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10/23/2013

Comments

Colleen Paxton

As we discussed in class on Tuesday, controlled microfinance studies can tell us how people use credit, what helps them save, and the constraints that block advancing. Though we do not know if the poor would be better or worse off without aid, we can see certain results that help understand how individuals behave.

An interesting point about savings in the 2011 Dupas and Robinson study was that when women saved, it translated into other positive outcomes. It suggests that before access to savings accounts, women had difficulty saving for their businesses. There was increased spending on food. The study suggests that perhaps women could focus on their well-being and businesses when they had access to savings. The article points out that this should be explored further, but the results seem encouraging especially when compared with our discussion of women’s empowerment. In this study, savings accounts appeared to help advance women’s businesses and health. Could savings be the key to increasing women’s decision-making power? Would people surrounding women be better off if women were actively saving? More controlled studies could show the effects of women and savings and help understand behavior.

Carson Coffman

In considering the effects and potential for Micro-finance to be successful, we must consider an important question (that was mentioned in class on Tuesday): How do we know? Why do we believe all of the evidence that is put forth? The answer: randomized experiments.

Not only have studies used a control group to facilitate the observation of its effects, but also using a randomized distribution of micro-finance services will further demonstrate this. This was also the main take away from the Esther Duflo TED talk that we watched in class. She proved this point time and time again by the use of the different experiments testing a variety of variables to answer questions such as: Can aid end poverty? How to immunize? How to stop Malaria?

I feel that the use of randomized experiments is also a main take away for this paper, as well. Without considering the importance of where this information comes from and how this group of researches gathered this evidence and came to this conclusion, we cannot believe what they are saying to be true, and truly buy in to their plans and ideas.

Bayan Misaghi

Giving the poor an opportunity to increase income by giving a safety net for risk-taking, is the goal of microinsurance. Rainfall insurance was highlighted in this article because its administration costs are low though the affects on farmer behavior can be measured. Farmers were willing to take more risk by planting rain-sensitive, but more profitable crops because they had an insurance policy that would compensate them in the case of drought.

The article, however, highlights that microinsurance itself is not enough. The randomized control trials in Ghana, Karlan, Osei-Akoto, and Osei show that the best results come when insurance is combined with a subsidy in the form of capital. Farmers in this group increase spending on chemical inputs by 47% and increased their cultivation area by 22% while making surface their household did not miss meals statistically more than the farming group that only had insurance but no subsidy. This study shows that cheaper insurance is more impactful. But cheaper insurance is also more readily subscribed. Cole et al. (2011) showed that a “lack of available funds” is the most commonly cited reason for farmers to not purchase insurance. Though many farmers claim that they do not need insurance, they will also in the same breath say that droughts are the most significant risk that their agricultural businesses face. Subsidized insurance, thus, seems like an option that would be much higher in demand than the current products offered.

Greta Witter

Randomized evaluations parallel the scientific testing methods of hard sciences – offering a “nuanced and precise” way to answer specific questions in development economics (19). By honing in on the purpose, context, and details of this body of research, academics gain insights on specific behavior and incentive structures of the poor. In her TED talk, Duflo suggests that this model of answering smaller questions to design the most effective programs and systems will chip away at poverty; rather than the overwhelming, and nearly impossible goal of eradicating poverty in one fell swoop.
The microfinance piece pays close attention to the details, noting specific changes to programs, which if implemented, would increase effectiveness. Often times, these small design tweaks run contrary to the conventional wisdom. Targeting women, group liability, and immediate weekly payments “have long been considered defining attributes of a classic micro-credit model” and are considered “keys to success in keeping default rates close to zero” (9). However, this low default focus is centered on benefitting lenders, while a few key changes could make micro-credit more available and more impactful to borrowers. Similarly, evaluating program design through randomized studies allows researchers to answer specific questions about behavior and psychology, particularly, the drivers of spending and savings tendencies. By understanding why the poor are unwilling or unable to dedicate their savings, however small that may be, to investments, researchers will be able to target the poor by playing directly into their psychology. This approach is certain to be more impactful that a more passive one.

