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Mobile Money and Commitment

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Mark Pickens, over at the CGD blog, shares stories of unique saving devices:

One man  – let’s call him Richard – used an ingenious method to save for a new motorcycle.  Whenever he had a bit of extra cash he wrapped it in heavy plastic, waterproofed it with industrial-grade resin, and dropped it into the petrol tank of his current motorcycle. After a year when he thought he had enough to buy a bigger, better vehicle, he had the petrol tank removed and cut open with an acetylene torch to recover the currency. The motorcycle cost USD 750. He paid USD 110 to have the petrol tank cut and buy a new one to make his old motorcycle re-sellable. That equates to negative 14.66% annual interest on his savings.

Why would he do this? Same reason a woman — let’s call her Jennifer – dropped coins into her jerry can of cooking oil. She wants to save money to buy some clothes for her children at Christmas (at which time she cut open the jerry can to get to the money).

For both Richard and Jennifer, the requirement to destroy something they owned created an effective barrier against temptation…The temptation to raid savings is continual and almost irresistible. Unless big barriers are erected.

Can we productize these insights to improve branchless banking services?…

…What if Richard or Jennifer could name the point in time when they wanted their money? What if they could not touch it until reaching their goal?What if Richard or Jennifer could name the point in time when they wanted their money? What if they could not touch it until reaching their goal?…

What Mark is describing here is a commitment savings account.

Innovations for Poverty Action (IPA) is conducting a host of studies on commitment savings. (Full disclosure: I am an employee of IPA.) IPA and its research network have examine demand for commitment and its behavioral explanations, effects on savings balances, use of formal bankingfarmer inputs, quitting smoking, how remittances are spent, employee behavior.

These studies reveal a growing body of evidence that people are indeed willing to use formal commitment savings accounts; even when those accounts entail high implicit costs. I agree with Mark that banks can do a better job of designing financial services for the poor. That is precisely the motivation behind commitment savings accounts.

Where I lose Mark is when he says:

…consumers might be happy to pay for the service. Perhaps not the effective 15% which Richard paid, but 2% to 3%. That’s the same average price many people are paying already on an average mobile money transfer. P2P helps consumers alleviate the pain point of moving money over distance. Is it so crazy to think poor people might pay for a service which helps them effectively move money over time, allowing them to move current income forward to the future to finance much-desired purchases?

One of the attractions of mobile money is that it has the potential to reduce transaction costs. Moving money from one account to another, whether this is through physical deposits of cash or through mobile phone, don’t imply a commitment to save or a savings goal. If anything, mobile money should make breaking your commitment easier.

Thus, as we think about the spread of mobile money. Perhaps we should embrace reduced costs of transactions delivered by mobile money, but, at the same time, we should find methods through people can make it hard to succumb to temptation expenditures.

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Written by Niall

May 31, 2011 at 10:15 pm

Public v. Private

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Tim Harford is  the younger version of David Warsh when it comes to explaining economics in popular language.  This times, he deliver an accessible summary of a paper from Das and Hammer, who find the following:

Das and Hammer tested the competence and the practices of a sample of doctors by sending observers to sit in their surgeries. They discovered that “under-qualified private-sector doctors, although they know less, provide better care on average than their better-qualified counterparts in the public sector”. This is not particularly mysterious, because private-sector doctors don’t get paid unless they can convince their patients that they’re doing a decent job. Public-sector doctors draw salaries and, if they are held accountable at all, it is through indirect channels.

Written by Niall

August 22, 2009 at 1:14 pm

It’s Institutions.

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Obama (and his speechwriters) have been reading their North, Rodrik and Greif:

Across Africa, we’ve seen countless examples of people taking control of their destiny and making change from the bottom up…

Now, make no mistake: History is on the side of these brave Africans, not with those who use coups or change constitutions to stay in power. Africa doesn’t need strongmen, it needs strong institutions.

…The people of Africa are ready to claim that future….With strong institutions and a strong will, I know that Africans can live their dreams in Nairobi and Lagos, Kigali, Kinshasa, Harare, and right here in Accra.

His reference to trade links with the US, however, were weak.

Written by Niall

July 11, 2009 at 7:01 pm

MDG RIP?

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Damning words from Bill Easterly:

The United Nations today issued its Millennium Development Goals (MDGs) Report 2009. To make a long story short, the accompanying press release says:

The assessment, launched today by UN Secretary-General Ban Ki-moon in Geneva, warns that, despite many successes, overall progress has been too slow for most of the targets to be met by 2015.

