I’ve been reading a great deal recently about the linkages between food availability, intra-household resource allocation, and nutritional status, and it’s made me wonder about time-specific determinants of resource allocation. That is, it’s clear that there are some systematic, long-term differences in allocation connected to overall education levels, overall income, and gender. What I’m curious about are short-term, potentially more idiosyncratic effects: for instance, are women more or less likely to command adequate nutrition if they fall ill? Are there differences between the amount of food received at home by, say, a young child in school (potentially also benefiting from a school lunch program) and an older child who drops out to care for younger ones or help in the fields? How much would one discount future education (for the young child) versus immediate ability to do work in that case, and how might one be able to change that calculus if it weren’t a long-term beneficial one?
The obvious connection to pro-poor financial services lies in the oft-noted social “shock” of women suddenly receiving access to credit when they previously had none, which disrupts existing allocation schemes and may result in tension or violence between women and their relatively disempowered husbands. I can think of a few specific predictors of violence or generally negative reactions in this case – a history of prior violence being the most obvious one, or a husband’s unemployment, or a cultural injunction against women handling money – but I wonder if there are other traits that could be used to predict whether men might react poorly to women’s credit, and perhaps develop plans to defuse this scenario.
The insight of pay-as-you-go schemes as a response to variable incomes is a great one. Its applicability to things like mobile phone minutes is obvious, and I’m very curious as to how it could be applied to financial services for the poor. The big stumbling blocks appear to be the questions of credibility and enforceability. Or, rather, the fact that enforceability tends to engender credibility – banks believe their clients when they say they’ll pay, as they can easily check up on their payments and enforce them if they fall behind. A pure pay-as-you-go plan in microcredit – say, a three-month loan that can be repaid in any amount at any time before the three-month period is up – would be unenforceable over the period of payment, as the bank couldn’t demand payment at any given time before the deadline.
Actually, that’s a separate (and interesting) question – how different types of enforcement may affect the repayment of loans. Perhaps you could look at peer pressure in lending groups, vs. occasional visits from a loan officer, vs. frequent visits from a loan officer, vs. financial incentives for timely payment, or something like that. That might shed some more light on designing systems of incentives for ultimate on-time payment of a pay-as-you-go loan.
Loan repayment book, WomensTrust Microfinance, Pokuase, Ghana
I think I missed an important point in my last musings on microfinance – that ex-post savings does actually make sense if the loan is given for investment rather than consumption. So the salient factor in assessing the potential of microloans to help or harm their recipients is also connected to their intentions for the use of the loan, as well as their existing income level.
But this does come back to the broader point currently being raised by many people, about the apparent contradiction between views of the poor as necessarily innovative, and the fact that most people, rich or poor, aren’t good at being individual entrepreneurs. I do wonder if the “poor as inherent innovators” view doesn’t suffer from some confirmation bias. There certainly are many memorable examples of entrepreneurship born from poverty, but, as in the developed world, it seems that there’s a subset of people who are actually responsible for innovation. The demands of living in poverty do include hard work and often creativity, but while those characteristics are also necessary for market-based entrepreneurs, they’re not by themselves sufficient. Even investment-oriented microloans can turn into consumption-oriented ones, in practice, if their recipients don’t have adequate business strategies and market knowledge for their use. Perhaps it’s not quite as bad at the level of larger microfinance banks with better data-gathering operations, but at the level of the small organizations at which I’ve worked, there seems to be a lot of fuzziness around the use of loans and their ultimate impacts. I worry that this is one of the situations where a lack of data may actually end up harming people who really can’t afford to be harmed, in improperly distributing loans.
From Sen’s perspective of freedom, I suppose the ultimate question of entrepreneurship is whether self-determined employment (but perhaps a lower wage) or higher-waged corporate employment (but less career self-determination) is more conducive to personal freedom, in the end. For the majority of people, I’m guessing it will be the latter, once you average the benefits of a higher wage over all the categories that it affects.
I always thought the whole fuss over microcredit as the panacea of development, back in 2005, was a bit silly – there’s never a silver bullet for something as complex as economic development. It’s remarkable how much some people want to believe in such cure-all interventions anyway. We as a species are pretty clever, but we’re not very wise, nor are we particularly good at thinking in terms of complex systems and interactions over distance or between multiple parties. But I digress.
