Saving for the future: Facilitating success for a common resolution

Finance

Posted on:

3 January 2020

Authors:

Samantha Carter

Photo: Shutterstock.com

At the start of a new year, many people around the world set resolutions to improve their lives over the course of the year: to eat healthier food, to be kinder, and to quit smoking, to name just a few. Many resolutions are bound to fade over time—one common statistic claims that only 8 percent of Americans actually achieve the resolutions they set at the beginning of the year. But evidence from a wide body of research provides us with insights that can help us achieve our goals.

One relatively well-researched area, for example, is helping people save for the future. Savings represent a pool of funds that can be used to invest in promising opportunities or to cope with unexpected setbacks. Yet, in 2017, 52 percent of adults worldwide reported that they had not saved or set aside any money in the past 12 months, according to the World Bank’s 2018 Global Findex. Adults in developing countries are less likely to save than their counterparts in high-income countries; in 2017, only 43 percent of adults in developing countries reported saving any money in the past 12 months, compared to 71 percent of adults in high-income countries. Given that savings can enable people to smooth consumption and finance productive investments, what explains these low savings rates? And what can (or should) be done to increase savings behavior?

Researchers affiliated with J-PAL and our sister organization Innovations for Poverty Action (IPA) have identified five potential barriers that prevent people, especially low-income individuals, from saving:

First, costs, both monetary and non-monetary, can impede account ownership and use. Especially in developing countries, the accounts available to low-income individuals often charge fees for opening and withdrawing funds from accounts, and many have minimum balance requirements. Households may also face non-monetary costs that prevent them from using savings accounts, like the time required to travel to the nearest bank branch. Reducing these costs can promote savings product ownership and use, and in a number of studies has also led to increases in investment, income, and resilience to setbacks. However, access to accounts does not guarantee increased savings: according to the Global Findex, only 31 percent of account owners in developing countries reported having saved at a financial institution in the past twelve months.
Second, people’s natural behavioral tendencies can lead them to save less than they would prefer. Simple forgetfulness, over-optimism, or the tendency to prioritize today’s spending decisions over those in the future lead many to forgo saving. Financial products specifically designed to overcome behavioral biases have been effective tools to increase savings in a number of contexts. Examples include reminders to save, peer savings monitors and savings groups that leverage social pressure, and commitment savings products that restrict the use of funds until a certain goal is met.
Third, social links and obligations affect savings behavior within and between households. Individuals often face competing interests for their money from spouses, relatives, and friends, both within and outside the household. Within the household, saving and investment decisions depend on the distribution of decision-making power and the compatibility of individuals’ preferences for spending and saving. Differences in bargaining power can affect women’s demand for products that make it easier to access cash (e.g., ATM cards); conversely, products that restrict access to cash (e.g., mobile transfers, commitment savings accounts) can increase bargaining power. Savings products can also reduce dependence on loans or transfers from a household’s social network.
Fourth, lack of trust in financial institutions may affect the willingness of individuals to save in banks or other institutions. Similarly, regulatory barriers such as “know your customer” rules may disproportionately affect low-income individuals who may lack official identification or a residential address. These regulations can increase costs for low-income households to save in formal financial institutions. As evidence on increasing trust in financial institutions and addressing regulatory barriers is limited, this is a promising area for future research.
Finally, knowledge gaps and limited information can lead people to under-save, over-save, or save inefficiently. Although policymakers and practitioners alike view financial literacy and capability as priority areas to increase access to finance among low-income populations, traditional classroom-based trainings have rarely succeeded in imparting lasting knowledge or changing people’s financial behavior. Recent evidence suggests that simple, targeted, actionable, and/or accessible trainings are more likely to change financial behaviors.

With this evidence at hand, a question emerges: Should we encourage people to save? Evidence from a number of randomized evaluations suggests that offering people savings products can lead to increased investment in businesses or education, increased income, reduced vulnerability to setbacks, or reduced debt. (For a more comprehensive review of savings product impact evaluations, see Figure 5 of Dupas, Karlan, and Robinson 2018.)

However, increasing savings balances may not be ideal for all people at all times. For example, it may be optimal for a household to pay down existing high-interest debt rather than save in an account that pays a modest interest rate or charges account holders to maintain or withdraw funds. In other cases, the benefits to spending income immediately—for instance, in the case of food insecurity or a health emergency—may be larger than the benefits of saving. In general, financial decisions are complicated and depend on the unique circumstances facing any individual or household.

