savings

Applying Counterpressure to the Microfinance Backlash: FP Op-ED

Jamie Zimmerman — Wed, 28 Oct 2009 17:43:00 -0400

I've been arguing for awhile now that microcredit has been overly hyped, even dangerously so (i.e., credit will end poverty). But now media (see The Times, The Boston Globe, Foreign Policy, articles, for examples) are beginning a backlash against microcredit (likely caused in large part by failed expectations caused by said hype) that I nonetheless find equally, if not more, disturbing (i.e., microfinance isn't working). I've never thought of credit as a panacea, but I do believe financial inclusion and access to an array of asset building financial services are essential if the poor are ever to move out of poverty.

So, I'm pleased that my colleague, Shweta Banerjee, just published an piece in Foreign Policy magazine - How Microfinance Can Change the Lives of Millions - that applies some much need counter pressure to the new naysayers of microfinance, by focusing on what is working, what might work, and why we should continue our efforts to innovate before falling back into old (and bad) development policies and practices.

In particular, the piece highlights specific programs and experiments aimed at providing the very poor with effective financial services, including WOCCUs matchsavings.org, Oxfam's Savings for Change and the Center for Social Development's AssetsAfrica pilot study, among others.

I'm interested in hearing others' opinions on which microfinance programs and services are most innovative and also worthy of a spotlight as this debate livens up. Send along your thoughts!

*******PS. I received this note from a colleague at WOCCU, with a slight correction to the description of matchsavings.org in the FP article:

"There isn't actually a physical credit union in these people's villages (a field officer from a nearby branch office travels to outlying communities 1x/month), and the reason they didn't join wasn't so much because of the membership fee. They can actually save over time to achieve full membership, and MatchSavings.org participants become full members after 2 months of saving. Some participants I spoke with didn't join existing credit union groups in their communities because they felt the savings requirement (set by the group itself) was too high for them or they didn't feel ready to join. The MatchSavings.org program, though it required a higher monthly deposit, incentivized people with the 100% match. And when they receive their match after 6 months, the group members then set their own savings goal (the same for all members) and continue on the monthly deposit schedule in their community, with access to the full range of credit union services."

To learn more about WOCCUs matchsavings.org and other matched savings programs in developing countries: http://www.newamerica.net/publications/policy/promoting_savings_tool_international_development

"Investing in those who invest in themselves" First-of-its-kind asset building pilot launched in Nigeria

Shweta Banerjee — Wed, 14 Oct 2009 15:27:00 -0400

By Jamie Zimmerman & Shweta Banerjee

Notoriously resource-rich, poverty-stricken and conflict-prone, the Niger Delta region has always been viewed among the unlikeliest places for reform, particularly one that "spreads the wealth." But this week we are proud to announce that the Bayelsa State Government (BYSG) located in the delta region of Nigeria will launch of a policy pilot that provides matched savings accounts to children and youth throughout the state's eight districts. This initiative is not only the first government-supported anti-poverty intervention in the Niger Delta region, but the first state-wide CDA policy pilot in the developing world.

Child development accounts (CDAs) have been successfully launched as a policy in developed countries such as United Kingdom and Singapore but there is a need for adapting this approach to developing country contexts. Development practitioners in Africa are moving away from traditional aid-based models and experimenting with new bottom-up approaches that directly invest in creating assets and wealth and improving education for the poor.

Columbia University and New America's Global Assets Project, who worked together to design the pilot, received a grant from the BYSG to assist in the launch of the pilot and test the impact of the accounts. The pilot will be implemented over a period of three years and introduce CDAs for at least 1000 school children throughout the 24 constituencies of the 8 districts of the Bayelsa State. The accounts provide a means and an incentive to stay in school, save and invest for their futures and also have positive changes in their attitudes towards themselves and their choices. By opening accounts for and matching the savings of low-income children and youth, the BYSG hopes to break the cycles of poverty, conflict and distrust of government by "investing in those who invest in themselves."

Despite being, or perhaps because of being, the most resource-rich region of Nigeria, the Bayelsa State in the Niger Delta faces extreme social and economic challenges, including high poverty and militancy rates. Youth lack access to adequate skills training or employment opportunities and increasingly become disenfranchised and unsettled, with little optimism about their future.

This policy pilot, intended to address these challenges, will be the first anti-poverty intervention of its kind in the conflict-prone region. If this yields intended results, lessons could be incorporated to implement similar programs for children in need across the world, including places such as Afghanistan where there is a need to make aid reach the poor.

Columbia University is inviting applications for the position of a consultant who will be based in Yenegoa, Nigeria, for six months to start-up this project. Click here for a more information.