Sometimes I also think that people who wish to design economic empowerment programs for the poor have a poor track record of picking historical or cross-cultural examples to learn from. So many programs are erroneously predicated on fundamentally Western beliefs about social structures – say, the persistent thought in community development programs a few years that a local mayor or group of elders could accurately represent the rest of the people in a town, which seems to draw on traditions of democratic representation in local government that exist in the West, but don’t always hold true in developing countries. (Of course it does in some places, but there are plenty of counterfactual examples as well.) And yet, when it came to microfinance, so many providers seem to have made exactly the opposite mistake, and ignored the fact that in Western systems of credit, some people are outright judged too “vulnerable” (i.e. uncreditworthy) to take out a loan, for fear that they won’t be able to repay. I certainly understand that it’s hard to judge someone’s creditworthiness in a low-income situation, and microfinance does indeed benefit many people who may have been unfairly excluded from traditional credit on the basis of their existing poverty. But that’s the point: just because microfinance is “for the poor,” doesn’t mean that it’s for everyone who’s poor.
Indeed, it’s been shown that the benefits of microcredit tend to accrue to borrowers who live right around the $1-a-day poverty line – not to the poorest of the poor, such as those who are too sick or old to work, or who are somehow kept outside of the cash economy for other reasons. This may seem like a rather cruel paradox – that people who may be most in need of additional capital are least likely to benefit from a microfinance intervention – but instead I think it speaks to the fact that it’s unusual to use market-based solutions, such as microcredit, for social protection. Hence the kerfuffle about Bush’s social security investment accounts around the same time. This seems like a broader and more accurate analogy than any belief that local government must inherently be representative, and it’s interesting that the dialogue around microfinance as the best economic solution for the poor (as a unified body) seemed to miss the nuances of credit’s function in more developed economies. (Of course this is also a generalization, as there are surely some microfinance institutions who take these things into account, but the number of academic accounts that I’ve seen of microfinance’s shortcomings suggest that there are plenty which don’t.)
When I was researching microinsurance and maternal mortality last year, I was struck by some of the observations that other researchers felt it necessary to include in their results. One of them was the finding that distance to a health center affects people’s access to care. In other news, water quenches thirst! I had to wonder if this was a relic of the general lack of forethought that must be put into procuring transport in the global North, where it’s more or less equally simple to reach a doctor one kilometer from one’s home as thirty kilometers. I otherwise fail to see how it’s notable that people who live farther from a clinic may use it less often.
This does highlight the fact that there are fundamental issues of healthcare access that aren’t purely microeconomic in nature. Distance is one, but the challenge of retaining skilled doctors in a low-wage environment is a second, and difficulties in obtaining and maintaining quality equipment and medication stocks (non-counterfeit medications!) are a third. The attitudes of healthcare workers also appeared extremely important to low-income patients, who seemed understandably sensitive about their social status, and hesitant to use centers where they would be treated disrespectfully because of their poverty.
The other thing I’ve been thinking of, however, was a little-discussed (at least in the papers that I read) corollary to the observations that microinsurance increases healthcare access, and health centers are favorably inclined towards patients who can actually pay for their care. My immediate concern upon reading these statements was, if access to microinsurance is still uneven, isn’t there a real possibility that patients who are even slightly better off will crowd out those who are too poor to afford $2-a-year insurance at all? If the resource base of health centers is fixed (and it may not be – I don’t have info on that), dramatic increases in patients covered by microinsurance could very well make the poorest of the poor even more vulnerable. I wonder how you’d best be able to test that. I imagine you’d have to look at the effects of a growing resource base (if the increased payments are used at the local level) or the improved quality of care referenced in the last post, and sort out what effects those have on the healthcare uptake rates of the poorest. Perhaps the question actually is, does extending microinsurance to some harm the uninsured by crowding them out, or does it improve their situation by letting them get a bit of a free ride on some improvements brought about by the insurance payments? Interesting.
Income variability is hugely important. The salient factor about the incomes of poor people isn’t just that they’re low; it’s that they vary seasonally and daily, which makes regular payments for anything difficult. Commitment savings devices are even better worth pursuing in this circumstance, because the combination of poverty and a variable income can be tragic when it comes to large welfare-related expenses, such as school fees or healthcare. Pursuing “opt-in” savings strategies (such as paying people to open accounts) is a good option. So is designing loan repayment systems with A) realistic assumptions of the timeframe of income generation, and B) flexible payment options.
In a sense, “emergency” microloans are just a more expensive form of saving for the poor. Rather than saving in advance and earning interest, they have to save after the fact and pay interest. The incentives of the poor (not reducing current consumption for future expenditures) and the banks (taking in interest instead of paying it out) are currently aligned on this issue, but it results in a suboptimal equilibrium. Or, actually, I wonder how these incentives might vary between formal banks, and microfinance organizations (often non-profits) which may acquire their capital from different sources.