#tbt: Digital Transactions for Products the Poor Can Afford

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The promise of mobile technology infographic: how it works
Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation in the United States, talked to Larry Reed, director of the Microcredit Summit Campaign, for the 2013 State of the Campaign Report.

Larry Reed: What opportunities do you see for digital transactions making a difference in the lives of the very poor?

Rodger Voorhies: Like most of us, poor people live their lives through a lot of different kinds of financial connections, and payments are really the connective tissue that hold those financial transactions together. Unless we can figure out ways to help poor people transact in a way that is profitable for them and profitable for providers, we’re really not going to see large-scale financial inclusion take place.

Now, one of the most exciting things that’s going on for us is the ability of mobile money to reach down into really poor households, and so right now in a country like Tanzania 47 percent of households have a mobile money user. An exciting bit of that is not so much, okay, there’s one person in the household sending money to friends, but it might open up all kinds of innovations that before were previously unavailable.

So, let’s think about savings, because we know savings have a big impact on poor people. Well, it’s really hard to save, and poor people have to take a lot of self-control and we expect a lot of self-discipline out of them if they’re going to be able to save. If I can actually begin to transact digitally and I had defaulted into commitments accounts and savings accounts for school fees or whatever the mental maps are that work for me, I think we can see large scale inclusion that actually has a big development impact. And we know that the empirical evidence around these pieces work, so we know commitment accounts work, but poor people just don’t have a way to get those commitment accounts.

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Six learning opportunities for the “Six Pathways”

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>>Authored by William Maddocks, director of the Sustainable Microfinance and Development Program (SMDP) at the University of New Hampshire’s Carsey School of Public Policy

New scrutiny has focused on what microfinance can’t do, and the evidence is growing that microfinance, de-linked from a social change paradigm, is simply another way to provide basic financial services to people historically excluded by the market. The new theme for the Microcredit Summit Campaign for 2015 of “financial inclusion to end extreme poverty” and the Six Pathways show promise in getting us there and can succeed in challenging extreme poverty if social change and equity are embedded as core values by those who fund, design, and implement these strategies.

These six pathways promoted by the Microcredit Summit Campaign touch on many of areas of the Carsey School of Public Policy’s current work. Using each pathway as a prompt, we will take a brief look at these themes and how you can get involved and learn more.

The Six Pathways

1) Mobile money linked with agent networks in low-income communities and other technological innovations

The SMDP New Hampshire Certificate 2015 in June will feature a session facilitated by Joyce Lehman, formerly with the Bill & Melinda Gates Foundation on branchless banking and the Digital Revolution. If the infographic from Kenya tells us anything (below), it’s that digital financial services are growing exponentially beyond just transfers and remittances to group savings & loans, agricultural inputs insurance, water services, off-grid lighting, and more. Come to New Hampshire, USA, this summer to learn about this exciting frontier of financial inclusion from the unique perspective of a former donor who worked on the ground floor of paving the digital finance highway.

Infographic: Kenya's journey to digital financial inclusion

Kenya’s journey to digital financial inclusion (by Simone di Castri and Lara Gidvani – July 2013)
Source: GSMA

2) Ultra-poor graduation programs

Jan Maes, who has worked in designing graduation programs with Trickle Up and other organizations, will present findings during the SMDP New Hampshire Certificate on the effectiveness and challenges of using these strategies to move the ultra-poor into self-sufficiency.

3) Microfinance savings and/or borrowing groups linked with health education, health financing, and health product delivery

Kathleen Stack, vice president of programs for Freedom from Hunger, will make a virtual presentation at the SMDP NH on Microfinance and Health Protection (MAHP) initiatives that they are implementing with our friends, CARD MRI in the Philippines and the Microcredit Summit Campaign, and in other locations. Read more about the project, Healthy Mothers, Healthy Babies, and how these three organizations, with the support of Johnson & Johnson, are helping address maternal and child health needs.

Photo courtesy of the Carsey School of Public Policy

Photo courtesy of the Carsey School of Public Policy

4) Agricultural value chains that reach to small-scale producers

Understanding markets is more than just knowing about products. The field of inclusive market development is moving from the linear value chain approach, to applying a systems approach that looks for, and adapts to, feedback from the system. Carsey has just launched SMDP Online and one of our first courses, “Understanding and Adapting to Complex Markets” will help practitioners understand complex adaptive systems and apply these concepts to their current work. SMDP Online course facilitator Mary Morgan, with more than 20 years of experience in development, promises a challenging and very practical learning experience for market development professionals.

