English

In Burkina Faso, Côte d'Ivoire, and Mali, we have continued our global tradition of rigorous, applicable research by building foundational research capacity and conducting evaluations in areas of pressing national concern. Examples of our work below offer promising insights into everyday issues that affect the lives of the Francophone West African poor.

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Brief
Date:
April 24, 2017
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An audit study was conducted in Colombia following the protocols in Giné and Mazer (2017). Trained auditors visited multiple financial institutions, seeking credit and savings products. Consistent with Gabaix and Laibson (2006) and similar to Giné and Mazer (2017), the staff only provided information about the cost when asked, disclosing less than a third of the total cost voluntarily. In addition, clients were rarely offered the cheapest product, most likely because staff was incentivized to offer more expensive and thus more profitable products to the institution.

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Type:
Working Paper
Date:
March 20, 2017
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Climate change-induced natural disasters affect an estimated 230 million people worldwide. Droughts, flooding, pollution, and other weather events are especially threatening in developing countries, which have limited capacity to cope. Within those countries, the poor and marginalized are the most vulnerable, since climate change makes food more expensive, poses health risks through waterborne disease and extreme weather (particularly in areas with poor infrastructure and sanitation), and limits farmers’ ability to create and maintain sustainable livelihoods.

The poor are inadequately equipped to cope with income shocks that accompany extreme weather conditions. A study in India found that while farmers adjusted to weather fluctuations (in this case monsoons) by changing irrigation and crop choices, they only recovered 15% of profits lost. Substantial financial barriers may prevent farmers from adapting effectively to harmful impacts of climate change. For example, farmers may not have capital or credit available to invest in more resilient seeds or technology like irrigation. Additionally, they might not have access to affordable insurance products that can mitigate losses caused by extreme weather patterns.

As the effects of climate change intensify, it is critical to help the poor adapt to climate-induced challenges and empower them to reduce their impact on the environment. At IPA’s Financial Inclusion Program (FIP), we are discovering new ways that financial services and products can address the risks that climate change poses for the poor.

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Type:
Brief
Date:
March 14, 2017
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Research shows that when people participate in the financial system, they are better able to manage risk, start or invest in a business, and fund large expenditures like education or a home improvement. Increasing women’s financial inclusion is especially important as women disproportionately experience poverty, stemming from unequal divisions of labor and a lack of control over economic resources. While demand and supply side barriers to women’s financial inclusion remain, this review shows that appropriate financial product design can help overcome some of these barriers. This review is organized by product and presents the existing evidence on the impact of savings, credit, payments, and insurance products on women’s economic empowerment outcomes, as well as the remaining open research questions in each area. The studies included in this review are limited to those designed as randomized control trials (RCTs), widely considered to be the gold standard in impact evaluation methodology.

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Brief
Date:
March 06, 2017
English

Reminders can increase savings deposits at almost no cost to providers

Despite good intentions, people often make less-than-optimal financial choices. In this series, we match insights from our global research in behavioral economics with specific financial product and service opportunities for U.S. providers. Providers can use these evidence-based insights to expand financial inclusion, improve client offerings, and continue to promote financial health.

Providing access to savings accounts is an important step in bringing financial services to the poor, but access alone does not guarantee people will save. Many people struggle to develop good savings habits because they put off saving until a future time, or face so many seemingly urgent needs today that it is difficult to save for tomorrow, or they simply forget to save. Reminders that bring savings goals to the “top of mind” are a low-cost way to address these barriers and help clients reach their savings goals.

This brief is part of IPA’s Nudges for Financial Health series, which is available as a combined booklet here. The other briefs in the series can be downloaded individually: The Power of Doing Nothing, Count on Commitment.

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Type:
Brief
Date:
February 13, 2017
English

How defaults can improve customer savings behavior

Despite good intentions, people often make less-than-optimal financial choices. In this series, we match insights from our global research in behavioral economics with specific financial product and service opportunities for U.S. providers. Providers can use these evidence-based insights to expand financial inclusion, improve client offerings, and continue to promote financial health.

Automatic (“opt-out”) enrollment is a simple product design modification in which consumers are informed they will be automatically enrolled in a product or service unless they choose to opt out. Setting the default to “opt-out” instead of “opt-in” has been shown to significantly increase uptake of certain savings products and lead to behavior change through automation, for example by increasing participation in retirement and savings plans. It is important that financial services providers use these tools with care, fully and conspicuously inform their customers about the product or service into which they will be enrolled, and give customers full freedom to make a different choice or opt out at any time.

