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How do we Reach 1 Billion?
• Is it flexibility?• Is it price?• Is it institutional?
Massive untapped market: Why are so many yet to be reached?
What’s the Secret?How do we Design Effective Microfinance?
How do we:
• Create the most impact?– increase incomes, improve
health, education• Reach more clients?• Reach poorer clients?• Increase savings balances?• Improve client retention?• Improve profitability?
The answer is:
We Don’t Really Know
Yet
We Have a Lot to Learn• Example: Interest rates are very high– In the US, we call this usury and regulate it. – Abroad, we call this charity and donate to it.
• Impact:• How do interest rates affect impact?
• Outreach:• Can we target only those clients who are likely to
benefit (likely to earn high returns)?• Business:• Can we lower interest rates and make more profit?
Example: Credit with Education
• Why do many microenterprises plateau? How can we help them grow?
Is credit with education a solution?
Who do You Trust?
• Well-known microfinance leader A: – “The poor do not need us to teach them how to
survive; they already know. So rather than waste our time teaching them new skills, we try to make maximum use of their existing skills.”
• Well-known microfinance leader B: – “Group-based lending/saving services provide an
unusual opportunity to provide transformative educational experiences along with financial services.”
There is No Magic Solution
• Learning what works in microfinance requires methodical experimentation across settings• Not guesswork based on anecdotes
• We need high-quality research methods to produce reliable results
• Randomized controlled trials are the most reliable research methodology.
Evaluation is for Managers!
• Evaluation is for microfinance programs, not annual reports
• Evaluation is much more than “does the program help people?”
• We use rigorous evaluations to learn which products and services work best by trying out different versions and seeing which are most effective– most impact, most profitable, etc.
R&D
Key question for donors/investors:• How do we leverage our
investments to maximize social welfare, while maintaining private returns?
• R&D can help figure out how to tap that market profitably.
• Make sure the approach, if successful, gets replicated and scaled.
Why Randomize: Example from Get out the Vote
Method Estimated Impact
Reached vs. Not Reached 10.8 pp
Why Randomize: Example from Get out the Vote
Method Estimated Impact
Reached vs. Not Reached 10.8 pp
Regression: Control for differences between the groups
6.1 pp
Why Randomize: Example from Get out the Vote
Method Estimated Impact
Reached vs. Not Reached 10.8 pp
Regression: Control for differences between the groups
6.1 pp
Also control for voting history 4.5 pp
Why Randomize: Example from Get out the Vote
Method Estimated Impact
Reached vs. Not Reached 10.8 pp
Regression: Control for differences between the groups
6.1 pp
Also control for voting history 4.5 pp
Matching similar voters 2.8 pp
Why Randomize: Example from Get out the Vote
Method Estimated Impact
Reached vs. Not Reached 10.8 pp
Regression: Control for differences between the groups
6.1 pp
Also control for voting history 4.5 pp
Matching similar voters 2.8 pp
Randomized Experiment 0.4 pp,statistically insignificant
Credit Scoring: Findings
• What is the impact of consumer credit?– Positive effect on employment, wages and hunger– 7 percentage-point reduction in poverty level
• Marginal loans are profitable for the lender
Group vs. Individual Liability: Findings
• 150 joint-liability centers:– 75 randomly assigned to convert to individual
liability– 75 randomly assigned to remain as-is
• Outcomes:– No change in repayment– No change in savings– Higher client retention– More new members joined
Innovations: Product Development
Randomize different versions of a product/service to find the best version
Peru: Teaching Entrepreneurship
Teaching Entrepreneurship: Findings
• Strong benefits for both the client and the institution.
• Repayment higher• Client retention up• Clients’ sales higher• Profitable to offer free
education