Let’s face it: it’s over. The MDGs will not be met…

The MDGs warrant a world of merit for ambition and for providing a set of goals that the development community can target. However, the inability to . Development, expecially at the micro-level is not linear. Every project or program faces stops and starts, right turns and left. However, like the peak on the horizon everyone will reach it at a different time, following their own path. The development community can provide a better map and, maybe giving a lift to some countries, but to set a global expectation for achieving a goal in unison is to set expectations with ambition, not lucidity.

Easterly’s point about the lack of ownership over the MDGs is vivid.

WHO is to blame for missing the MDGs? Advocates enthusiastically advertised that 189 leaders signed the Millennium Declaration in 2000, but that was actually a sign of weakness rather than strength. Does an agreement have teeth when EVERYONE agrees – including many oppressive governments who had no more interest in alleviating poverty than in promoting Brussels sprouts? And if the agreement is broken, how can you find WHO is to blame, when 189 leaders (not to mention dozens of international organizations and NGOs) are COLLECTIVELY responsible?

I am optimistic that, in many settings, the combination of more stable governments, promotion of trade, and learning through development project experimentation ARE leading to an improved groath and development trajectory in poor countries.

Easterly doesn’t not want to give up on development just because the MDGs might not be met in all parts of the world. It would be a shame if this were to happen. But measuring of our work in development on grand plans and ambitious goals should not be the arbitor of success or failure.

Written by Niall

July 6, 2009 at 9:28 am

When the History of the Development Debate is Written…

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…this paragraph from Michela Wrong’s It’s Our Turn to Eat should figure prominently when reflecting on the first half of this decade:

By the turn of the century, Western policy in the developing world was increasingly being set not in ministeril offices but by NGOs – organizations like Oxfam, Save the Children, Christian Aid. The Make Poverty History campaign, pushing for the cancellation of Africa’s foreign debt and dramatic increases in Western aid levels, was gathering momentum. Jeffrey Sachs, the brilliant American economist who campaigned in favour of a massive hike in funding, appeared to have won the emotional, if not the intellectual, argument. Other analysts might shake their heads at Sach’s simplistic formula for the continent’s recovery, but he had successfully wooed pop-star campaigners like Bono and Sir Bob Geldof, and their abilty to mobilise a younger generation bored by traditional politics awed Western governments. Whether on the right or the left, political parties realised that promising to ‘save’ Africa was a potential vote winner in the eyes of an idealistic coming generation. No wonder members of the African elite, aware of these pressures, sometimes sounded unappetisingly smug when contemplating tortured Western attitudes to the continent. As one Kenyan newspaper editor told me: ‘What we Africans have realized is that your leaders need to lend to us more than we need to be lent to.’

See Chris Blattman’s review of the book.

Written by Niall

June 27, 2009 at 2:58 pm

Book release anticipation: William Kamkwamba’s Story

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Not published until September 29 of this year, William Kamkwamba’s The Boy Who Harnessed the Wind (with Brian Maeler), is already on my reading list.

William, already a top blogger in Southern Africa, provides an example of an inventor and a man with a spirit for making dreams reality. I predict that it will be a worthwhile read for anyone interested in development, Arfica and invention. The power of human ngenuity should be a motivation for all of us who strive to improve living conditions throughout the world.

William’s home town is in Kasungu, Malawi, where I do a lot of my work. I hope to meet him once he returns to Malawi after an international tour of engagements.

Here is the twitter feed for The Boy Who Harnessed the Wind: http://twitter.com/malawindmilbook

And here is a short clip of William at TEDTalks.

Written by Niall

June 27, 2009 at 2:41 pm

Books: Dead Aid

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I’m looking forward to buying a copy of Dambisa Moyo’s Dead Aid when I return to the United States for vacation in May. Moyo’s thesis a s hot topic of conversation in the development community these days. The subject matter has been a running subject of discussion among development theorists, emiricists and practiioners for many years. I am interested to see what Moyo’s book adds to this debate. 

Shanta Devarajan supplies a good teaser on how to view the book’s thesis and proposals. (ht to Chris Blattman also read Chris’s post here and here).

If Moyo’s argument is anything like George Ayittey’s, then I believe that there is good reason to pay attention to the messages contained in the book. Until I have a full reading, I am unconvinced by the policy recommendations quoted by reviews. I will post my thoughts after reading the book.

Moyo does get my respect for this particular zinger (from a conversation with the Financial Times):

Most Brits would be irritated if Michael Jackson started offering advice on how to resolve the credit crisis. Americans would be put out if Amy Winehouse went to tell them how to end the housing crisis. I don’t see why Africans shouldn’t be perturbed for the same reasons. 

Written by Niall

April 12, 2009 at 11:55 am