While no recommendation can be one-size-fits-all, as a development community, we should work to ensure that every household has access to financial products and services that meet their needs, and to the information and knowledge that will enable them to use those products and services. Banks and microfinance institutions should (continue to) offer low-cost or free basic savings accounts, which make it less costly for households to save in a formal institution.

When designing savings products for low-income households, financial institutions should consider how product design can help overcome barriers to saving. Researchers should continue to study the causes and consequences of under-saving, as well as the innovations or interventions that seek to drive savings behavior. Finally, funders should continue to support the development and evaluation of new strategies to reach those who are under-served or excluded by the existing financial system.

Authored By

Samantha Carter

Recommended content

Language English

Summary

J-PAL Africa, based at the University of Cape Town, recently launched the Digital Identification and Finance Research Initiative (DigiFI Africa). Supported by the Bill and Melinda Gates Foundation, this USD$7 million research fund is designed to study the impact of innovative government and private sector payment systems and digital identification (ID) reforms on citizens and governments across Africa.

Date

Fri, 08/02/2019 - 12:00

Image

DigiFI_Blog.jpg

Body

Policymakers across Africa are increasingly investing in large-scale digital identification and digital payment systems. Because these systems are so new, little rigorous research exists on how best to design and implement such systems in low-income contexts. How do these rapid changes affect the lives of citizens? How can they best be structured to lead to the most benefit? Are any groups adversely affected by these reforms?

DigiFI Africa will cluster research around these questions, supporting research that evaluates impacts on citizens and generating results that provide guidance on critical design questions as reforms go to scale.

Improving efficiency in public spending through digital finance and digital identification has the potential to have large impacts across Africa. For example, these technological innovations have the potential to enhance record-keeping and transparency by collating administrative data and automating transactions, decreasing the potential for delays and errors in payment systems. Digitizing payments can reduce both the need for travel to access financial services and the time burden of engaging with administrative processes. In addition, digitizing the process of business registration and firm regulation can bring more firms into the tax system and raise revenues for the government.

The DigiFI Africa framing paper lays out the research agenda for the initiative. DigiFI Africa promotes research to address the following questions:

From a government’s perspective:
- How can digital ID systems assist with targeting and efficiency in public programs? Do digital ID systems assist or hinder in reaching marginalized populations?
- Can digital ID systems and digital payments reduce rent-seeking? What are the generalized equilibrium effects of digital payments on rent-seeking?
- How can digital ID systems and digital payments assist in building incentive systems to motivate public servants?
- How can payment design (such as targeting a specific household member to receive the transfer or changing timing the payment) affect its impact?

From a citizen’s perspective:
- How do government services linked to digital IDs affect citizens? What are the best ways to design these linked services for the greatest impact at the lowest cost? Do digital ID systems and digital payments encourage or dissuade take-up of government programs?
- Do digital ID systems improve the overall efficiency of government programs? If so, do these efficiency gains reduce poverty?
- How do digital IDs affect voter participation, the fairness of elections and electoral outcomes? Does increased enfranchisement affect policy decisions?
- Can digital IDs promote further digitization in financial systems and thus enhance financial inclusion? How does this affect short- and long-term poverty outcomes?
- Can digital payment schemes empower traditionally weaker household members or affect the allocation of household resources?

Fiscal capacity:
- Can expanding the formal economy increase the tax base through incentives and simplified processes introduced by digital payments and digital IDs?

Externalities:
- What is the impact of digital ID and digital payment systems on market-level general equilibrium effects? What are their impacts on wages and employment? Are there impacts on occupational choice or migration?
- What are the spillovers on non-beneficiaries of digital ID and digital payment systems?

Private sector impacts:
- Can digital ID systems encourage businesses to enter the formal sector? Do these reforms reduce entry costs to entrepreneurship and enable productive investment?
- Can digital ID systems help strengthen law-enforcing institutions and in turn affect private investment?

DigiFI Africa will run a competitive research fund with requests for proposals (RFPs) twice annually through 2022. The initiative will support researchers in conducting two phases of work:

Formative research that includes pilots and high-frequency monitoring systems to assess the status and health of digital payments and digital ID programs at various stages of reforms.
Rigorous randomized impact evaluations to test the impact of roll-outs of promising digital payment and digital ID reforms.

