CEME Inclusive Commerce Blog Hosted by the Center for Emerging Market Enterprises (CEME), The Fletcher School

28Apr/14Off

Behavioral Product Design meets CARD’s Savings Products

Posted by Ashirul Amin

I just came across this great paper from Feb 2014, by ideas42, which describes a behavioral design project undertaken by them and Grameen Foundation to improve savings outcomes for CARD Bank of the Philippines.

They combined in-depth interviews of clients with quantitative analysis of the account balance and transaction data to identify the main barriers to “improving saving outcomes”, and then designed behavioral levers accordingly.

Before we look at the specifics, let’s point out the success of this intervention:

  • 15% higher initial deposits
  • 73% greater likelihood to initiate transactions in new accounts
  • 37% increase in balances

It seems that whatever they did managed to increase how much new savers started  out saving with, encouraged higher engagement with the accounts, and got them to save more in the long term.

What did they do?

First, they identified four primary barriers:

  1. Savers were anchoring themselves to the 100 pesos minimum opening balance, and the 50 pesos  minimum balance required every week. They would start at that value, and then think how much they could save above and beyond that, and not focus on how much they could be saving.
  2. Clients open an account without actually having a plan on how to use the accumulated savings.
  3. CARD has a free program which allows deposit collectors to regularly come to their home or business and collect savings. Yet, many clients did not select this option, very probably because the option is presented to them only when they open the account, but is presented in “muted colors at the bottom of the form”, making it easy to gloss over.
  4. Savings goals are “distant and abstract” – saving for expenses that are far off in time, such as school expenses, or harder to imagine, such as “an emergency” are harder to plan for than the more immediate, day-to-day realities.

With this in mind, ideas42 redesigned CARD bank’s account opening process and developed simple interventions around four behavioral levers:

  1. Set a goal: Get the client to set a savings purpose and amount, use visual representation to make goal concrete, and allow client to decide on some of the savings components, with guidance.
  2. Make a specific plan: Get client to come up with a concrete savings plan – how frequently to save, where to save, and how much to save, and provide the option to receive SMS reminders.
  3. Create a feeling of commitment: Essentially get the client to go through some actions that make the commitment to save “feel real”, such as having both them and the institution sign the plan, complete it in front of peers, even give a gift to symbolize the commitment.
  4. Personalize the experience: Ensure that the plan addresses clients’ needs and abilities, use personal statements and encourage clients to share and discuss their savings plans with peers.

The paper details each of these steps, and it’s quite fascinating – do check it out. Including the Appendices – the data work details are there.

ideas42 is very clear that the results of this study should not be simply transplanted to other situations without thoroughly investigating if they are relevant in that context. Still, one can’t help but wonder about the potential implications of the findings generally.

No-frill accounts have been promoted heavily to further financial inclusion. Relatively large opening or minimum balance requirements were seen as impediments by small-balance savers, as were the slew of fees attached to them. Nevertheless, no-frill accounts often have a small opening balance component, as well as some kind of other performance metric requirement (minimum balance, minimum deposits, maximum withdrawals, etc.) that are designed as much to encourage savings as they are to ensure that accounts are financially sustainable. Does the issue of anchoring suggest, though, that an opening balance requirement or a minimum interaction requirement is having the opposite effect? That, instead of pulling up balances and increasing engagement, they are actually allowing savers to more comfortably “settle for less”?

This process also demonstrated the need to engage the client immediately when they are filling out the initial enrollment forms. These forms are often KYC focused, laborious to fill, and seen more as a formality by all parties. Shifting the focus to the client, and specifically to his or her goals with respect to the product, makes intuitive sense.

It might also help explain why people generally sign up for various promising tools and products, but never quite use them. As FAI recently found out in Bangladesh, with bKash.

14Feb/13Off

US Financial Diaries

Posted by Ashirul Amin

There’s poverty everywhere …

We’ve spent a fair bit of time talking about various methods to study poverty and development in this blog, ranging from plain vanilla surveys to financial diaries, RCTs and portfolio analytics, and it has all been within the context of developing countries. It is a reality that poverty exists in the developed world too, including the most vibrant economy in the world, the US. This post will talk about the US Financial Diaries program.

Just to put things in context, here’s a map of the world showing poverty percentages compared to the national poverty line:

… including the US

This tells us between 10% and 20% of the population live below the poverty line in the US. The Oracle provides us with some more detail:

Poverty is a state of privation or lack of the usual or socially acceptable amount of money or material possessions. According to the U.S. Census Bureau data released Tuesday September 13, 2011, the nation’s poverty rate rose to 15.1% (46.2 million) in 2010, up from 14.3% (approximately 43.6 million) in 2009 and to its highest level since 1993. In 2008, 13.2% (39.8 million) Americans lived in relative poverty. In 2000, the poverty rate for individuals was 12.2% and for families was 9.3%. In November 2012 the U.S. Census Bureau said more than 16% of the population was impoverished, and almost 20% of American children live in poverty.