This project is part of an overall strategy to build assets for the poor in Africa. It has been well documented as to why traditional aid and development assistance - from both small and large actors - have fallen short in alleviating the extreme poverty that persists in the world's poorest region. A forthcoming report by Fred Ssewamala, Elizabeth Sperber and Jamie M Zimmerman examines a bottom-up, asset-based approach that draws on findings from latest development and research projects in the region. This report is slated to be published by the Global Assets Project by November 2009.

Jamie Zimmerman is the Deputy Director for the Global Assets Project.
Shweta Banerjee is a consultant with the Global Assets Project. Banerjee@newamerica.net

Thursday Event: Matched Savings as a Tool for International Development

Leila Seradj — Tue, 13 Oct 2009 14:54:00 -0400

What goes up, as the saying goes, must come down, and for all the splash that the microcredit movement has made in the past decade, it seems that the belief that small loans will provide a pathway out of poverty is revealing some fissures.

A recent Times of London article (World poverty guru "fails" to spread wealth) brought attention to the questions surrounding the movement to which Muhammad Yunus helped to bring awareness. The article cited a recent study conducted by Dean Karlan and Jonathan Zinman in the Philippines, where they discovered that microcredit recipients did not fare better than those not receiving loans.

That's not to say that the advent of microlending has not been a vital and necessary innovation. But it isn't a panacea, and more voices have arisen to ask: what about providing the poor the financial services to which they so often lack access; most notably, a safe place to deposit and save their money?

One innovation that has shown to be particularly promising is that of matched savings. Also known as Individual Development Account programs, the innovation targets individuals providing both an incentive and a place to save, with savings being targeted toward building specific assets (e.g. a small business, a home, or investment in higher education). The World Council of Credit Unions (WOCCU) recently launched a program in Mexico, called MatchSavings.org, which raises funds to match the savings of rural-dwellers in Veracruz through an online-giving platform.

This Thursday, the Global Assets Project will convene a panel to discuss lessons from MatchSavings.org and from the matched savings/IDA movement in both developed and developing countries, as well as to launch its new issue brief, Promoting Savings as a Tool for International Development: Spotlight on WOCCU's MatchSavings.org. WOCCU Executive Vice President Brian Branch will provide remarks, followed by a panel discussion featuring Daryl Collins (Bankable Frontier Associates, and co-author of the much talked-about Portfolios of the Poor), Evelyn Stark (Financial Services for the Poor, Gates Foundation), JD Von Pischke (formerly of Frontier Finance International), and Asset Building Program Director Reid Cramer.

For more information or to RSVP, visit the event page. The event will be held at the New America Foundation's offices in Washington, D.C.

We look forward to seeing you on October 15 at 12:15 pm-- lunch will be provided, and for those unable to make it to D.C., it'll also be webcast (no RSVP necessary).

Financial innovation and philanthropy: The latest cocktail to build assets

Shweta Banerjee — Wed, 30 Sep 2009 20:56:00 -0400

This week's Economist has an interesting article on the recent trend of mixing philanthropy with innovative "impact investing".

The Clinton Global Initiative launched the Global Impact Investing Network (GIIN), comprising of twenty members representing big banks (including Citigroup and Deutsche Bank), donors (Gates, Rockefeller), the Acumen Fund and Generation Investment Management (which is Al Gore's green company). If this group succeeds in agreeing on a common language for social investing and lobbying for helpful laws and regulations, impact investing could grow to $500 billion, which accounts for around 1% of the world's total assets under management in 2008.

Social investment is not new in itself. But the success of ideas like microfinance, which combines do-good with profit, has inspired mainstream financial institutions and investors to become interested.

For example, Social Finance, a social investment firm in Britain, has introduced the "social impact bond," where funds raised by bond purchases contribute toward organizations with social missions. Social Finance plans to try out this bond for several public services like rehabilitating released prisoners and improving community health services.

The Gates Foundation has set aside $400 million to see if various fledgling innovations can attract larger amounts from government and private investors. For example, Gates guarantees charter schools that are issuing bonds so that other investors can feel less worried about risk.

There is a need to evaluate the impact of these ideas, specifically on how they can effectively be used to create assets. But since neither Government spending nor grants are enough to meet the needs of the bottom billion, its time to marry them with private capital and skills.

There are many opportunities created by this marriage. For example, can a cluster of village banks in Tanzania, where the poor deposit their money be guaranteed by a social investment firm?

The Global Assets Project in collaboration with the World Council for Credit Unions (WOCCU) will be hosting an event to talk about another innovation. Using its network of credit unions, WOCCU's new program matchsavings.org provides much needed savings-led financial services to the poorest in remote regions of Mexico.