Funding is open to J-PAL affiliates, invited researchers, researchers with a PhD based at an academic institution in Sub-Saharan Africa (details here), and PhD students who have a J-PAL affiliate on their dissertation committee. The Round 1 RFP closes on September 20, 2019. For more information, contact Aimee Hare.

Researcher(s)

Shweta Bhogale

Tavneet Suri

Sector(s)

Finance

Political Economy and Governance

Author(s)

Emily Cupito

Aimee Hare

Policy

Language English

Date

Wed, 03/27/2019 - 12:00

Image

gup-egypt.jpg

Body

At the 2017 World Youth Forum, Egypt’s Minister of Social Solidarity, Ghada Waly, noted that civil society organizations were vital partners in the realization of Egypt’s 2030 strategy goals. An important pillar of the 2030 goals focuses on social justice, in particular ensuring the protection and support of Egypt’s most marginalized and vulnerable groups.

According to the 2015 income and expenditure survey conducted by the Central Agency for Public Mobilization and Statistics, 27.8 percent of Egypt's population lived below the national poverty line of EGP 482 (US$61). This figure was expected to increase following the devaluation of the Egyptian currency and the rise in food prices in 2016.

Aligning with the social justice pillar outlined by the Egypt 2030 strategy goals, the Ministry of Social Solidarity launched the Takaful and Karama (T&K) programs in 2017 to support the country’s extreme poor. The T&K programs provided conditional and unconditional cash transfers to approximately 2.2 million Egyptian families as of 2018.

However, as the program grows, there is mounting pressure to find innovative policies to “graduate” the T&K programs’ participants from extreme poverty. According to the World Bank, 1.3 percent of Egypt’s population was living under $1.90 per day in 2015. To tackle this issue, the Sawiris Foundation for Social Development (SFSD), BRAC, and J-PAL are partnering to introduce an evidence-based program in Upper Egypt.

One such intervention is the Ultra-Poor Graduation Approach, pioneered by BRAC’s Targeting the Ultra-Poor (TUP) program in Bangladesh, which began in 2002 and has since served over 1.9 million households. Graduation is a time-bound and holistic approach that aims to improve the socio-economic resilience of households at the base of the economic pyramid.

To help the extreme poor gain a foothold on the economic ladder, Graduation sequences interventions including:

Grants for income-generating assets such as livestock, sewing machines, and agricultural inputs, among others,
Technical skills training,
Consumption support and linkages to basic services (i.e. health, education),
Savings support and financial literacy training,
Mentorship.

The approach has been evaluated by J-PAL affiliates and globally adapted and implemented by governments and organizations. It has shown lasting impacts on the program participants’ standard of living when implemented in a diverse set of contexts by a range of implementing partners.

But we wondered, could the approach be adapted for the Egyptian context with similarly positive impacts?

With guidance from J-PAL Director Abhijit Banerjee, who visited Cairo in November 2017 and who was also a researcher on the Graduation impact evaluations, SFSD, the J-PAL team in Cairo, and BRAC explored how to adapt Graduation for Upper Egypt. Together we create a strong partnership, bringing together SFSD’s contextual knowledge, BRAC’s international expertise in adapting Graduation, and J-PAL’s experience in running impact evaluations which will further our understanding of how to design and implement the Graduation approach to maximize impacts.

There are numerous reasons why SFSD, which I (Noura) lead, wants to pilot such a program. First, SFSD is committed to empowering underprivileged Egyptians to lead productive lives that realize their full potential. It has approached this by seeking out interventions with similar objectives that have been successful in different contexts. The program is also fundamentally aligned with SFSD’s vision.

More broadly, piloting the Graduation approach in Egypt will be one of many efforts to address the increasing poverty rates in the country as inflation and strict economic reforms take a toll on its poorest. The program also aligns with BRAC’s mission to reduce extreme poverty as a contribution to the UN’s Sustainable Development Goal 1.

SFSD and BRAC are partnering with J-PAL to lead an impact evaluation that is vital to help us, and others, understand whether participants transition out of extreme poverty due to the Graduation approach in Egypt. At a “micro” level, the evaluation will illuminate whether participants benefit from the program or not, and in what ways. We are interested in a number of questions including:

Did the program have an impact on consumption, asset ownership, health, and the food security of households?
What is the impact of explicitly targeting income-generating support (asset transfer and technical training) to women in the households compared to the male heads of the household?
Can a leaner model with lower costs lead to similar household outcomes?

