Isobel Coleman

Democracy in Development

Coleman maps the intersections between political reform, economic growth, and U.S. policy in the developing world.

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Showing posts for "Financial Inclusion"

Missing Pieces: Microfinance and Profits, Colonialism’s Effects, and More

by Isobel Coleman
Hemalatha (C) and other loan borrowers show pass books given to them by a micro finance company at Ibrahimpatnam, on outskirts of the southern Indian city of Hyderabad, May 19, 2011 (Krishnendu Halder/Courtesy Reuters). Hemalatha (C) and other loan borrowers show pass books given to them by a micro finance company at Ibrahimpatnam, on outskirts of the southern Indian city of Hyderabad, May 19, 2011 (Krishnendu Halder/Courtesy Reuters).
In this installment of Missing Pieces, Charles Landow reviews two scholarly papers, an op-ed, and an index. Enjoy!
  • 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 »

Insurance Innovations for the Poor

by Isobel Coleman
Carpenters carry a coffin shaped in the form of a fish over the main road in Teshie, a suburb of the Ghanaian capital of Accra, January 22, 2004. Funerals are important [social] occasions in this West African country and elaborate, brightly coloured coffins have become an art form. Picture taken on January 22, 2004 (Wolfgang Rattay/Courtesy Reuters). Carpenters carry a coffin shaped in the form of a fish over the main road in Teshie, a suburb of the Ghanaian capital of Accra, January 22, 2004. Funerals are important [social] occasions in this West African country and elaborate, brightly colored coffins have become an art form. Picture taken on January 22, 2004 (Wolfgang Rattay/Courtesy Reuters).

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 »

Bangladeshi Politics and the Grameen Bank’s Uncertain Future

by Isobel Coleman
Employees of the Grameen Bank take part in a sit-in protest in front of their central office in Dhaka on April 5, 2011. Bangladesh's highest court rejected on April 4 an appeal by Nobel laureate Muhammad Yunus against his dismissal as managing director of Grameen Bank (Andrew Biraj/Courtesy Reuters). Employees of the Grameen Bank take part in a sit-in protest in front of their central office in Dhaka on April 5, 2011. Bangladesh's highest court had rejected an appeal by Nobel laureate Muhammad Yunus against his dismissal as managing director of Grameen Bank (Andrew Biraj/Courtesy Reuters).

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 »

“Behind the Beautiful Forevers” and the Fight against Poverty

by Isobel Coleman
Five-year-old Ajay collects recyclables for resale at a residential area in Mumbai, India, June 14, 2011 (Danish Siddiqui/Courtesy Reuters). Five-year-old Ajay collects recyclables for resale at a residential area in Mumbai, India, June 14, 2011 (Danish Siddiqui/Courtesy Reuters).

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 »

Missing Pieces: Banking for the Poor, Reform in China, and More

by Isobel Coleman
A customer has his money ready at a store in the sprawling Kibera slums in Kenya's capital of Nairobi, April 23, 2010 (Noor Khamis/Courtesy Reuters).

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 »

Evaluating What Works in Development

by Isobel Coleman

School children raise their hands during an activity to mark the third annual Global Handwashing Day at Thirime primary school in Kikuyu, Kenya, October 15, 2010 (Thomas Mukoya/Courtesy Reuters).

Which development initiatives work and which do not? It is a simple question, but there has been surprisingly little attempt to answer it rigorously. Over the past decade, some economists have been trying to change this. They are applying a tool long used in the pharmaceutical world—randomized control trials (RCTs)—to evaluate the real impact of programs intended to help people.

I hosted Dean Karlan, a professor of economics at Yale and a practitioner of randomized control trials, for a meeting last week at CFR. Karlan is also the co-author of a new book, More Than Good Intentions: How a New Economics Is Helping To Solve Global Poverty. In the book, he and his co-author, Jacob Appel, review dozens of RCTs—some they conducted, some done by others—that test the effectiveness of various ways to improve the lives of the poor around the world. Some of the results are offbeat: one study in South Africa showed that simply putting a picture of an attractive woman on a consumer loan brochure caused more men to apply for loans. As Karlan and Appel write in the book, “Surely no customer would say that his decision to borrow boiled down to the picture in the corner of his pamphlet, but there it was in the data, clear as day.” Other studies deal with weightier subjects: an RCT in Mexico, for example, established that the Progresa program, a conditional cash transfer scheme in which poor families receive payments in exchange for getting regular medical care, had a strong positive impact on recipients’ health.

Read more »