This brief is part of IPA’s Nudges for Financial Health series, which is available as a combined booklet here. The other briefs in the series can be downloaded individually: Top of Mind, Count on Commitment.

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Type:
Brief
Date:
February 13, 2017
English

Helping clients stick to their goals and increase their savings balances with commitments

Despite good intentions, people often make less-than-optimal financial choices. In this series, we match insights from our global research in behavioral economics with specific financial product and service opportunities for U.S. providers. Providers can use these evidence-based insights to expand financial inclusion, improve client offerings, and continue to promote financial health.

Commitment devices are voluntary, binding arrangements that people make to reach specific goals that may otherwise be difficult to achieve. When built into savings products, commitment devices can help address behavioral and social obstacles to saving by providing a mechanism that forces people to save according to their self-set plans. These devices vary in terms of commitment activity, consequence for failing to fulfill the commitment, and control over how savings are spent. “Hard” commitments feature financial penalties for failure, whereas with “soft” commitments, the penalty is primarily psychological, as in letting down oneself or one’s community.

This brief is part of IPA’s Nudges for Financial Health series, which is available as a combined booklet here. The other briefs in the series can be downloaded individually: The Power of Doing Nothing, Top of Mind.

Program area:
Type:
Brief
Date:
February 13, 2017
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Despite good intentions, people often make less-than-optimal financial choices. In this series, we match insights from our global research in behavioral economics with specific financial service and product design opportunities both for providers in the U.S. and in other countries. Providers can use these evidence-based insights to expand financial inclusion, improve client offerings, and continue to promote financial health.

This booklet combines a series of briefs, which are also available to download as individual briefs: Count on Commitment, The Power of Doing Nothing, Top of Mind.

Count on Commitment
Commitment devices are voluntary, binding arrangements that people make to reach specific goals that may otherwise be difficult to achieve. When built into savings products, commitment devices can help address behavioral and social obstacles to saving by providing a mechanism that forces people to save according to their self-set plans. These devices vary in terms of commitment activity, consequence for failing to fulfill the commitment, and control over how savings are spent. “Hard” commitments feature financial penalties for failure, whereas with “soft” commitments, the penalty is primarily psychological, as in letting down oneself or one’s community.

The Power of Doing Nothing
Automatic (“opt-out”) enrollment is a simple product design modification in which consumers are informed they will be automatically enrolled in a product or service unless they choose to opt out. Setting the default to “opt-out” instead of “opt-in” has been shown to significantly increase uptake of certain savings products and lead to behavior change through automation, for example by increasing participation in retirement and savings plans. It is important that financial services providers use these tools with care, fully and conspicuously inform their customers about the product or service into which they will be enrolled, and give customers full freedom to make a different choice or opt out at any time.

Top of Mind
Providing access to savings accounts is an important step in bringing financial services to the poor, but access alone does not guarantee people will save. Many people struggle to develop good savings habits because they put off saving until a future time, or face so many seemingly urgent needs today that it is difficult to save for tomorrow, or they simply forget to save. Reminders that bring savings goals to the “top of mind” are a low-cost way to address these barriers and help clients reach their savings goals.

 

Program area:
Type:
Brief
Date:
February 13, 2017
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Financial education is widely used by governments, financial service providers, and non-governmental organizations as a tool to help people navigate the financial system and make better financial choices. Financial education programs are built on the assumption that education will lead to knowledge, and that knowledge will lead to better choices and improved financial health. Recent evidence suggests that assumption is flawed, but also shows promise for some new, alternative approaches to financial education.

A robust body of evidence shows that on average conventional approaches to financial education have not been successful in either imparting lasting knowledge or in changing people’s financial behavior. While these findings may seem discouraging at first glance, the conventional approach to financial education is not the only approach, and several new methods have been rigorously tested in recent years and yielded positive results. This brief explores the emerging evidence on these new approaches and considers where purveyors of financial education, researchers, and policymakers should go from here.

