• Microfinance and Profits: Are for-profit microfinance institutions (MFIs) good for the poor? The question has sparked intense debate in recent years. An article in World Development weighs in by examining the relationship between MFIs’ “profit orientation” and the interest rates they charge. It finds that MFIs with strong for-profit characteristics (such as formal for-profit status and board members with banking expertise) charge higher rates. Moreover, these MFIs have “significantly higher” costs, including operating expenses and losses from bad loans. There is thus “absolutely no evidence” that a for-profit stance brings greater efficiency. Why, then, do MFIs operate as for-profit entities? The author posits that their owners are not greedy, but instead that “MFIs that project a more business-like orientation” can better attract capital to grow. Read more »

The world’s poorest struggle to survive day to day, living with almost no safety net. This makes them particularly vulnerable to financial risk. They are one illness or one injury away from losing their businesses or defaulting on a loan. When that happens, families go hungry and children are pulled from school. Read more »

An Economist article from a few months ago noted that if Bangladesh can sustain its annual growth rates of over six percent, it could “contemplate reaching middle-income levels in barely a decade.” That would be quite a feat for a country that was once synonymous with wrenching poverty. But as the Economist warned, the government must stay focused on meeting the country’s economic challenges. Sadly, political infighting instead seems to be winning the day. The leaders of the two main parties–Prime Minister Sheikh Hasina of the governing Awami Party and Khaleda Zia of the Bangladesh Nationalist Party (BNP) appear to be more interested in destroying each other than in leading. Their personal animosity is legendary but in the run-up to next year’s election, Bangladesh’s politics are poised to get even dirtier. Read more »

I just finished reading the much-hyped book, Behind the Beautiful Forevers, which well deserves the hype. It is an extraordinary look at life in Annawadi, a slum adjacent to Mumbai’s modern international airport. Author Katherine Boo spent three years in the slum (researching, interviewing, videotaping, recording) trying to understand “how ordinary low-income people—particularly women and children—were negotiating the age of global markets.” The question that drives her is: “What is the infrastructure of opportunity in this society?” It is a critical question for any society, and one that Boo has been exploring in various poor communities for the past twenty years as a staff writer for the New Yorker. The answer she paints for Annawadi makes me question my relatively bullish assessment of India’s growth prospects. The residents of Annawadi, many of whom earn a living by scavenging through garbage, are remarkably resilient, innovative, determined, and hard-working towards their goal of upward mobility. But they are also stymied at almost every turn by a corrupt system. Read more »

In this edition of Missing Pieces, Charles Landow highlights topics from financial services for the poor to Venezuela’s presidential race. I hope you enjoy the selection.

• Banking for the Poor: Quality matters as much as quantity in expanding financial services to the poor, suggests a paper from the National Bureau of Economic Research. Pascaline Dupas and co-authors first offered a random sample of rural Kenyans a savings account with no opening fees and simplified procedures. More than 60 percent opened an account, but only 28 percent made at least two deposits in the following year. Surveys suggested that many feared “embezzlement, unreliable services, and transaction fees.” Working with another group of Kenyans, the researchers offered vouchers that made it easier to receive loans. Six months later, only 3 percent had started to apply. According to surveys, recipients feared losing their collateral if they could not repay their loan. Clearly, financial services must be appealing and trustworthy—not simply available—if low-income people are to use them. Read more »