Mark your calendars for October 15 at 12.15 pm, for lunch and some fresh discussion on the details of this new model and its relevance outside mexico in other countries around the world.

Shweta Banerjee is a consultant with the Global Assets Project at the New America Foundation.

Banerjee@newamerica.net

U.S. Savings Bonds for All

Alejandra Lopez-Fernandini — Wed, 09 Sep 2009 20:24:00 -0400

In his Labor day radio address, President Obama announced that beginning in 2010, taxpayers will have the option to purchase a U.S. Savings Bond when filing their federal taxes. The decision to increase access to what is possibly the most secure and low-cost, savings product sends important signals.

The Administration is showing a commitment to promoting economic recovery and household stability through common-sense means and is willing to act on implementation-ready, low-cost, practical, and scale-able proposals. You can find the full text of the White House press release here.

Why this is good news - especially for small savers

Returning the U.S. Savings Bond purchase option to the tax form will make it easier for more than 100 million tax filers to purchase this U.S. security with funds from their federal tax refund when they file their taxes. This maximizes simplicity and minimizes the hassle for the taxpayer who wishes to save a portion of their refund. Those who intend to save and are deterred by limited or unaffordable options can now commit the money to savings before they receive it and are tempted to spend it.

Our good friends and partners, the D2D Fund, have been a leading force behind the savings bond proposal (we are a member of the Savings Bond Working Group). D2D summarized in their recent report, Yes We Can: Inclusive Saving at Tax Time (page 7), the key features of the policy just announced by the President:

Easy - both to implement and to explain to savers
Inexpensive - requires no new annual appropriations, nor fees for citizens
Tested - has precedent; people know and trust it
Inclusive - will help all Americans, especially those most in need of and likely to benefit from saving

What's so special about a U.S. Savings Bond? I think my grandmother gave me one of those....

U.S. Savings Bonds have fallen somewhat out of fashion, at least from their heyday during the World Wars when they were marketed as war bonds to finance our nation's debt.

But sales of Series EE and I Savings Bonds, the most attractive types for smaller investors, have been stagnant for years, reaching a seven-year low in 2007 despite retaining a reputation as an easy-to-use and trusted brand. Here are some of the advantages of a U.S. Savings Bond:

Low purchase price--$50 minimum and no fees or extra costs
No risk to your principal investment (I-bonds are inflation protected)
Exempt from state and local tax
Secure, backed by the full faith and credit of the U.S. Government
No bank account or credit check needed for purchase
No fancy investment knowledge, just a desire to save!

For a quick overview, check out our two-page brief here.

Click here for a short video interview we conducted with Tim Flacke, D2D Fund Executive Director.

The asset building community has long advocated increasing access to affordable, simple savings solutions which fill a need for all savers, but especially for smaller sum savers who have more limited options. D2D also leads a successful pilot initiative which is showing the potential of Savings Bonds to meet the savings needs of low-income tax filers.

Our work is not over yet

While we have reached one critical milestone in increasing affordable savings options to all Americans, our work is not over yet. Some critical steps to getting the most out of Savings Bonds remain, including:

Restore Marketing

Outside of the D2D-led national pilot project, U.S. Savings Bonds are not widely promoted. The availability of bonds, and how to buy them, has suffered low visibility since Congress eliminated the program's marketing budget in 2003. According to D2D's 2009 pilot survey, 61% of respondents didn't know where to buy bonds at all. Renewed marketing of bonds would increase their profile among a wider sector of the population, and likely lead to more sales. The costs of restoring the marketing budget may be offset by the potential increases in personal household savings levels and reduced dependency on public sector supports during economic downturns.

Leverage Existing Infrastructure

Secondly, we must continue to leverage existing systems to streamline the delivery of critical asset-building policies. The IRS Form 8888 (also known as the Split Refund Form) is likely to be the place where Savings Bonds are offered to taxpayers. We believe the Form has further potential and will be best utilized when it can facilitate new account opening, as outlined in the Saver's Bonus and the SAFE-T Account proposals.

Continue Learning from the Pilot

Lastly, the D2D Fund pilot continues, and is currently accepting applications for next year. With many changes likely to happen incrementally, it's important that the field continue learning both about implementation and savings behavior.

More policies will be needed to help get families saving again, but this is an exciting and major first step by the Obama Administration as our national economy begins on the road to recovery by shifting from borrow-and-spend to save-and-invest. In his address, the President reinforced that the nation must depart from its current course "that put the interests of the short-term ahead of the needs of long-term." By mainstreaming the U.S. Savings Bond, countless households will have better access to a liquid saving option. That Savings Bonds are fully under an individual's control is a key ingredient in promoting a sense of security, a personal safety net that can be tapped in the event of an unanticipated expense, or to seed investment in a bigger asset purchase. We can think of no better way to back our own future than with a U.S. Security.