And details can be found in all its glory right from the horses mouth; some of the highlights are copy/pasta-ed below:

  • In 2011, the family poverty rate and the number of families in poverty were 11.8 percent and 9.5 million, respectively, both not statistically different from the 2010 estimates.
  • As defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the weighted average poverty threshold for a family of four in 2011 was $23,021.
  • The poverty rate for males decreased between 2010 and 2011, from 14.0 percent to 13.6 percent, while the poverty rate for females was 16.3 percent, not statistically different from the 2010 estimate.
  • In spring 2012, 9.7 million young adults age 25-34 (23.6 percent) were additional adults in someone else’s household. The number and percentage were both unchanged from 2011.
  • In 2011, 13.7 percent of people 18 to 64 (26.5 million) were in poverty compared with 8.7 percent of people 65 and older (3.6 million) and 21.9 percent of children under 18 (16.1 million).
  • The South was the only region to show changes in both the poverty rate and the number in poverty. The poverty rate fell from 16.8 percent to 16.0 percent, while the number in poverty fell from 19.1 million to 18.4 million. In 2011, the poverty rates and the number in poverty for the Northeast, Midwest and the West were not statistically different from 2010. The poverty rate in the South was not statistically different from the rate in the West. In addition, the Northeast poverty rate was not statistically different from the rate in the Midwest.

More than one in eight individuals living in poverty is bad, right, given the relative abundance of wealth in the US? Consider the fact that 16 million (22%) of all children live in poverty – a number exacerbated along ethnic lines (38% of Black and 35% of Hispanic communities) and one can see how this is an important issue to address in the US. [Source for numbers.]

Enter the US Financial Diaries

There’s been much renewed interest in the lives of the poor since financial armageddon a few years ago. Michael Barr’s No Slack: The Financial Lives of Low-Income Americans is a recent publication that based on 1,000 in-depth surveys that elaborate various ways in which the financial system “fails the most vulnerable Americans”. The U.S. Financial Diaries project is driven by similar motivations – it wants to understand how low-income individuals and households manage their financial lives.

You’re probably familiar with the financial diaries methodology championed by PoTP – conducting repeated surveys exploring every detail of a HH’s financial life for an extended period of time. This provides unprecedented detail, specially into behaviors that are difficult to pick out in one-off surveys, such as extent of engagement with the informal sector, and savings intermediation habits. As one can imagine, the presence or absence of various financial instruments creates a completely different ecosystem than say what we see in Kenya or India or the Philippines.

Non-probability sampling techniques are used, so the results will not be representative of the entire US. “Sites have been chosen to ensure geographic, ethnic, and racial diversity of households and urban/rural communities,” according to the project website, with sites including “Cincinnati and surrounding areas, Northern Kentucky, Eastern Mississippi, San Jose and surrounding areas, Queens, and Brooklyn”.

The project is in the data gathering stage right now, and we can expect analysis to start coming out in 2013 itself. It’s got the heavyweights in this field behind it – it is being administered by New York University’s Financial Access Initiative (FAI), Bankable Frontier Associates (BFA) and The Center for Financial Services Innovation (CFSI), with funding from Ford Foundation
and Citi Foundation and the Omidyar Network.

I for one can’t wait to see what comes out of it – the chance to compare and contrast with similar studies around with world will be quite interesting, as will be any follow up work that utilizes this information to design interventions to address the poverty situation in the US.

17Dec/12Off

4 Stages to Digital Inclusion

Posted by Ashirul Amin

The concept of financial inclusion has been around for a while, and digital approaches to furthering financial inclusion has received a lot of attention because it is a potentially relatively low cost way to bring a basket of financial services to the doorstep of those who have been ill-served by the formal financial sector. Dan Radcliffe and Rodger Voorhies at the Bill & Melinda Gates Foundation recently published a paper titled A Digital Pathway to Financial Inclusion that does a nice job of capturing some of discussion and evidence surrounding digital approaches to financial inclusion.

In their own words:

We depict what digital financial inclusion would look like and present a growing body of evidence which suggests that connecting poor people to a digital financial system will generate sizable welfare benefits. We argue that countries will not bridge the cash-digital divide in one giant leap. Instead, they will likely pass through four stages of market development along the pathway to an inclusive digital economy.

This image is from page 9 of the paper that captures the central thesis:

 

You hear about all these digital-based interventions, from cell phones to mobile money to digital deposits of government-to-person (G2P) payments and sometimes it’s overwhelming to try to categories which does what and how it matters in the grand scheme of things. I think this 4-stage schema does a pretty good job at providing one framework for all that.

5Sep/12Off

MicroSave naturally experimenting in AP

Posted by Ashirul Amin

Natural experiments are great for the social sciences, and has been exceedingly rare for microfinance. Then the AP crisis came along, and caused the kind of change in circumstances that make for just such an experiment.

Basically, microfinance institutions beat a hasty retreat, writing off their outstanding loans as losses to a large part. This caused a pretty significant vacuum in liquidity providers in local economies. Guess who filled it up. SHGs, to a certain extent, sure. But this was also the perfect opportunity for the traditional archenemy of microfinance – moneylenders – to make a roaring comeback!

Relevant section from the abstract:

Both studies validate the fact that the members of the community face issues raising credit in the absence of MFIs. Members of the community have reduced their spending on important aspects such as health, education and business because of non availability of adequate credit from alternative sources. Moneylenders are having a field day with the absence of MFIs. Members of the community are falling back to moneylenders who charge usurious rates of interest to meet their credit needs.

Here’s the full report: Andhra Pradesh MFI Crisis and Its Impact on Clients

And a related policy brief: What Are Clients Doing Post The AP MFI Crisis?