Mac Keers

One of the things that I found most interesting about the article was the description of how different people make use of microloans. The reason that this was particularly interesting for me was that it called into question the goals of microfinance. The authors mentioned that people who did not already have businesses, especially in rural settings, were the ones more predisposed to smooth consumption, rather than saving or trying to invest in a new business. The fact that they had not already tried or had failed might have been an indication of lack of entrepreneurial skill or spirit. The question then becomes if this is a good goal for microfinance. On the surface, it seems like it interferes with the original goal of stamping out poverty. Without creating new businesses the borrowers are not inducing significant growth or improvement for their local economies like someone that actually does manage to start a successful business. They are also going to have a harder time paying back their loans or even taking out future ones. The important consideration though is that smoothing consumption in a place where families are so vulnerable to shocks might be a noble enough goal to continue. Not only that, but making the process too selective or too stringent might actually block entrepreneurs from getting loans. All in all, accepting that microfinance is not a miracle cure, but rather a piece of the puzzle is probably the best path to take at the moment, especially with the uncertain results still associated with microfinance.

Cirimu

According to the Microfinance article, evidence shows that while microfinance does not take many people out of poverty as the public initially thought, it seems to have a modest effect at least on some people. The initial view about microfinance as a vehicle to take people out of poverty seems overly optimistic. As Amartya Sen has pointed out in his literature, poverty involves more than just a lack of income. He defines poverty as a lack of capabilities or a lack of freedom to choose what a person can do or be. According to this definition, one can see that while Microfinance provides access to credit to the poor, it is far from providing the capabilities to take people out of poverty The multidimensional nature of poverty makes this phenomena difficult to not only combat but to simply understand. It is therefore expected that the effect of microfinance on reducing poverty would be quite modest and only applicable to certain groups of people.
Other interesting points that we discussed in class were on the kind of questions that motivate researchers and their methodology to test the hypotheses. It seems that for a long time economists have been focusing on big questions such as on the determinants of poverty, factors that reduce poverty, on the effects of trade on inequality, among others. Although, economic research has provided some understanding about these issues, research alone has not been as successful in providing tangent results that lead to effective policy implementation. This is in great part due to the complexity of these issues. However, through works from people like Esther Duflo, economists are asking more focused questions for example about the effects of deworming children on educational outcomes, or the effects of distributing mosquito nets (for free or at a certain cost) on eliminating malaria, among others. These targeted questions allow not only a more nuanced research approach but they also open the possibility to find their answers through randomized studies. The results of these empirical studies seem to provide tangent conclusions for immediate policy implementation. In class we mentioned that one of the major obstacles of these randomized studies is the cost. However, as people find the value of these studies in policy implementation, the benefits might surpass the cost. I am curious to see whether the field of economics, and specifically the field of developmental economies, will move more towards this more focused and experimental approach.

Libby C

This paper reinforces the theme of our discussions that there is no "magic bullet" that will alleviate poverty. In light of our discussion of randomized trials on Tuesday, the findings of this paper are particularly compelling. The problem is not that microfinance doesn't work, but rather microfinance may work in different ways than expected. The effects of microfinance on women's empowerment, for example, appear to slight. Microfinance, however, offers significant benefits to households and wage earners who lack economic stability and are susceptible to shocks. In some settings, microfinance increased the number of businesses. In others, the volume of business conducted. I think the article posed interesting questions as to whether microfinance should be targeted to specific groups, particularly women.

Owenandrea

There are a few ethical controversies that might arise regarding the evaluations in the PAL article.

When we discussed the Rise and Fall of Development Economics, we briefly touched on the ethical issues related to providing a form of relief, aid, etc. to one group and not another. This method is precisely what is done in these randomized studies. However, I think the usefulness of the studies outweighs these arguments. Most importantly, the value of findings from randomized studies theoretically will benefit the “greater good” in the future. And in addition, in Duflo’s TED talk, she mentioned that positive externalities can be generated by the one group’s benefits. In the context of microfinance schemes, giving finances to some families might theoretically help them grow businesses to benefit local economies at large.

Also, in POV101, we discussed the ethical issues of paternalism in designing policy. Usually, this paternalism debate is concerned with practices like incentivizing. Similarly, some might label the research methods and evaluations communicated in the article as paternalistic. For instance, the commitment savings accounts were imposed to restrict withdrawals for defined periods. However, I argue that the line between helping and being paternalistic is by nature blurred, and the conclusions drawn from these studies are more important than the paternalism debate.

So, although randomized studies in economic development have their imperfections, their value renders them worthwhile.

Nick Z.

I believe a major take away from this paper is that people have different tastes and preferences. By understanding differences in the utility individuals receive from products and services, one can better accommodate the poor in regards to micro-finance or micro-insurance.

