Independent research for global prosperity
Dina Pomeranz of the Harvard Business School will come to CGD next Wednesday (April 18) for a brownbag lunch presentation of the latest randomized study of the impact of microsavings. The preliminary results are encouraging: savings accounts do indeed appear to help people "smooth consumption," i.e., manage the financial vicissitudes of life.
After the crisis broke in Andhra Pradesh, many observers regretted that India's microfinance industry was legally confined to making loans. Many poor people would rather save than borrow because, when done right, savings is safer. In the Huffington Post, Elisabeth Rhyne went further. The inability to take savings not only deprived poor people of a valuable option; it contributed to the crisis on the credit side:
CGAP's Greg Chen lives in Dhaka, the capital of Bangladesh. He has closely followed the microfinance difficulties in South Asia.
- A look at the profile of the current savings clients of India Post that shows this institution's penetration level among the core microfinance client base to be greater than the combined outreach of MFIs and SHGs in India today.
- An overview of these institutions' history shows the movement's progenitors 200 years ago having a level of understanding of how the poor use financial services that is on par with some of the most influential research being done today.
When the now-dominant methods of microfinance were developed circa 1980, they were what economists call technological breakthroughs. Although they were low-tech in the everyday sense of the word---involving meeting in person, paying in cash, keeping records on paper---they were nevertheless new ways to extract more value from a given amount of labor and capital. Well, not all new: as usual, innovation combined old ingredients in new ways and contexts.
I feel an inward tremor as I type this. I have just posted the last chapter (revised version, June 22: .docx and .pdf). I began writing almost two years ago, never thinking it would take this long. This blog has been wonderful reason for the delay. It feels very fine to have reached the end of the draft. The labor is far from over. There is much editing to do.
Alex Counts, CEO of the Grameen Foundation, pointed me to a fine report the foundation did for the Gates Foundation on New Frontiers in Micro-Savings.
Yesterday's How about International Microdeposit Insurance? drew an excellent flurry of commentary, which helped me appreciate the complexities of this idea. Bryan shared his ongoing thinking on branding and competition. Ben asked whether it would undermine local institutional development.
An unoriginal thrust of my work is that savings is probably a better service for poor people than credit. You can get in big trouble with borrowing but it's hard to imagine getting in trouble by saving too much.
Except actually it's not so hard. Lots of people have lost savings they put in banks. Here's what I just wrote in my draft chapter 9 (not public yet):
Folks, this is an important post for the book-writing. Can you help me think this through?
Years ago an editor of mine observed that most writing blocks are caused by tangled thoughts. People think they're just having trouble figuring out how to say what they're thinking when in fact the problem is in their confused thinking.
In chapter 9 right now I'm trying to... Well, what I mean is... See, the thing with microcredit...