At the “macro” level, we hope the evaluation can inform decisions to scale it up at the national level by the Ministry of Social Solidarity, and that it adds to the global literature on the impact of Graduation across a number of different contexts.

J-PAL’s Egypt-based research team is providing technical support for the evaluation developed by J-PAL affiliated researchers Adam Osman and William Pariente, along with Ragui Assaad. We are assisting in adapting Graduation through monitoring the quality of implementation, and in developing contextually relevant targeting tools. The program will begin in the Sohag and Assiut governorates of southern Egypt in 2019 and will last through 2021.

Sector(s)

Finance

Gender

Region(s)

Middle East and North Africa

Is digital finance leaving anyone behind?

We kicked off our chat by discussing how digital finance may be a promising way to expand financial inclusion for those who are currently unbanked. A participant asked about how we can achieve financial inclusion for the very poor, especially because traditional financial services tend not to reach low-income customers. Researchers agreed that last-mile access remains a challenge.

But my question is, apart from group lending strategy how financial products can reach the very poor? (In conventional banking system they used to refer them as Unbankable group)
— Inno Rusomyo (@innorusomyo) October 31, 2018

Thanks @innorusomyo for the question. Reaching the very poor can be quite costly, so digital finance is a promising avenue. We cover other ways to reduce transaction costs in our policy insight: https://t.co/igkZrHabRJ @CEGA_UC #FinclusionWeek https://t.co/7AVLMej40H
— J-PAL (@JPAL_Global) October 31, 2018

Indeed, recent large scale surveys from #Kenya and #Tanzania found that digital credit remained out of reach or unused by the most vulnerable groups @CGAP, @FSDKe, and @FSDTanzania https://t.co/XRqUppeZ55
— CEGA (@CEGA_UC) October 31, 2018

There seems to be a consistent patter about who uses digital credit, and who is still excluded. In both Kenya and Tanzania, farmers and casual labour are far less likely to use digital credit compared to salaried employees and entrepreneurs. More details: https://t.co/1IVUAA8hmQ
— Edoardo Totolo (@edso) October 31, 2018

Lowering costs for providers and users

Even when traditional financial services are available, user fees and other barriers may be prohibitively costly for low-income customers. We discussed ways that financial service providers—both digital and otherwise—can help lower these transaction costs.

Low trust in financial institutions is a barrier to #FinancialInclusion, but #digital financial services can ↑ trust and savings. Bachas, Gertler, @SeanKHiggins, Seira explain in @VoxDev https://t.co/xbakTq9gmJ
— CEGA (@CEGA_UC) October 31, 2018

In the case of cash transfers, M-Pesa and other mobile money services reduce transfer costs to a minimum. For other financial products, my sense is increases in smartphone penetration will solve the access problem quite soon.
— Johannes Haushofer (@jhaushofer) October 31, 2018

You may want to check out work by @FSDKe on expansion of access through digital credit in Tanzania and Kenya. I also worked with them on putting together a summary of our results on M-Shwari in Kenya, available here: https://t.co/X9ptXyxU0V
— Tavneet Suri (@SuriTavneet) October 31, 2018

However, updated services design can help! @CGAP, @FSDKe, and @FSDTanzania outlined a few possibilities: more nuanced algorithms, flexible repayment structures, timeframes suited to managing the uncertainty and the seasonality of rural livelihoods, and pricing. #FinclusionWeek
— CEGA (@CEGA_UC) October 31, 2018

Closing the gender gap in digital finance

Digital finance may also be an effective tool to expand access to accounts for women, who currently have lower rates of financial access than men. And with expanded access, there is evidence of improved outcomes for women and their families.

#Women represent 56 percent of the unbanked. Can mobile money help close the #gendergap in financial inclusion? #FinclusionWeek @CEGA_UC pic.twitter.com/rR0i3ICCCm
— J-PAL (@JPAL_Global) October 31, 2018

We are optimistic. In African countries with high mobile money penetration, we find the gender gaps between mobile money users are lower than those between bank account users. Maybe it’s more difficult for a woman to travel or she trusts her local
agent. pic.twitter.com/s5kfz4EfyS
— World Bank Findex (@GlobalFindex) October 31, 2018

CEGA Post-Doc @SeanKHiggins is exploring how #DigitalCredit algorithms using #AI and #MachineLearning could ↓ bias against women in access to credit https://t.co/K7x2XYCB29 https://t.co/2FkUrM5KO8
— CEGA (@CEGA_UC) October 31, 2018

(1/2) Mobile money may give women more control over household spending. In Niger, women reported that mobile money was easier to hide from their husbands: https://t.co/sE4WKOuc2L). https://t.co/CKvZwoWeAB
— J-PAL (@JPAL_Global) October 31, 2018

Gender-specific barriers in digital finance

Economic constraints like the costs associated with owning a mobile phone and technical literacy required to operate it disproportionally impact women. Additionally, social norms may limit if women have and how they use mobile phones. Researchers are continuing to explore barriers women face in accessing mobile money.