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Type:
Brief
Date:
January 27, 2017
English

Targeted interventions that sustainably improve the lives of the poor will be a critical component in eliminating extreme poverty by 2030. The poorest households tend to be physically and socially isolated and face disadvantages across multiple dimensions, which makes moving out of extreme poverty challenging and costly. This paper compares the cost-effectiveness of three strands of anti-poverty social protection interventions by reviewing 30 livelihood development programs, 11 lump-sum unconditional cash transfers, and seven graduation programs. All the selected graduation initiatives focused on the extreme poor, while the livelihood development and cash transfer programs targeted a broader set of beneficiaries. Impacts on annual household consumption (or on income when consumption data were not available) per dollar spent were used to benchmark cost-effectiveness across programs. Among all 48 programs reviewed, lump-sum cash transfers were found to have the highest benefit-cost ratio, though there are very few lump-sum cash transfer programs that serve the extreme poor or measure long-term impacts. Livelihood programs that targeted the extreme poor had much lower benefit-cost ratios. Graduation programs are more cost-effective than the livelihood programs that targeted the extreme poor and measured long-term impacts (i.e., at least one year after end of interventions). More evidence is needed, especially on long-term impacts of lump-sum cash transfers to the extreme poor, to make better comparisons among the three types of programs for sustainable reduction of extreme poverty.

Type:
Report
Date:
December 13, 2016
English

The welfare impact of expanding access to bank accounts depends on whether accounts crowd out pre-existing financial relationships, or whether private gains from accounts are shared within social networks. In this experiment, we provided free bank accounts to a random subset of 885 households. Across households, we document positive spillovers: treatment households become less reliant on grown children and siblings living outside their village, and become more supportive of neighbors and friends within their village. Within households, we randomized which spouse was offered an account and find no evidence of negative spillovers.

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Working Paper
Date:
November 10, 2016
English

Antipoverty programs in developing countries are often difficult to implement; in particular, many governments lack the capacity to deliver payments securely to targeted beneficiaries. We evaluate the impact of biometrically authenticated payments infrastructure (“Smartcards”) on beneficiaries of employment (NREGS) and pension (SSP) programs in the Indian state of Andhra Pradesh, using a large-scale experiment that randomized the rollout of Smartcards over 157 subdistricts and 19 million people. We find that, while incompletely implemented, the new system delivered a faster, more predictable, and less corrupt NREGS payments process without adversely affecting program access. For each of these outcomes, treatment group distributions first-order stochastically dominated those of the control group. The investment was cost-effective, as time savings to NREGS beneficiaries alone were equal to the cost of the intervention, and there was also a significant reduction in the “leakage” of funds between the government and beneficiaries in both NREGS and SSP programs. Beneficiaries overwhelmingly preferred the new system for both programs. Overall, our results suggest that investing in secure payments infrastructure can significantly enhance “state capacity” to implement welfare programs in developing countries.

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Published Paper
Date:
October 31, 2016
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We experimentally test the impact of expanding access to basic bank accounts in Uganda, Malawi, and Chile. Over two years, 17 percent, 10 percent, and 3 percent of treatment individuals made five or more deposits, respectively. Average monthly deposits for them were at the 79th, 91st, and 96th percentiles of baseline savings. Survey data show no clearly discernible intention–to–treat effects on savings or any downstream outcomes. This suggests that policies merely focused on expanding access to basic accounts are unlikely to improve welfare noticeably since impacts, even if present, are likely small and diverse.

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Working Paper
Date:
October 31, 2016

Public employment programs play a major role in the anti-poverty strategy of many developing countries, but their impact on poverty reduction could be attenuated or amplified by changes they induce in private labor market wages and employment. We estimate these general equilibrium effects using a large-scale experiment that randomized the roll-out of a technological reform, which significantly improved the implementation of India's public employment scheme, across 157 sub-districts of 60,000 people each. We find that this reform increased the earnings of low-income households by 12.7%, and reduced an income-based measure of poverty by 17.2% despite no increase in fiscal outlays on the program. These income gains were overwhelmingly driven by higher private-sector earnings (90%) as opposed to earnings directly from the program (10%). We find that improving implementation of the public employment scheme led to a 6.2% increase in private market wages for rural unskilled labor, a similar increase in reservation wages, and a 7.1% reduction in days without work. We find no evidence of changes in private employment, migration, or land use. Our results highlight the importance of accounting for general equilibrium effects in evaluating programs, and also illustrate the feasibility of using large-scale experiments to study such effects.

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Working Paper
Date:
October 25, 2016
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We implemented a randomized controlled trial among transnational households in the Philippines estimating impacts on financial behaviors of a financial education treatment, a financial access treatment, and the combination of the two. We test whether there are complementarities between financial education and financial access interventions, and also provide insight into the nature of constraints operating in financial services markets. We find no evidence of complementarities between the financial education and financial access treatments. In addition, while we find no evidence of constraints in access to formal credit and savings products, our results do suggest that access constraints exist in the formal insurance market. Impacts on other financial behaviors are suggestive of the importance of information constraints in financial decision-making. These results provide guidance to designers of financial interventions in similar populations.

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Working Paper
Date:
September 22, 2016

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