5) Savings groups (aka village savings and loans associations)

One of the most promising strategies for reaching people that commercial microfinance has failed to reach are savings groups (SGs). Today more than 10 million people use SGs for saving, lending, building financial security, and social capital. Carsey has been a leader in savings groups training and learning events for several years and continues to expand opportunities to learn about this growing area of financial inclusion.

The SMDP Online will offer a blended course, “Savings Groups: Building Scale and Impact through Adaptation and Experimentation,” facilitated by Nanci Lee. This course will meet online for several months and then face-to-face in Lusaka, Zambia, during the SMDP Zambia, which occurs right before the next global gathering of SG practitioners, donors, researchers, and others at the SG 2015 conference also in Lusaka from November 10 to 12.

The lock box of a savings group in Africa

The lock box of a savings group in Africa
Photo courtesy of the Carsey School of Public Policy

6) Conditional cash transfers (CCTs) linked with mobile delivery and asset building

Reaching as many as 129 million people worldwide, CCTs work at a scale that few other anti-poverty programs can reach. Governments working with visionary partners like Fundación Capital can roll out programs that provide support, change social norms, and make a measurable impact on improving the lives of poor families. In the Dominican Republic, Fundación Capital has partnered with the Government’s ProSoli program and Banco ADOPEM and Banco Pyme BHD to connect savings groups with a CCT voucher program and bank linkages.

You can learn about this exciting pilot program by watching Jong Hyon Shin, Fundación Capital’s country project coordinator for the Dominican Republic, and her former professor (and Carsey Fellow) Jeffrey Ashe. (Watch the SEEP Network’s Taking Savings Groups on the Road Webinar Series.)

Relevant resources

#tbt: There is No “Silver Bullet” by Jake Kendall

Delegates from the 2000 Microcredit Summit in Zimbabwe

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We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report, 2011. We hope this will encourage you to reflect on the idea that all new ideas are old.


>>Authored by Jake Kendall, Research Fellow, The Bill & Melinda Gates Foundation

The poor are diverse and so are their needs for financial tools

2011SOCR-cover

Download the full 2011 State of the Campaign Report in our Resource Library

The past few years have seen the release of an initial round of results from randomized field trials looking into the impacts of various savings, credit and insurance services on the livelihoods of poor clients. They have been somewhat disappointing to those in the financial inclusion field who expected that they would provide clear marching orders.

Despite failure of many of these studies to find much of a poverty reduction impact on average, digging beneath the surface shows what appears to be a wide variation in both the rates of uptake of the products and in the impacts of the products on different segments of clients. This is not surprising. Financial services are primarily used to manage gaps in income or to generate lump sums for large purchases, investments or emergencies. Individuals will differ in their need to for these services. Thus, we would expect to see differences in uptake and impact. The early evidence seems to confirm that this is the case.

As examples, two recent studies of microfinance credit offerings — Banerjee, Duflo, Glennerster, and Kinnan (2009) studying Spandana in India and Karlan and Zinman (2009) studying First Macro Bank in Manila — do not show any improvement over 14-18 months in basic welfare indicators from providing credit to the general population. They do, however, show large changes in investment behavior or in other outcomes for specific subgroups — e.g. in the India study, entrepreneurs expanded their businesses and those who had similar traits to entrepreneurs launched new ones.

There have been a few studies of the impacts of savings accounts recently as well. Studying rural savings in Kenya, Dupas and Robinson (2009) found savings accounts had impacts when given to women. The study found that women who participated were investing 45 percent more, had 27 to 40 percent higher personal expenditures, and were less likely to take money out of their businesses to deal with health shocks than women who were not offered savings accounts. On the other hand, there were no impacts for the men. Studying Green Bank of Caraga in the Philippines, Ashraf, Karlan and Yin (2006, 2010), find that “commitment savings accounts” do increase average savings among women and increase feelings of empowerment relative to those with regular savings accounts. However, they also found that only 28 percent of those offered the accounts decided to accept them. Studying Opportunity International Bank of Malawi (OIBM) Brune, Gine, Goldberg, and Yang (2010) recently produced data showing that Malawian farmers with “commitment savings accounts” had significantly higher investments in farm inputs, but because the study group is only farmers, it is not at all clear how these impacts would play out in other livelihood groups offered similar accounts. Thus, in the savings studies as well there seem to be very different responses from different groups.

