Editor's Note: The next in the long series of faiV experiments—we're going to start sending it out on Mondays rather than Fridays for a bit. That gives me more time on Friday to assemble and write without it coming out well past the start of Asia/Europe weekends. We'll see how that goes on my side and on the opening/clicking side for a few weeks and then, who knows?
And just in case you need a reminder of a some good news, the cheaper of the new malaria vaccines is starting to be deployed in Ivory Coast today.
- Tim Ogden
1. Microfinance
Last Wednesday, I was part of a FinDevGateway webinar on "Reassessing Microfinance as a Development Tool" (recording on that link) with Greta Bull (Gates Foundation's Women's Economic Empowerment), Andrée Simon (FINCA) and Bridget Dougherty (BRAC), moderated by Alexander Sotiriou and Valdete Berisha of CGAP. It was motivated by a white paper from the Gates team—"Women and Equitable Growth in a Resource-Constrained World"—and a couple of papers I've referenced here repeatedly in the last few months (What Win-Win Lost, and Lessons for Global Microfinance from...the United States?). One of the comments from a listener was essentially: "Haven't we been having this same conversation for the last 10 years?". My response, building off of one of the main points of the Lessons paper, is that we've been having this conversation for 400 years—which demonstrates to me not that we're not learning and are just repeating ourselves, but that it is necessary to have this conversation over and over to keep things on track. Finance (and likely other areas that I'm not so knowledgeable of) has a strong tendency to drift. People get left behind and excluded and forgotten. If we want finance to be inclusive, we have to keep having this conversation.
Apparently a good number of other people thought it was both necessary and a good conversation as we had great turnout. Enough so that we're going to do a follow-up conversation as a faiVLive in coming weeks. Stay tuned.
2. FinTech
In the first of the faiVs since the recent revival I included a link to a piece on "Why FinTech Failed". That piece was largely about developed economies and why fintech hadn't made a meaningful impact on the cost of a wide variety of financial services. There's a new working paper taking a global and statistical look at the impact of fintech on inclusion: Promise (Un)Kept? by Serhan Cevik at the IMF. The paper finds that in the overall sample, consistent with the post above, fintech hasn't made much difference; but consistent with many of the hopes for fintech, there is a strong positive association between fintech and inclusion in developing markets. It's important to note that the measure of financial inclusion is the Findex results on ownership of a formal account. It doesn't include deep measures of use and outcomes
Cevik notes that "Policymakers need to acknowledge potential risks and threats and develop an adequate regulatory framework that balances fostering innovation and ensuring equitable treatment of individuals and groups." The US continues to provide lessons, not just for microfinance, but for fintech as well. Here's a story about a fintech regulatory disaster here in the US. The short version: a particular fintech company (Synapse) provided the back-end "piping" between consumer-facing fintechs and regulated banks. That allowed the consumer-facing fintechs to tell consumers that their funds were protected and insured in regulated banks. But Synapse went bankrupt and that has left the consumers without their money as the link between their app and the wholesale bank accounts is broken. The FDIC won't cover losses because the money isn't technically lost—the bank that is insured didn't fail, only the technology connecting people to their money. The bankruptcy court seems to be saying this is not in the court's purview because the funds were not held by the entity declaring bankruptcy. An adequate regulatory framework does seem pretty important, huh?
While key players in the US fintech ecosystem are saying that consumers have "growing trust in fintechs and the security of those systems" maybe they really shouldn't, especially when you get headlines like "fintech's false promise."
3. Philanthropy
I haven't covered philanthropy much since the faiV's return, but it remains an interest of mine and I hope of yours. Two things really caught my eye in the last few weeks, one that is not getting nearly enough attention, I think, and one that has gotten a lot of attention but perhaps not from economic development audiences.
Folks in philanthropy and development definitely know that the Gates Foundation is the largest private player in that realm by far. Until recently it was likely to get even larger, as Warren Buffet had stated that the Foundation would receive the bulk of his assets when he died. A few weeks ago, Buffet announced that he had changed his mind, and was instead going to create a new trust for his assets, to be jointly managed by his children. It's a huge change, but I don't think very many people took note of what it means ("A billionaire is going to create his own foundation rather than giving to an existing one; seems unsurprising."). So I created this chart:
The new Buffet-funded trust is going to be nearly twice as large as the Gates Foundation, and nearly 150% larger than most of the other brand names among large foundations, combined. So what's going to happen with that money? That's where it gets really scary. The three Buffet children who will be in charge are almost entirely focused on lightly populated parts of the US, and one of them is apparently funding private militias operating on the US border. If you at all subscribe to ideas of effectiveness in philanthropy, this is one of the most disastrous decisions in philanthropic history, and like I said, not getting enough attention.