Despite the potential, women still face barriers to accessing mobile money. https://t.co/MQrIxibNFP @EPoDHarvard https://t.co/TuH9MKWE5Q
— J-PAL (@JPAL_Global) October 31, 2018

Absolutely. But Findex data shows men in Bangladesh are 25 percentage points more likely than women to have a mobile phone. Are women being left behind at the starting gate?! https://t.co/dbbYOOxZZL pic.twitter.com/o2GBdIkjHi
— World Bank Findex (@GlobalFindex) October 31, 2018

Great question! I don't know for Bangladesh. But, definitely not in Kenya where we found mobile money caused bigger reductions in poverty for female headed households & occupational changes only for women (in both male and female headed households). See https://t.co/6UnEW7sWv9
— Tavneet Suri (@SuriTavneet) October 31, 2018

We are actually working on some new stuff on Uganda, Tanzania and Bangladesh - stay tuned!! So hopefully we can try to have an answer to this for more countries...
— Tavneet Suri (@SuriTavneet) October 31, 2018

#FinclusionWeek comes a bit early for the most recent study by @Oxford_CSAE’s @EmmaRiley19 on the effect of dispersing micro loans to women through mobile money. This could help women fending of pressure to spend the money on non-business stuff. Results will be available soon!
— Lukas Hensel (@LukasHenselEcon) October 31, 2018

Innovative opportunities with digital transfers

Mobile money accounts can also be used to deliver unconditional cash transfers and other safety net programs. Researchers chimed in with results from evaluations of Give Directly’s programs that provide unconditional cash transfers to eligible households via mobile money and also shared a study on a state welfare program in India.

(1/3) @jeremypshapiro and I evaluated @Give_Directly’s program in Kenya that gives unconditional cash transfers (UCTs) to poor households via the mobile money platform m-pesa #FinclusionWeek https://t.co/7h6gvfeBTm
— Johannes Haushofer (@jhaushofer) October 31, 2018

(2/3) After 9 months, @Give_Directly's program increased households’ assets by 61%, consumption by 23%, and business revenues #FinclusionWeek
— Johannes Haushofer (@jhaushofer) October 31, 2018

(3/3) @Give_Directly households also had improved psychological well-being, lower levels of depression, increased happiness and life satisfaction. Read more about the study here: https://t.co/sO527XrXcI #FinclusionWeek
— Johannes Haushofer (@jhaushofer) October 31, 2018

Three years after transfers, the impacts on assets persist. Other impacts are still there in the within-village comparison, but not across villages, suggesting possible spillovers. Difficult to make conclusive statements because of some differential attrition #FinclusionWeek https://t.co/PvpYQbjvq1
— Johannes Haushofer (@jhaushofer) October 31, 2018

@GiveDirectly treats all eligible households in a village now. Watch this space for evidence on price effects and spillovers on ineligible households, with @tedmiguel, @PaulFNiehaus, and Michael Walker
— Johannes Haushofer (@jhaushofer) October 31, 2018

Also check out our affiliate Craig McIntosh and Andrew Zeitlin conducted an #evaluation of @Give_Directly #cashtransfers in #Rwanda -https://t.co/0uIwnv4yPF https://t.co/vdQ5HjkuoG
— CEGA (@CEGA_UC) October 31, 2018

@PaulNiehaus @Prof_Karthik_M Sandip Sukhtankar found that investing in secure payments infrastructure e.g. biometrically authenticated payments infrastructure (Smartcards) could significantly enhance 'state capacity' to implement welfare programs in India https://t.co/OEvKM3iv0b
— CEGA (@CEGA_UC) October 31, 2018

Evidence on digital financial services and migration

Another participant asked about ways mobile money could facilitate migration and we shared randomized and non-randomized evaluations on this topic in response.