In this week’s Time: The forgotten half of microfinance

Leila Seradj — Fri, 04 Sep 2009 17:55:00 -0400

A quick note on an interesting article in this week's Time: Barbara Kiviat writes about the emergence in the field of microfinance for the need for a safe place to save and deposit money, which is something that we at the Global Assets Project have been talking about for a while.

While microcredit was at the root of the microfinance movement's beginnings, what's becoming clear is that those who take out small loans also desire a place to deposit and save their money. Indonesia's Bank Rakyat, she notes, has ten savers for every one borrower, and their borrowers use the loans for household needs about 30% of the time. And they save in the form of assets (such as livestock and jewelry), requiring them to pay a fee to pawn those assets in times of need.

Some solutions? Agent-based banking, where financial services are delivered through pharmacies, newsstands, or other institutions. Mobile banking has likewise taken off in places like Kenya, with 7 million customers registered under M-PESA's mobile-based service for storing and sending money.

While Kiviat notes that some microfinance institutions are hesitant to take deposits- -seeing it as time-consuming, expensive, and not profitable-- other organizations are finding creative and grassroots ways to bring savings to the center.

Oxfam's Savings for Change program, for example, is working at the village level in Mali, Cambodia, Senegal, and El Salvador to create small savings groups. Based on the tanda model in India and tontines in West Africa, members pool savings on a weekly basis and lend out portions of the savings to members in need of loans.

Imagining a Post-Recession America: On 'Combating Poverty by Building Assets'

Shweta Banerjee — Tue, 07 Jul 2009 19:37:00 -0400

When I first came to the United States as a student in Chicago in 2004, I realized how little I knew of the contradictions within this country. From the outside, it is the wealthiest nation in the world, with the most powerful army on earth and often referred to as the land of excess and opportunity. But to many outside the US it is a little known fact that there are deep pockets of poverty, tucked away in patches of its urban and rural areas. More recently, while working on poverty reduction programs in South Asia at the World Bank, I found it ironic to see homeless persons sitting under the pristine cherry blossoms outside its shiny building in Washington DC. It made me think about the need to apply innovations and successes from ‘developing countries' right here.

Ray Boshara's recent article "Combating Poverty by Building Assets" in Pathways magazine sheds some light on this issue. Boshara calls for a ‘new era of thrift' to be ushered in a post recession America and he explicitly draws on experiences from other national contexts.

Savings, not credit, is the first step in building assets. Instead of extending toxic sub-prime mortgages and deceptive credit cards without appropriate financial knowledge, savings-led strategies should form the core of anti-poverty efforts. During each financial rite of passage - at birth, at the workplace, at tax time and while purchasing a home - people should be given a savings product. For example, every child born into a low-income household should be given a $1,000 savings account and the opportunity to earn $500 in annual matching funds until 18 years of age. Both Great Britain and Sri Lanka have successfully launched child saving accounts; every family that leaves the hospital has an account for the newborn.

Borrowing from Singapore's Central Provident Fund, an American Savings Plan should be created in which every worker in the United States would be provided with an American Stakeholder Account. This account would grow from mandatory savings of 1-2% from both employers and employees.

Income and consumption-based evaluations which then inform income-based poverty programs, do not take into account the growth of assets. As first proposed by Michael Sherraden in 1991, and now widely proven by research across the world, the key to moving out of poverty lies in sustainable asset creation. As the article points out, even prior to the economic meltdown, one in three American households had no more than $10,000 in net worth and one in six had negative net worth.

Given the challenges many confront in savings and building assets, we should be open to lessons learned from policy efforts and programs around the world. There is much to be learnt from the Peruvian woman who saves a portion of her conditional cash transfer to open a small business, or the woman from a small village in India who, with her self-help group, has moved out of poverty. Now is an opportune time to redouble our efforts to promote savings and asset building, and smooth-out some of the hard edges of wealth inequality.

Shweta Banerjee is a consultant with the Global Assets Project of the New America Foundation.

Expanding Savings Opportunities for California’s Welfare-to-Work Families

Hosai Ehsan — Thu, 25 Jun 2009 17:23:00 -0400

In California's tough economic times, even small savings can go a long way for a low-income family. Assemblymembers Jim Beall and Felipe Fuentes are working hard to make sure that CalWORKs families have the opportunity to set aside savings that can help them cushion financial emergencies and become financially self-sufficient.

