Standard economic theory would suggest that a one-time infusion of cash should have at most a temporary effect on business profitability – over time, individuals facing high returns should be able to re-invest business profits and bit-by-bit bootstrap themselves up to the steady-state size. Yet in an experiment I did with Suresh de Mel and Chris Woodruff in Sri Lanka, we find a one-time grant has sustained impacts five years later on male microenterprise owners.
Since the 1990s, a large part of world savings have gone to institutional investors that manage those funds by investing around the world. Given this accumulation of resources in professional and sophisticated asset managers, one might expect to see significant international diversification accompanying this process. Yet, to date, little evidence exists on how institutional investors allocate their portfolios globally, and what effect their investment practices have on investors, firms, and policymakers.
In a new paper and VoxEU column, we argue that global funds (those that invest anywhere in the world) are not very well diversified, hold a very limited number of stocks (around 100), and seem to leave behind significant unexploited gains from international diversification. Thus, global funds might not constitute the optimal portfolio for individual investors. Moreover, there are significant challenges to the prospects for broad international diversification. To the extent that global funds continue expanding relative to the more specialized funds (those that invest in specific asset classes and regions), the forgone diversification gains could be significant, and the cost to investors, firms, and countries might be large as well, posing significant challenges to policymakers.
These are exciting times in the world of financial inclusion. In the past few years, policymakers and private-sector leaders have made some bold and innovative moves to modernize financial infrastructures and expand financial access. Mobile money products have seen impressive growth in parts of Sub-Saharan Africa; bank agents are expanding access to underserved populations; and governments are increasingly disbursing payments via formal bank accounts.
Nevertheless, large challenges remains in the financial inclusion agenda: 76 percent of adults – almost 500 million people - in Sub-Saharan Africa remain outside the formal financial system and 36% of these unbanked report that having a formal account is too expensive. To continue moving forward we need to assess financial behavior and understand where the challenges and opportunities lie for the future. To do that, we need high-quality, multi-dimensional, comparable financial inclusion data.
And so, in April the World Bank Development Research Group released the Global Findex, an individual-level dataset that measures how adults in 148 economies save, borrow, make payments, and manage risk. The Global Findex is just one of the foundations of the G20 Basic Set of Financial Inclusion Indicators that was formally proposed by the Global Partnership for Financial Inclusion (GPFI) in Los Cabos this week.
So say 87% of the respondents in a survey used by Dupas and Robinson in an interesting forthcoming paper on what happens when you help people get set up with bank accounts in Kenya. And, as we will see, this problem seems to be particularly acute for women.
The phenomenal success of Kenya’s M-PESA system, which allows people to store and transfer funds via electronic accounts that they access via mobile phones, has raised hopes that mobile money may provide a way for the poor to access basic banking services. In an earlier post, I presented findings from my recent working paper with Aaron Thegeya, showing that a remarkable 73% of Kenyan adults use mobile money, and nearly a quarter use it every day.
We also show that savings with a simple M-PESA account is common, with 2/3 of M-PESA users reporting that they save in some form with M-PESA. We see some mild evidence that M-PESA may increase savings: controlling for various characteristics, those who are registered for M-PESA are 32 percent more likely to report some savings activity.
Why do people save with M-PESA when it doesn’t pay interest? A possible explanation comes from an experimental study on health savings (not involving M-PESA).
In 2010, under the nationwide Elementary Education Program called Sarva Siksha Abhiyan (SSA), an education committee in Bhagwan Garhi in the Aligarh district of Uttar Pradesh, India completed the construction of an eight classroom school for the cost of $80 per square meter, whereas the cost incurred for a contractor lead construction of a comparable school structure in the nearby district of Lucknow was $124 per square meter.
According to review reports, the Community Beneficiary Committee in Bhagwan Garhi had completed the work drawing labor from the community and buying the required amount of materials at a lower rate with technical guidance from the district level engineer.
How does this happen?