Although many sampled in the randomized experiments cited did not invest their micro-loans on business development, researchers must be aware of the benefits individuals receive from prioritizing expenditures. If a particular family feels they must spend their micro-loan on food, it is because food will provide the most utility. By continuing to conduct research in regards to micro-finance, policy makers can tailor local financial institutions to the needs of the people. Researchers and policy makers must have the patients to allow result to develop from randomized experiments to understand the complex dynamics of human prioritization. In the end this will improve the standard of living of the poor, which is the foundation of development.

Jenny Rea Bulley

This article was especially useful and eye-opening for me as I am hoping to work with an international organization in the developing world when I graduate, focusing mainly on small business enterprise and microfinance. I have read articles about the benefits and successes of microfinance, and some on its failure. This article is helpful in that it discusses why a microfinance institution can or could not help those it serves. It is of the utmost importance to look holistically at communities and problems instead of aiming at one failure at a time. Poverty is complex and intricate and can not be solved with one solution. It is going to take a combination and a coordination of solutions to alleviate extreme poverty. Going forward, I intend to use knowledge, skill, and passions that I have developed in college to thoroughly and effectively analyze social and economic problems and then aim policy or programs at correcting them. It will not involve a simple loan or savings account as this paper shows how that is simply not enough to indicate success.

Sage Timberline

One of the things that interests me most about the concept of microfinance is the idea that by simply making microloans and credit available to the impoverished, we are giving them enough to jumpstart a small business and be successful. Though the data shows that there are some effects of making those available, I wonder if there might be greater effects if some guidance was offered along with the loans. In other words, what if we offered impoverished people both a loan and guidance on how to use it? What if we offered them a loan, guidance on how to use it, and small incentives to use it well? Building off of Ester Duflo's TED Talk, I wonder if we could put together some data on the results of these treatments, instead of simply making microfinance options available and hoping for the best.

The other thing that interests me is the observed difference in how men and women use microloans. Is it truly an inherent, chemical difference among sexes that causes this difference? Or is it a gender difference, meaning a difference in societal roles for men and women? Do men feel pressure to provide for the family in the form of a business, causing them to invest more there, while women feel pressure to be a caregiver, causing them to be more likely to consumption-smooth with loans? I can't think of a research technique that would make this apparent, but I am curious about the driving force of this behavior.

Overall, the randomized evaluations are clearly a very effective research method, giving economics the edge that medical research has, with the existence of a control group.

Minh Ton

The main point of this article is to show people that microfinance does not necessarily alleviate poverty. It also points out the importance of having randomized experiments with a control group to see the differences that microfinance can make, not only in the final results but also in the effects on consumption, preferences along the way. It shows that little details such as the gender of the microfinance receivers, the grace period, group liability...etc on way or another influence the effects of these loans. Ultimately, the evidence shows that while microfinance does not take many people out of poverty as the public initially thought, it seems to have a modest effect at least on some people.

Chase Douglas

As others wrote, the biggest take away from the article is that micro-finance does not alleviate poverty, but I also believe that beyond financial improvement micro-finance serves important social roles. I think that it gives the poor hope and the want/ability to be more future oriented. Studies showed that after micro-finance the poor were observed spending less of indulgent, temporary items like alchohol, cigarettes, and snacks and instead investing in their businesses to help them in the future. If microfinance is not the end all answer, I think it is definitely the first step in the right direction for development. I could a system in the future where people start with micro-finance and slowly build capital and thus collateral to use in a gradually increasing loan system that could allow powerful entrepreneurs emerge and have a large, positive effects on local economies

Gyung Jeong

As we discussed in the class on Tuesday and others mentioned above, this micro-finance article talks about alleviating poverty by providing access to credit, insurance, and savings to the poor. However, as the paper points out, this point of view might be too optimistic and it may not actually alleviate poverty in reality. The paper provides evidence by using the randomized studies. The randomized experiments allow a certain amount of reliability and show the treatment effects. As Esther showed us in the video on Tuesday, randomized experiments involve experiment and control groups with and without treatment respectively. As Esther argued, randomized controlled trials allowed us to distinguish the drugs or the treatments that work and the ones that do not work. We can also apply this method to the social policies about which ones work and which ones don’t. When we think about which policies to implement, we must think about the psychological effects and predict how people will behave.

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