@JPAL_Global Is there past/ongoing research on the role of mobile-money in facilitating (internal/external) migration on the intensive and/or extensive margin? Thanks in advance! #FinclusionWeek
— Akib Khan (@akib_kn) October 31, 2018

Thanks @akib_kn for the Q. There is some #evidence that credit constraints may be a barrier to seasonal migration (like in this paper: https://t.co/1EU5e11VKh); digital credit may be way to alleviate this, but this an important question for future research. #FinclusionWeek https://t.co/rRdj0tztmF
— J-PAL (@JPAL_Global) October 31, 2018

This may be a good place to start: https://t.co/Y1RoCpbb3m
— Tavneet Suri (@SuriTavneet) October 31, 2018

Our affiliates Michael Callen and @jblumenstock touch on the issues of #migration and #mobilemoney in a series of papers including https://t.co/qzLFIVWq0b https://t.co/umuzow9zwW
— CEGA (@CEGA_UC) October 31, 2018

Migration and the Value of Social Networkshttps://t.co/4zoqW7JEQE
— CEGA (@CEGA_UC) October 31, 2018

Ethical questions remain

Digital platforms can also facilitate alternative credit scoring methods based on borrower’s mobile phone data. This can help further expand access to credit by improving lenders’ ability to assess creditworthiness—even for potential borrowers who lack a credit history. The DCO shared some key considerations when it comes to ethics of machine learning and credit scoring algorithms, as well as ongoing research on the topic in Kenya.

Hey @JPAL_Global and @CEGA_UC, with an increasing number of alternative methods of assessing credit, what protections should be in place to make sure that the algorithms used are ethical, fair and unbiased? #FinclusionWeek
— Elvis Wong (@elviswcwong) October 31, 2018

“Don’t forget people in the use of big data for development” @jblumenstock talks pitfalls of big data and biased algorithms, and ways to move forwardhttps://t.co/X4ye8QVyBN
— CEGA (@CEGA_UC) October 31, 2018

Watch DCO researcher @SeanKHiggins talk about his work on gender-differentiated credit-scoring algorithms #SmartDev2018 #MachineLearning #ArtificialIntelligence https://t.co/AZmmHKbgEU
— CEGA (@CEGA_UC) October 31, 2018

Certainly some potential risks with (alt) credit scores: In #Colombia, computer-generated credit scores led banks to extend larger loans to less risky borrowers and smaller loans to riskier borrowers - who may be more vulnerable. https://t.co/ws5JGlKERu #FinclusionWeek @CEGA_UC https://t.co/yIjezDBKaL
— J-PAL (@JPAL_Global) October 31, 2018

A few possible resources on #ethics and #MachineLearning include this panel discussion from #SmartDev2018 w/ @FKondylis @ermonste @aubra_anthony & Moorea Bregahttps://t.co/HQ6u4H5VoY https://t.co/VHK73JLuAX
— CEGA (@CEGA_UC) October 31, 2018

The DCO's Scientific Director @jblumenstock tackles some of these issues in his research on #Algorithms and #digitalcredit products https://t.co/sEspNW9I6m pic.twitter.com/UJCEUVGt9M
— CEGA (@CEGA_UC) October 31, 2018

With opportunities come challenges

Despite the promise of digital finance, quicker and easier access to credit also poses risks. Appropriate regulation and consumer protection is important—this is an area where more research is required.

Digital credit has reached large segments of the population in East Africa. In Kenya, one in three mobile owners has borrowed a digital loan. No other lending technology has ever developed at this speed. This obviously has risks https://t.co/vw4W9CyPx4 pic.twitter.com/rCKpJc8HJY
— Edoardo Totolo (@edso) October 31, 2018

basic tensions here imho:

(a) generally the best way to make sure you create valuable things is to try to sell them

(b) that's harder when you are creating for people with little $

(c) with financial products you worry more than usual that folks may self-harm, e.g. debt https://t.co/wX9qor1VQe
— Paul Niehaus (@PaulFNiehaus) October 31, 2018

First step is to be more disciplined in giving grant money to consumer lending. I’ve seen a multi million dollar grant to fund a telcos marketing campaign for a new digital loan. How is that anything but a corporate subsidy? https://t.co/cHSmEyO3Mw
— Rafe Mazer (@rkmazer) October 31, 2018

