About a year ago, the two of us were musing over the fact that the new mobile finance platforms give so much more freedom to innovate and create financial services and interfaces with a much richer feature set and user experience than would be possible with classic financial products.
We realized that while we had some hunches and rough ideas, we couldn’t put our finger on what exactly we should be offering people that would leverage all the new found plasticity and freedom. In particular, we wanted to know what service features we should prioritize in order to have the most positive benefit in people’s lives. We decided a good place to start was to look at the rigorous studies of how people react and how their lives change when given new financial options.
The result was our piece in the January/February edition of
What we found was first that there is a mountain of evidence now compared to what was there 10 years ago when microcredit was the dominant paradigm for providing financial services to the poor. The Jameel Poverty Action Lab (J-PAL) and Innovations for Poverty Action (IPA) are two of the main producers of these studies and they list 150+ studies completed or in the field, whereas we could count only 4 or so that were completed in 2008 when Jake first started working at CGAP, marking his entry into the field.
We didn’t find an exact recipe for how to pull people out of poverty. In fact, we think the research actually supports the idea that people and circumstances are too varied for any silver bullet to exist. That said, we did find some emerging trends from the research that we think deserve to be codified into “best practice” for our field.
At least four fundamental service features appeared to have a robust level support in the data. To summarize, they are that:
Financial services need to be proximate and convenient; if people are required to go way out of their way to save or pay insurance premiums, they just won’t do it
People need efficiency and low costs; they need to be able to transact cheaply and easily at the touch of a button. Similarly, high interest rates and leger fees are not a pathway to prosperity
They need planning, budgeting, and discipline tools to help them reach their financial goals
And they need a greater variety of choice and integrated suite of credit, savings, insurance, and payments, more than any single “silver bullet” offering
In the piece we walk through the evidence and rigorous studies related to these different points. We don’t think these four principles are the only way to interpret the evidence, there is certainly a lot of nuance they miss, and lots more studies are in the field that may bring new insights. We do hope that people will start to take a closer look at the new evidence
base that is maturing and begin a deeper debate around what it implies for the types of services our field should be delivering.
We would love to hear your
take on the evidence.