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

7Apr/150

Why the debates that the recent microcredit RCTs are meant to close are going to be endless

Posted by Ashirul Amin

Author: Ignacio Mas, Senior Fellow, the Council on Emerging Markets Enterprises at the Fletcher School, Tufts University

We have been handed down a fresh round of evidence on the impact of microcredit from six randomized control trials (RCTs) undertaken by eminent economists (see summary paper here). The results are what most reasonable people would expect: that microcredit is useful for many but by no means transformational. Perhaps the more novel finding is that the impact on average is zero, not negative.

So does this finally settle the debate then, some forty years after Muhammad Yunus’s first (non-random) experimentation with microcredit? Alas, I don’t think so, though it will certainly affect how arguments are pitched henceforth. There are four reasons why evidence from RCTs alone will not close the debate.

First, RCTs are pure empiricism, devoid of any theory. Give a bit of something to some, withhold it from others, and compare. So when the results come out, all one can do —indeed, what the dozens of online commenters on these studies have done— is to interpret them by retrofitting them into one’s own prior theories and mental models. How did the impact happen? Why the differences between men and women, young and old, richer and poorer? Would this work elsewhere in the same way, or if the interest rate were lower? But all we have learned is that six concrete programs are not impactful, on average. The rest is inference and theorizing. We are back to extrapolating on the basis of isolated (now n+6) data points.

Second, RCTs measure impacts on a number of variables: consumption, investment, schooling, female empowerment, job creation, etc. Results are often a mixed bag, so we back up into the problem of how to total up these impact categories to get a net-net impact. There’s now the inevitable suggestion that we should be measuring how people’s happiness is affected, as a sort of grand bottom line. How can we hope to measure ultimate impact if we lack even a basic definition of what we mean by impact?

Third, there’s the question of what we are supposed to make of averaged impacts. We know that debt is not right for everyone, so why would or should debt be held to an average standard of goodness? Surely debt is good for some people, in some circumstances, at certain times. What’s the point of diluting —and possibly cancelling— the benefits to these people statistically? The issue is one of targeting interventions, not passing across-the-board judgments on them.

Finally, for all the sophisticated statistical tools deployed, it all hinges on the quality of the data collected. Given that RCTs are fundamentally an empirical exercise, it is odd that in the dozens of online commentaries on the six studies there hasn’t been much discussion of the empirics itself. The research papers are often not written for people like me to understand (have you tried reading them?), so I am relegated to being a user of the abstract, introduction, and conclusions sections. But what I can read —what we can all process— is the survey questionnaire. I would urge all those who feel they need to have an opinion on these studies to start by reading the questionnaires. Take this one, for example. In your mind, is this fit for the purpose of evaluating the impact of microcredit? Does this meet the lean research standards proposed by Kim Wilson? Try to have the questions answered tonight by your partner or spouse. Then try to imagine what kind of data you’d get if you were going around asking these questions of perfect strangers, showing up at their doorstep unannounced.

The suggestion that such empirical studies can settle the impact question of microcredit is just as naïve as the prior suggestion that the best way to get poor people out of poverty is to get them into recurrent cycles of debt. I agree entirely with the findings from these RCTs. Was anyone really hopeful that the six RCTs would turn out otherwise?

Filed under: Uncategorized No Comments
30Jun/14Off

Phoning with your bank – the Equity MVNO

Posted by Ashirul Amin

Fascinating developments in the Kenyan mobile banking space – Equity Bank announced last month that they would become a mobile virtual network operator (MVNO) sometime in July. What on earth posses a highly successful bank to venture into the mobile business? It’s something between the desire to the last mile (literally) to serve clients, and responding to an existential threat, apparently.

Fletcher’s own Ignacio Mas and Equity’s John Staley make their case for the former in the CGAP blog, Why Equity Bank Felt It Had to Become a Telco – Reluctantly. He notes three reasons – lack of full security, unreliable speed and unfair price – behind becoming an MVNO to enhance Equity’s mobile banking offerings.

There seems to be a very strong additional motivator – MPesa has gatecrashed its way into the very client segment that was an Equity stronghold – low end retail market. This blog post makes a good case for why it’s a response to an “existential threat” from MPesa. MShwari is a savings-and-loan product offered by Safaricom in partnership with CBA, and has been phenomenally successful – it now has more than a million clients. They can save up to KES 100k, and take loans out for KES 20k. Surprising, considering how expensive its loan offering is, with APR clocking at 138% per annum when one conservatively compounds the 7.5% service fee, but it is also extremely convenient, because it allows one to not just save from the phone, but get almost immediate loans through ubiquitous MPesa agents.

What makes Equity think they can morph into part-telco to cater to this market segment? Their track record is not that stellar so far. Equity is no stranger to mobile money – it currently has offerings with pretty much all the major MNOs in Kenya – but their uptake is overshadowed by MPesa’s 73% coverage of the mobile money market. It also tried it’s hand at a partnership with Safaricom through the ill-fated M-Kesho project, but that did not end well. (Some details here and here.)

It does have one advantage though – because it is a bank with many other non-telco related sources of funds, it can cross subsidize the telecom services. Equity declares its desire to price aggressively already:

Mobile transfers will be charged at 1% of the transaction  value compared to the prevailing market charges of 16%. The charges will be  capped at  Ksh  25  per transaction.  Additionally, instant loans will be available at  a maximum of  2%  per month  compared to the 7.5%  per month offered in the market.

And as Ignacio and John point out:

To the extent that Equity customers use the telecommunications services that come along with their new SIM card, that will help to pay for costs associated with the roll out of the MVNO. But Equity does not see it necessary to fight the operator in its core business: all it needs is to break-even on the telecoms part.

Will Equity be able to provide a compelling enough mobile experience for clients to phone where they bank? Is this yet another significant shifting of the sands in the mobile banking landscape as the line between banks and telcos become more and more blurry? Either way, the winner from all this innovation and competition should be the Kenyan consumer.

Filed under: Uncategorized No Comments