It is not that #digitalcredit per se is damaging (quite the opposite), but the current plain vanilla models need (significant) overhaul - much as microfinance did. See https://t.co/2ZSGapMeSe #FinclusionWeek @CEGA_UC
— Graham A. N. Wright (@GrahamANWright) October 31, 2018

Our current research will have some insights on #regulation, but in the meantime, the DCO has relevant resources here: https://t.co/FT0Dg8R2zt https://t.co/bU6Gtm715Q
— CEGA (@CEGA_UC) October 31, 2018

Look at these snazzy infographics explaining links between financial inclusion and the sustainable development goals! Excellent work @UNSGSA and @BetterThan_Cash https://t.co/BTVZU76tuf
— World Bank Findex (@GlobalFindex) June 6, 2018

Moving beyond access to impact

A big picture question cuts across all financial inclusion research: how does access to financial products and services affect wellbeing? The Global Findex shared how digital financial inclusion can help us achieve the Sustainable Development Goals.

Look at these snazzy infographics explaining links between financial inclusion and the sustainable development goals! Excellent work @UNSGSA and @BetterThan_Cash https://t.co/BTVZU76tuf
— World Bank Findex (@GlobalFindex) June 6, 2018

What’s next?

With so many unanswered questions around digital finance, J-PAL’s Executive Director Iqbal Dhaliwal asked what interesting open questions researchers are exploring.

My question for the #finclusionweek chat happening now with @JPAL_Global @CEGA_UC: What are the most exciting open questions J-PAL affiliates like @SuriTavneet and @deankarlan are asking about digital finance? (Join the discussion or ask your own question with #finclusionweek!)
— Iqbal Dhaliwal (@iqbaldhali) October 31, 2018

At the DCO we're looking at
1/3 What are the short-and long-run impacts (both positive and negative) of #digitalcredit on consumers in emerging markets? https://t.co/WezsJEusMU
— CEGA (@CEGA_UC) October 31, 2018

2/3 Is there heterogeneity in impacts along borrower characteristics (i.e. financial literacy, time preferences, income, and/or #gender)?
— CEGA (@CEGA_UC) October 31, 2018

3/3 How can non-traditional credit-scoring algorithms, regulations, and other #consumerprotection measures be designed to minimize default, over-indebtedness, leakage, fraud and other risks to consumers?
— CEGA (@CEGA_UC) October 31, 2018

How large are the spillovers from #digital #fintech adoption? My #JMP looks at this question for epayments in #Mexico. Gov policy ↑ dynamic fintech adoption on both sides of market (consumers, merchants, then more consumers). Abstact at https://t.co/FMEQLOcOtD #FinclusionWeek https://t.co/1kqLrY0UGs
— Sean Higgins (@SeanKHiggins) October 31, 2018

In response, Dean Karlan, our Finance Sector chair, raised questions he and other researchers are considering and offered his insightful summary of the opportunities and challenges that digital finance presents.

(1/4) We (@deankarlan, @SuriTavneet, along with others) raise some important questions and concerns in our paper https://t.co/NVEuP2boeB #FinclusionWeek
— Dean Karlan (@deankarlan) October 31, 2018

(2/4) How to scale safe digital credit? Digital finance providers’ incentives may not align with maximizing client’s welfare #FinclusionWeek
— Dean Karlan (@deankarlan) October 31, 2018

(3/4) How do we regulate the growing industry of digital finance? How do we ensure consumer protection for private client data? #FinclusionWeek
— Dean Karlan (@deankarlan) October 31, 2018

(4/4) How do we link digital finance to end goals? Finance is a means to an end: a way to respond to shocks and live happier, healthier lives #FinclusionWeek
— Dean Karlan (@deankarlan) October 31, 2018

Glad to join @JPAL_Global and @CEGA_UC #FinclusionWeek Twitter chat. My summary on #digital credit: an economist fantasy and a behavioralist nightmare. Transaction costs plummet, but also makes it easy to mess up. How to protect consumers?
— Dean Karlan (@deankarlan) October 31, 2018

Thanks to all who participated and shared resources during the discussion. Check out the J-PAL website to read a recap of the Financial Inclusion week Twitter chat we co-hosted last year and to access more evidence on digital finance and more topics in financial inclusion. For a review of the current literature on digital credit, check out the Digital Credit Observatory’s landscape analysis “Digital Credit in Emerging Markets: A Snapshot of the Current Landscape and Open Research Questions.”

Sector(s)

Finance