The conclusions we can draw from these studies are limited. It seems clear (and again, not very surprising) that demand for and impact of the different products is often correlated with differences in gender, education, wealth, livelihood segment, etc. That said, the studies to date do not give very fine-grained or particularly insightful segmentations of their study samples. It’s not always easy in academic studies to get sample sizes large enough to do this. There are fundamental limits as to what RCTs can tell us regarding how different individuals or groups respond to a single treatment. Nevertheless, it would appear that a rich direction for future research would be to frame the academic evaluations of financial products more along the lines of how marketers and practitioners would frame them, by focusing on distinct customer segments and assessing the uptake or impact among these different groups.

In a possible exception to the above trend, Jack and Suri (2010) document that, after its launch in 2007, the M-PESA money transfer and e-wallet product reached over 70 percent of all Kenyan households and over 50 percent of the poor, unbanked, and rural populations by 2009. New accounts have even grown by 40 percent since then. The researchers have preliminary results indicating that M-PESA users are better able to maintain the level of consumption expenditures, and in particular food consumption, in the face of negative income shocks. While it’s almost certainly true that, here again, different segments of clients have different uses for the product, clearly most Kenyan households have some financial need that M-PESA fulfills, and by connecting people with the ability to transfer funds, M-PESA may simply be allowing them to transact with a wider and more diverse set of counterparties who can help with whatever particular need they may have.

Last week’s newsmakers: Davos and the Gates Annual Letter

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2015 Gates letterLast week, the Bill & Melinda Gates Foundation released their 2015 Annual Letter and the World Economic Forum (WEF) held their 2015 meeting in Davos. (WEF has posted session recordings on their YouTube channel.)

The main message from the Gates letter is, as with last year, an attempt to counter the prevailing perception that as Fareed Zakaria said (when introducing his interview with Bill and Melinda Gates at the World Economic Forum), “the world is going to hell in a hand basket.”

Last year, the Gates busted three myths: poor countries are doomed to stay poor, foreign aid is a big waste, and saving lives leads to overpopulation. This year, the Gates are making this bet: “The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else’s.” They see this coming through these 4 pathways:

  1. HEALTH: Child deaths will go down, and more diseases will be wiped out
  2. FARMING: Africa will be able to feed itself
  3. BANKING: Mobile banking will help the poor transform their lives
  4. EDUCATION: Better software will revolutionize learning

Of equal importance is their conclusion that to win this bet, they must secure the active participation of “global citizens” to push the UN to adopt ambitious Sustainable Development Goals (SDGs) and hold their governments accountable for achieving the existing MDGs and future SDGs. For our American audience, a great way to get involved, to help build the political will to end poverty, is to join or create a local RESULTS group (our parent organization). Bill Gates explains in an interview on Wired,

The idea is getting people to use their voice to say their governments should continue to be generous on aid. We’re dealing with tight budgets. Even countries that have been generous, like the Netherlands or Australia, have made cuts to their aid budgets. And within the universe of NGOs, some are agricultural, some are environmental, some are health, you can pick one of those that you want to dive down into and get involved with.

In their Davos interview with CCN’s Fareed Zakaria (and in the letter), the Gates cover a check list of development best practices learned over the last few years. At 14:01, Zakaria asks them about their prediction that Africa will be able to feed itself by 2030. They answer that the key elements are,

  • Access to the latest seeds, create varieties that are appropriate for Africa, e.g., drought-resistant maize.
  • Training on plant techniques, crop rotation, no-till farming, proper use of fertilizer, etc.
  • Access to markets and market information, bank accounts, and skills building via mobile phone devices.

We would add that farmers need appropriate financing to afford those seeds, mobile devices, etc. Indeed, creating agricultural value chains that reach those at the bottom of the pyramid is essential to ending extreme poverty. An efficiently designed platform that provides institutional linkages to the market, access to adequate financing tailored to their crop and production cycle, and training and technical support as a tool for risk mitigation will be transformative.

