The Hiatus Edition
Editor's Note: It's been a bit more than four years that I've been writing the faiV and though I probably haven't had as many links as minutes in a year, it's a safe bet that there have been more than 200 faiVs and 4000 links in that time. So I took a bit of an unannounced hiatus for the month. I hope you missed the faiV.
If you did, and you'd be interested in being part of a feedback panel that we are putting together to help us make decisions about the future of the faiV, please just respond to this email. And if you missed us but think the faiV is already perfect, feel free to respond to say that, but more importantly, please tell a few friends and colleagues to subscribe.
In public services announcements, there are a couple of research funding opportunities that may be of interest to you: a) UNESCAP has a new RFP for evidence-based interventions to support women entrepreneurs (in Bangladesh, Cambodia, Fiji, Nepal, Samoa, or Vietnam); and b) ANDE and the Canadian IDRC have a call for Expressions of Interest on studying the experiences of women in venture accelerators in Latin America and SSA.
--Tim Ogden
1. Microfinance Update:
You're probably aware that I've been making the case that the current crisis has the potential to radically alter the modern microfinance movement, and endanger the existence of many of the institutions that have been created to serve low-income households over the last 40 years. The argument is simple: the pandemic and global recession endanger both the regular cash flows of MFIs and their access to capital simultaneously, something that had not happened before in the history of the modern movement. But if you were to look around for signs of an existential crisis, there honestly aren't many. Yet.
CGAP's Pulse survey is continuing to gather data from several hundred MFIs. Right now the results don't look that scary, but there are plenty of indications that things are going to bet worse before they get better. For instance, the median MFI in almost all regions thinks the sector in their country is in a worse position than "real stress." Here is Peter Zetterli of CGAP on the survey results so far, noting that "MFIs have largely averted a liquidity crisis", they still are depending on investors to be willing to restructure their debts. More importantly, a good portion of the liquidity is the result of the MFIs not making any new loans, which is neither sustainable for the institutions nor helpful to their customers. When we think about the effectiveness of regulatory responses in the space, we have to take into account that in general the goal for central banks in a major recession is not just to ensure that the "banks" don't fail, but that credit markets don't freeze up. So far we have very good news on the former, but very bad news on the latter.
And the good news could be very temporary. The charts in Peter's post show that a fifth of respondent MFIs have less than 5 months of operating expenses on hand. I think that's likely a rosy projection, and the actual situation is worse, but even if you take it at face value, a fifth of the sector defaulting on their investors and/or shutting down could very likely trigger a cascade of additional problems for the surviving MFIs raising their cost of capital and impairing their ability collect on existing loans.
The e-MFPs annual Compass survey on the state of the industry was repurposed this year to focus on the pandemic and its effects. The results show significant concern among MFIs, investors, and infrastructure providers, and the sense that the pandemic is going to have lasting effects on the sector. That may not be an entirely bad thing, of course; there are lots of ways the sector could change for the better. But when we asked during a recent webinar on the results of our study on the impact of the pandemic and lockdowns on microfinance in Pakistan, half of respondents said they were more worried now than they were 60 days ago. The bottom line: we're definitely not out of the woods yet, and my priors on this being an existential crisis have not changed yet.
And if you're in the mood for contemplating the history of the modern microfinance movement rather than the scary present, here's a new paper from Lily Geismer on the history of the modern microfinance movement from a US perspective, and particularly through the lens of the Clintons and the ideology of the Democratic Leadership Council...not something you see everyday.
2. Household Finance:
The new Compass survey illustrates, reassuringly, that the primary concern of most respondents is the effect of the pandemic on households. There is a lot to unpack there--and it's worth noting what a different world we live in than even a few years ago. The challenge now is not trying to figure out what is happening to the poorest households in the midst of the pandemic, but sorting through the wealth of near-real-time data we are getting. Here's an update from the Hrishipara Diaries, with a wealth (pun intended) of comparisons of how the crisis has played out for these Bangladeshi households since lockdowns began in March (the short version: after a near total stop to economic activity, things have recovered somewhat but are still 20% below "normal"); to make matters worse, now there is the worst flooding in 18 years in Hrishipara. There are several updates from the Garment Worker diaries looking at a very different population in Bangladesh, but with similar challenges, including rebounding but still depressed incomes and the need to cut back on food consumption to make ends meet. FinMark Trust has aggregated data from surveys in Kenya, Nigeria, Rwanda, South Africa, Uganda and Zambia on food security, income and health behaviors. And there's a lot more out there. Here's Rohini Pande, Simone Schaner and Charity Troyer Moore with data (and some policy advice) on how India's PDS shops are doing in distributing rations to those most at risk of going without food. Things seem to be working well so far, but more is needed to ensure that girls and women, and returning migrants, have access to this crucial safety net
There's also good, near real-time data coming from the US. Commonwealth has been following 56 families since early June with biweekly interviews. Their data shows that the enhanced unemployment benefits have been a critical lifeline for these households, but the implementation also created additional volatility and uncertainty for their incomes, complicating their financial management strategies (great convergence anyone?). And the policy-driven uncertainty doesn't show any signs of waning. The JPMorgan Chase Institute data shows how important those unemployment benefits were for consumption--spending for employed households fell 10%, but increased 10% for those that received the enhanced $600 a week benefit. Spending fell by 20% for those that had a substantial delay in getting that cash.