Something that has been getting a lot of attention in the more social areas of the web is a link-up between GiveDirectly and Mr. Beast, the most popular YouTuber on the planet. Mr. Beast has a history in philanthropy—funding building houses for the homeless, prostheses for amputees, sight-saving surgeries and cochlear implants for children, etc. But these philanthropic efforts are delivered through the lens of viral social content, which apparently makes a lot of people uncomfortable. Here's Jeremiah Johnson defending Mr. Beast from the large amount of online criticism of his approach.
Truth be told, it is a somewhat strange connection for GiveDirectly, whose core message has always been the relative effectiveness of just giving cash, whereas Mr. Beast has always majored in spectacle. But to paraphrase Johnson, "Did poor people get the money?" And the answer is yes.
In other developments bringing cash transfers into the spotlight, there will be a new (animated) show about two guys who start receiving an unconditional cash transfer. It doesn't sound like it's going to be nearly as much of a shot in the arm for GiveDirectly as Mr. Beast.
4. Entrepreneurship and Small Firms
As we continue working with the Small Firm Diaries data, and bringing Small Firm Diaries to the US, I'm paying more careful attention to the state of knowledge and data on small business, start-ups, entrepreneurship and the like (which encompasses the fact that these and other terms get used ubiquitously without definition). There's some big news in terms of data on the US: Rob Fairlie, an economist at UCLA and colleagues have been working with the US Census to do something about the problems with the standard data used to estimate how many firms get started each year, how many of them create jobs (or destroy jobs by closing down), how many jobs they create, etc. It turns out that the data has poorly captured businesses that charge form or registration as they grow (e.g. a sole proprietor who operates alone for several years before hiring employees, but registers as an S Corporation before she does so). They've published a book, The Promise and Perils of Entrepreneurship, with MIT Press that details the new dataset they've created and analyzed; they find some important differences in the conventionally cited numbers on important questions about start-ups, job creation and survival.
I've had a hard time wrapping my head around the data and generating a set of priors with any degree of confidence. For instance, here's an article about booming entrepreneurship since the pandemic. Then, here's a new working paper on the "ubiquity of declining business dynamism", and here's one that points to declining labor supply growth to explain the "start-up deficit". Now obviously one of the issues here is time-lag, and the first article does note that the boom is in contrast to prior declines. But the long-term drivers highlighted in the two latter papers are hard to square with the posited explanations for a boom, nor do they fit with the general economic mood we hear so much about, nor with the general industrial/macroeconomic trends and possibilities that seem to be front and center of most discussion.
If you have thoughts, I'd love to hear them. Stay tuned, as I'm sure I'll be writing more about this as I delve more deeply into the data (and try to parse the definitions that are behind the terms being used).
5. Our AI Overlords
There's a new term in the world, and without an algorithm I predict with high confidence that it will be appearing in the faiV alot: AI Slop. You can pretty quickly guess what it means (though here's a more visceral, introduction if you need it). There are varieties of slop that are not AI generated, but it seems like this is an area where AI really does have a commanding comparative advantage.
Of particular concern here is that financial advice slop was quite prevalent well before the current generation of LLMs. It seems likely that it will continue to be a large percentage of slop out there. Which creates a couple of problems: people getting really bad advice, it being harder to tell bad advice from good advice from sheer volume, and the disappearance of good advice as the people dedicated to creating that good advice are overwhelmed by slop (or just, for instance, bad actors stealing the good stuff and repurposing it as an enticement into bad stuff).
In other areas of AI concern, I referenced the new book The Ordinal Society in the most recent faiV. It's still at the top of my list of recommendations for thinking hard about what is coming in a world of ubiquitous personalization and optimization based on real data about each individual. There are a couple of other pieces that have me thinking in this domain. Here's a new paper on predictive policing suggesting that machine learning can meaningfully identify, in advance, the people most likely to be shot in the next 18 months. Here's a paper using machine learning to better identify the units on which index insurance is offered to maximize the value of the insurance (I can't be the only one who thinks this is a tool to do the opposite, right?). And here's a paper providing an overview of the questions that emerge from algorithmic pricing (as a reminder here's a layperson's overview of "pricing hell").
I'm left thinking about the ways in which our idea of fairness gets entirely overwhelmed by customization, personalized prices and experiences. Is it fair if a person's offered financial products and prices are 100% determined by their own past behaviors (in a variety of domains)?
Video of the Day
In honor of the European Championship and Copa America finals, the upcoming Women's Soccer Olympic tourney, the second half of the MLS and NWSL seasons, the third round of AFC World Cup qualifiers, the second half of CAF qualifiers, and the imminent start of European domestic leagues....
Bonus Graphic of the Day
For those of you less sporting inclined, this really made me laugh. Have a good week.
The faiV is written by Timothy Ogden and produced by the Financial Access Initiative at NYU's Wagner Graduate School of Public Service
Email: fai-wagner@nyu.edu
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