On Tuesday, the California Senate Human Services Committee passed Assembly Bill 1058 (Beall & Fuentes). The California Workforce Mobility Initiative (AB 1058) repeals the $4,650 vehicle asset limit for recipients and applicants and eliminates the $2,000 cash asset limit for recipients. Also, it allows applicants to have $2,000 in savings adjusted to the California Necessities Index.

If enacted, AB 1058 would help CalWORKs families build the savings necessary to become financially self-sufficient through work. It will also save the state $3 million dollars in administrative staff time, according to the Assembly Appropriations Committee. This money is otherwise spent conducting quarterly tests to verify that the families are indeed asset poor. States that have eliminated the asset test report a savings and no fraud cases.

The goal of the CalWORKs program is to provide temporary assistance as families transition from government support to work. CalWORKs recipients can achieve this goal by owning a reliable car that helps them get to work, and savings that helps them move ahead.

The California Legislature and many community organizations have recognized the significance of asset building and are working hard to ensure that CalWORKs families who aspire to build their own financial safety-net are encouraged and not penalized.

Retirement Savings for all California Workers

Hosai Ehsan — Wed, 24 Jun 2009 00:15:00 -0400

Imagine a California where every employee has the option to participate in a work based retirement savings plan.

Imagine a California where all workers retire with enough savings to sustain them through old age, so they do not have to depend on the government for assistance.

Well, this may not be too far-fetched of an idea, because California is taking strong steps in this direction.

Yesterday, the California State Senate Public Employment and Retirement Committee passed Assembly Bill 125, the California Employee Savings Program. Authored by Assemblyman De Leon, AB 125 aims to create a voluntary, universal, portable retirement account for California workers who do not have access to a retirement savings plan. Furthermore, AB 125 would enable thousands of small businesses to offer low-cost retirement savings to their employees.

The truth is that California's economy is built on its dedicated workforce, so it is important to nurture their enthusiasm and reward their hard work by giving them the tools to secure a financially stable future. Currently, 43% of California's workforce does not have the option to save through payroll deduction. That means that despite their years of hard work and economic contributions to the state, they will most likely end up depending on government aid when they retire. Also, 78% of today's seniors did not build sufficient assets to sustain their standard of living, reports the Institute on Assets and Social Policy.

In a recent AARP survey, 63% of respondents whose current employers do not offer a retirement plan said they would be likely to use it if their employers offered one. In other words, a majority of the employees are interested in building retirement savings if they are given the adequate tools to do so on the job.

At the national level, President Barack Obama has endorsed the idea of creating automatic workplace retirement savings plans. After all, a California where every worker has the option to secure retirement savings is not an imaginary scenario. It is a realistic possibility, favored by California workers and small businesses and supported by the California Legislature.

HEALTH REFORM: "Billion Dollar Bills On The Sidewalk"

Alex Mazerov — Tue, 02 Jun 2009 20:38:00 -0400

Wouldn’t it be great if there were billion dollar bills just lying on the sidewalk? According to a panel of experts, that’s exactly what health care reform would give us.

We told you earlier about the Council of Economic Advisers’ new report on the economic case for health reform. Then we went over to the Brookings Institution to hear CEA chair Christina Romer and some other top health care economists—Republican Doug-Holtz-Eakin and Democrat David Cutler—give a bipartisan perspective on how vital health reform is to the short- and long-term health and stability of the U.S. economy. All agreed health care reform needs to be done—and it needs to be done right.

Romer likened the savings we can reap from reforming the ailing U.S. health care system to "billion dollar bills on the sidewalk."

“There’s no more important issue than health care,” Romer said. “If we do health care reform well, the benefits to the economy will be enormous.”

Romer cited projections that health care costs, if left unchecked, would eat up one-third of the U.S. economy by 2020 and lead to “unsustainable” budget deficits and reduced wages for American workers. On the other hand, reining in the skyrocketing costs by improving the health system’s efficiency will increase standards of living, decrease unemployment, boost government and personal savings and increase economic investment.

Harvard economist Cutler, who was an adviser to President Obama during the campaign, is a strong believer that the costs can be tamed, and that delivery system and payment reform will reap significant and measurable savings. He also called for much more emphasis on preventive care; about three-fourths of our health spending is on chronic disease, much of which can be prevented and/or better managed.

Holtz-Eakin, who was a top adviser to John McCain’s presidential campaign and a chief economist for the CEA under President George W. Bush, said that health care is an “economic growth opportunity that we do not want to squander.” But all that agreement on the broad economic picture, he added, doesn’t minimize the fact that reforming the system is still an enormous political challenge.