The consumption responses to the unemployment benefits have brought attention again to the idea of some form of guaranteed income. Mayors in a variety of large cities are looking to pilot guaranteed income programs. I'm particularly a fan of the ideas coming out of Newark. A well run guaranteed income program would do a lot to minimize volatility. On a related note, that income volatility has a much bigger impact on Black and Hispanic households--almost entirely through the channel of less liquid wealth. What to do about the racial wealth gap? One of my students (Trevor Smith) has a new paper with Sandy Darrity and other co-authors, estimating "total cost of slavery and discrimination" to African American enslaved people and their descendants.
3. SMEs:
We have talked before about the possibility that the economic shutdowns turn into a small business apocalypse, especially in more formalized economies. There remains plenty of troubling news on that front in the US. The uncertainty around openings and closings and uncertainty around the policy environment and supports are hard on households; they're even harder on small businesses. More and more of them seem to be giving up. There is likely going to be an avalanche of bankruptcies that could overwhelm the courts that are already operating at far from normal efficiency, creating further problems. And more of the businesses that are struggling with access to emergency financing, with declining revenues, with a lack of liquidity are minority-owned businesses. Of note, the bankruptcy code does not allow small businesses relief from rent--the full amount on the lease is due regardless of changing conditions and cannot be reduced. So landlords can sue small business owners directly if there was a personal guarantee--which there usually is for minority-owned businesses--deepening the damage of a business failure. If you want to know more about the challenges of delivering financing to these minority-owned businesses, check out this event from Aspen's Business Ownership Initiative (where I'm a fellow) on August 4th.
There's a lot less on what is happening with SMEs in other contexts, but there is some. Here's Microsave with a report on the impact of the pandemic on MSMEs in India. And here are some anecdotes about the experience of SME owners in Sub-Saharan Africa.
4. Poverty Traps:
This may be a stretch of a segue but I think the ongoing conversation about poverty traps in development economics ties the discussions of the challenges of volatility and uncertainty for households, the racial wealth gap and reparations in the US and the differential challenges of SMEs in the US and in other countries together. And there's some new discussions on that in the past week.
First, there's a paper by Balboni et al, with a newish version, that was presented at the NBER Summer Institute; here are the slides; here is a quick video discussion from Claire Balboni. The paper uses a TUP program that distributed cows to participants, finding large and persistent effects, to argue that there is a poverty trap that requires a "big push" investment to escape. There were some interesting discussions on Twitter of poverty trap-related findings in other research, for instance here, here and here. David Mckenzie, who has a paper with Art Kraay on poverty traps, responds here. The basics of the paper and response are that the possibility of poverty traps in rural and isolated areas is real, but it's much less plausible in places where people have more choices of labor and investment. I remain frustrated that a study of another TUP program which finds exactly that--that a big push doesn't have much differential effect when there are more labor market options--is underrepresented in the discussions. Of course, I am a bit biased about that paper.
That being said, I am inclined toward believing in a different sort of poverty trap that applies for both minority-owned SMEs in the US and SMEs in general around the world: it's just really hard to figure out what to invest in to generate consistent returns, especially in an environment with lots of volatility and uncertainty, and limited ability to take risk because of low wealth and limited access to finance. So it's not a poverty trap that can be solved by a big push of assets or capital, or not just by that big push. Whether that poverty trap exists and what we might do about it is something FAI is going to be spending a lot of time on over the next few years.
5. In Other News:
There are some important things happening in the world that don't have anything to do with the pandemic. Here are a few I'm trying to find time to pay attention to, because they likely matter a lot in the coming months.
Ethiopia has started filling the Grand Ethiopian Renaissance Dam on the Blue Nile, which could easily lead to war with Egypt. Years of talks have not led to any progress, but thankfully the news from the latest summit seems promising. Of course, what really matters is what happens during a drought, not during a year with heavy rains, when it's easier to contemplate a compromise that satisfies everyone. Oh, and in other dam news, there seems to be some possibility that the current largest hydroelectric dam in the world, China's Three Gorges Dam, might be buckling under historic flooding. That seems like a big deal, given the 100 million plus people downstream, not to mention the disruption to the already in tatters global economy.
Speaking of China and already in tatters global economy, trade war chances seem to be on the increase as the US potentially bans TikTok, closes the Chinese consulate in Houston under allegations of industrial espionage, and imposes sanctions on a number of other companies that have a pretty key role in some global supply chains because of their involvement in forced labor in Xinjiang. And did you miss the story about forced sterilizations of Uighurs?
I feel a little weird dumping this at the end of this faiV and "in other news" and it's probably something I'll return to in the future, but there are a couple of stories that I think are worth your attention that you almost certainly didn't notice. In the last few days, hacks of both Blackbaud (which is a software company that many universities use for managing their fundraising) and the Chronicle of Philanthropy were announced. Why should you care? I think it's worth paying attention to the global cybercriminal underground finally noticing the world of universities and philanthropy. If you were a criminal looking for "where the money is" both would be good places to focus your attention. Imagine what would happen if a major research project funded by a large foundation had its data encrypted and the ransom demand went to the foundation? Or worse, imagine if the hackers threatened to expose confidential information about hundreds or thousands of participants in a foundation-funded study? What would the responsibility of the university and the foundation be? It's a frightening prospect that deserves attention.
