs:
Way back when I was doing the interviews for Experimental Conversations, David McKenzie and I talked about the SME training literature. He had a paper with Chris Woodruff reviewing impact evaluations of business training programs, the majority of which didn't find an effect. My question to David was about why training "didn't work." David's response then, and in a webinar we did together back before they were cool (clearly its success is the cause of the current flood of webinars), was that the evaluations didn't show "no impact" but that they were underpowered to find a plausible level of impact, if you calibrated from typical education intervention effect sizes.
Now David has a new paper, re-examining that literature and a bunch of studies since. His meta-analysis of those papers finds an average increase in sales of 5% and in profits of 10%. That's a big change from "no effect."
But as you would expect from David, he doesn't stop there and goes on to look at the details of training, given that there are many ways to provide "training" and consider if there are ways to deliver effective training at scale.
But like microfinance, the issue that dominates people's attention right now is not the impact of business training but the survival of the SME sector. CFI's longitudinal panel of MSMEs has added data from Indonesia and Colombia to their data from Nigeria, with India still to come. The World Bank's "High Frequency Phone Surveys of Firms" has a new round of data for Ethiopia, finding that while firms' revenues have started rising, issues with supply chains and liquidity management are also increasing.
In the US, the primary mechanism for trying to help small firms was the Paycheck Protection Program. There were a lot of concerns that the program was not going to do what it was intended to do right from the start. And those worries have largely turned out to be right. The PPP process left out communities and entrepreneurs of color. That's in part because the way the program was implemented meant that making PPP loans to small firms was likely to be a money-losing proposition for banks—and that has turned out to be true as well. And that's before the bumbling around loan forgiveness that, absent further action, is going to cost both the businesses and their lenders more hours than anyone cares to count. Pro-tip: if you're trying to boost small businesses during a time of extreme uncertainty, don't do it with a program that leaves them uncertain if they're going to get the money, and when they do, uncertain how much and when they're going to have to pay back. What could be done to help small businesses, particularly entrepreneurs of color, now? Well if you've read this far, you're going to be very unsurprised to hear that I was part of a webinar put on by Aspen's Business Ownership Initiative looking at exactly that question. If you're as tired as I am of hearing me talk, here's the Hamilton Project's take on many of the same issues.
5. Crimes Against Humanity:
I've learned through our ongoing conversations with faiV readers that I can feel less pressure about covering everything. But there are some things that, for my own conscience, I have to make sure that I do what I can to make them known. And so, I can't ignore the concentration camps in Xinjiang. Or the fact that China is expanding the concentration camps to Tibet, because the world has shrugged at what it is doing. Less than shrugged. The United States ripped children from their parents, put them in cages and then lost the parents. Now more than 500 children may never see their parents again. Don't look away.