Melinda Gates also touched on the importance of focusing microfinance and other financial inclusion efforts on women. She explained that women reinvest 90% of income in their families, so helping women has a greater multiplying effect than helping men. Further, she described women’s empowerment as coming about in three areas — health, decision making, economic opportunity — and that education is fundamental to those three areas.

Reactions to the Gates Letter

The Washington Post published an article by Chris Blattman, “Grading the 2015 Bill and Melinda Gates letter on poverty alleviation.” He gives the letter a B (last year’s letter received an A-) for these 3 reasons:

  1. Over-claiming: Making big steps sound like monumental leaps
  2. Providing solutions that will work best in the countries that will probably grow anyway
  3. Downplaying the harder barriers these breakthroughs won’t solve

Concerning point 2, he asks pointedly how are we going to help countries that don’t have functioning health systems?

If new vaccines are delivered, my guess is that the countries that have strong health care systems will roll them out quickly. In that case, yes, more money will translate into vaccinated children in China and Indonesia and Brazil. But countries that don’t have functioning health systems?

The answer is that we need to seek opportunities for partnerships within existing structures. Microfinance is a functioning system and it is reaching more than 200 million people and, by extension, their families. Working with Freedom from Hunger in our Financing Healthier Lives program, we have shown that microfinance is an effective platform for increasing access to healthcare services for the extreme poor. Our partnership with MFIs and NGOs supporting self-help groups to implement integrated health and financial services is a compelling message for breaking down walls between health and microfinance sectors.

Partnering in New Approaches to Old Challenges

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Partnerships against Poverty Summit Banner with logos

Partnerships against Poverty: Why, When, & How to Partner
Date: 
Wednesday, October 9th 

Time: 11:30 – 1:00 PM

Effective partnerships generate synergies between organizations that each supply unique skills, perspectives and resources to devise new ways of approaching old challenges, providing needed products and services on a much wider scale.

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Nicholas Luff, Senior Associate, The Partnering Initiative

The plenary “Partnerships against Poverty: When, Why and How to Partner” centered on the guiding principle for the 2013 Partnerships against Poverty Summit, exploring the manner in which partnerships can be developed, negotiated, leveraged, and managed between actors that come from different sectors while highlighting some of the best practices in the field. This cornerstone session set up the framework for the rest of the Summit agenda to follow.

Nicholas Luff of The Partnering Initiative, serving as the session’s moderator and multi-stakeholder partnership builder, began the session by stressing the characteristics of good partnerships.

He described these strategic relationships as an “engaging two-way dialogue, which moves beyond mere contractual interactions towards transformative missions among value-adding knowledge sharers.” Collaborations founded in this spirit hold great potential for catalyzing the next wave of movement out of extreme poverty.

Rodger Voorhies, director of the Financial Services for the Poor Initiative at the Bill & Melinda Gates Foundation emphasized the dire need for cutting-edge partnerships in the financial inclusion field. He stressed that “2.5 billion people are currently left out of access to financial services.”

In order to combat this trend, Voorhies advised that “we need to substantially increase access and that will require new kinds of partnerships, new kinds of innovation and new kinds of thinking…We are at the forefront—at a cusp—of rattling changes using technology and new ways of delivering services.” Voorhies discussed the potential of digital services coupled with transformative partnerships to form the next great paradigm shift in helping practitioners reach into untapped communities and leverage their impact.

Bringing a concrete example of a successful cross-sector partnership, Richard Leftley, CEO of MicroEnsure, engaged the audience by showcasing his own company’s collaboration with mobile service providers, which facilitated an expansion of MicroEnsure’s client base.

Leftley summarized the process that MicroEnsure underwent in its quest for a fruitful partnership, describing the challenges associated with being a small, young company and providing a product (i.e., microinsurance) that at the time was relatively unknown. He echoed Luff by pointing out that “a shared sense of necessity where each partner brings something to the table” is vital in developing and negotiating successful relationships with other actors.

Watch the full video of this plenary

On the whole, the plenary displayed a clear sense of optimism for the road ahead by highlighting the manner in which partnerships can create opportunities for people living in poverty where no single actor could provide the multitude of services needed by the poor on their own. Each of the speakers acknowledged that opportunities for collaboration are widening and stakeholder engagement is at an all-time high, making it a perfect time to engage in deep dialogue and work together on the collective mission to eradicate extreme poverty in the near future.