C4EDC4ED

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Zambia | Rural financial sector development

Background

In a large evaluation project for the Zambian government, the development of the rural financial sector is supported and assessed.

Zambia hosts a large rural population, which, given the low population density, is neither well served by the formal banking system nor by the microfinance sector. However, village savings and loan associations exist as informal savings clubs that provide access to credits.

Evaluation

To bolster these village institutions and to develop linkages to the formal financial sector, credit linkages and insurance components are introduced and evaluated via a large-scale randomized controlled trial in about 1000 communities

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Ethiopia | Saving products for smallholder farmers

Picture: courtesy of A. Avdeenko / A. Bohne

Background 

We partnered with a local microfinance institution and Mekelle University in Ethiopia to design and conduct a randomized controlled trial to test new saving products for farmers. In this area of the country, the majority of the population consists of smallholder farmers. These smallholder farmers are exposed to high levels of income volatility due to the agricultural cycle: they have high income in the harvest season and low income for the rest of the year. Household savings are therefore crucial to overcome financial hardships at some periods of the year and to enable farmers to make necessary investments in land and agriculture or other areas. Increased savings has been shown to improve a range of development outcomes (Karlan, Ratan and Zinman 2014). Previous research has found a number of reasons why people may be prevented from achieving their optimal savings level, many of them motivated by results from behavioral economics such as time-inconsistent preferences.

Evaluation 

The savings innovation takes into account the farmers’ agricultural and cash flow cycles, and seeks to nudge them to save some of their income for further investments. In collaboration with local partners, moneyboxes were randomly distributed to rural households, along with individually-tailored savings plans. Moreover, the participants were given specific recommendations regarding their savings goal amount. The aim of this project was to test for alternative barriers to savings, especially over- and under-confidence, and to see how they can be overcome using a simple and effective savings technology.

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Philippines | Health emergency savings accounts

Background 

In 2014 we initiated a randomized controlled trial in more than 600 branches of our local partner Negros Women for Tomorrow Foundation (NWTF), a Filipino microfinance institution. Based on a small scale initial pilot intervention in two branches, which indicated promising results, the new larger study extends the product. The new product offers different types of “emergency funds” where clients save parts of their incomes for emergency situations.

In many parts of the world, including in the Philippines, the lack of protection against financial risks induced by illnesses, accidents and disability, for instance, are an important constraint faced by the poor. When and where traditional social protection is not available, micro insurances, along with other programs such as cash transfer, represent a potential vehicle to mitigate risks and shocks. Micro insurance is a powerful tool to enhance the poor’s resilience to risks. Scientifically supported impact evaluations are especially needed in the field of social protection in order to provide better understanding and evidence clarifying which programs are more suitable to the specific contexts and population groups.

Evaluation 

The innovative product combines the concept of health insurance with emergency savings, where parts of the clients’ income are saved for emergency situations. The emergency fund is an individual insurance endowed by the Foundation as a reward for successfully completed loan cycles. The innovative product is randomly introduced on top of an existing individual compulsory fund. The fund aims at alleviating clients’ financial distress caused by natural and man-made emergencies, such as confinement in a hospital or outpatient health treatment, death of the client or of a member of her family, destruction of property, or loss of assets. In the additional fund, the reward amounts to a rebate of a certain percentage of the total interest payment, and is transferred into the new emergency fund, where the rebate varies in quantity (between 10, 15 and 20 percent). The impact of the innovation is evaluated using a rigorous design (randomized control trial). Large increases in health savings have been found, as well as positive effects on the amount of withdrawals in cases of emergencies.

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Africa, Asia and Latin America | Microfinance for decent work

Background 

We have been selected by the International Labor Organization (ILO) to evaluate 16 microfinance innovations with respect to their social and financial impact. These microfinance interventions were implemented worldwide across Africa, Asia and Latin America as part of ILO’s Microfinance for Decent Work (MF4DW) scheme.

Lack of access to capital is an important factor that causes the poor to remain trapped in poverty. Microfinance institutions have been springing up as a result since the 1990s. They intend to provide the poorest with access to credit that will help them break out of the cycle of poverty. However, the existing evidence shows mixed results with regard to the social impacts of microfinance and credit products. Overall, more research and evaluation are needed to determine which product packages are most efficient in achieving a social impact.

Evaluation 

The microfinance interventions mostly consisted of new credit and insurance products to small entrepreneurs and households that were piloted in several countries. Some new products directly catered to small and medium enterprises (e.g. new leasing products), others to the informal entrepreneurs. While several interventions were in the form of new products, others featured training programs, for example on entrepreneurship, financial education, risk management, and workplace safety. Finally, two interventions focused on how to induce small informal firms to become formalized. The innovations took place in Burkina Faso, Cambodia, Honduras, India, Kyrgyzstan, Mali, Nigeria, Pakistan, Peru, the Philippines, Tajikistan, Uganda and Vietnam.

Zambia | Rural financial sector development
Ethiopia | Saving products for smallholder farmers
Philippines | Health emergency savings accounts
Africa, Asia and Latin America | Microfinance for decent work