Despite the rapid proliferation of mobile money and other financial technologies in developing countries, two billion adults around the world remain “unbanked,” or without access to formal financial services. In the absence of secure and reliable ways to save, borrow, and make payments, many low-income households and small businesses rely on costly and informal methods of managing their finances. Lack of traditional credit scores can further limit the ability of unbanked households to borrow money, further perpetuating inter-generational cycles of poverty.
A growing body of evidence suggests that improving access to secure money transfer services, credit, and savings can lead to investments in durable assets and income-generating activities. Cash transfers, a complementary approach, have shown to reduce inequality and help impoverished households meet basic needs like housing, health care, and education. Still, there remains a dearth of evidence on the mechanisms by which financial products and services alleviate poverty and drive economic growth. Stakeholders are left to make important decisions without complete or accurate information.
Through partnerships with Visa, the Bill & Melinda Gates Foundation, and others, CEGA mobilizes researchers to design and test secure financial products and services, behavioral nudges, regulatory approaches, and consumer protection schemes (including novel credit scoring mechanisms). Our researchers leverage household- and firm-level survey data, as well as market data and large transactional databases, to test important research questions. Ultimately, through targeted networking and dissemination, we expect our research programs to inform high-level decisions about product, program, and business model development, along with the design of regulatory solutions for protecting low-income consumers. Importantly, CEGA is committed to financial inclusion not as a goal in itself, but as a catalyst for driving economic and social development.
Financial Inclusion Lab
The Financial Inclusion Lab (FIL), funded by a gift from Visa, was established in 2015 as a clearinghouse for research on the returns to investments in digital financial inclusion. Evidence generated through FIL guides Visa and its partners towards increasing the adoption and sustained use of electronic payments and complimentary interventions in emerging markets. Currently, FIL demonstration projects are exploring the impacts of e-payment infrastructure on small business development in Mexico, and the effectiveness of linked lines of credit on cash transfer beneficiaries in the Dominican Republic. In Fall 2016, FIL awarded four pilot grants to teams of researchers testing novel financial inclusion interventions in Sierra Leone, Kenya, Nepal, and the Dominican Republic.
Digital Credit Observatory
With funding from the Bill & Melinda Gates Foundation, CEGA established the Digital Credit Observatory (DCO) in late 2016 to fill critical gaps in knowledge on the impacts of digital credit and related consumer protection measures in emerging markets. Over three years, the DCO will fund a coordinated body of research in this space, engaging closely with key thought partners, industry partners, banks, and policy-makers throughout the process to ensure that the evidence generated is both relevant and actionable. The DCO is actively seeking collaborators on topics such as:
- the short- and long-run impacts of digital credit on consumers in emerging markets
- the profitability of loan opportunities that can be accessed via digital channels
- the extent to which non-traditional approaches to credit scoring can be used to minimize risk to consumers and lenders
In Western Kenya, CEGA researchers have identified significant demand for formal savings programs among female entrepreneurs. In a randomized trial, women with individual bank accounts were able to safeguard their savings against theft or appropriation by family members, allowing them to invest in their businesses, increase their incomes, and spend more money on their families' nutrition.
Credit bureaus are important tools for financial institutions, providing information about the credit-worthiness of potential borrowers. CEGA researchers have found that collecting and sharing basic financial information about households can reduce the rates of default on loans. This, in turn, enables reliable borrowers to access credit and helps financial institutions extend their services to addtional households.
CEGA researchers were the first to evaluate the health impacts of Progresa, the landmark conditional cash transfer (CCT) program supported by the government of Mexico. The evaluation found significant positive effects on health, including a 60% increase in visits to public clinics, a 23% reduction in the incidence of illness, and an 18%reduction in anemia among young children.The approach has now been scaled to more than 30 countries across 6 continents.
Unconditional Cash Transers Enable Efficient Giving
Give Directly, co-founded by CEGA Affiliate Paul Niehaus, is an organization that provides direct, electronic cash payments to ultra-poor households around the world. Researchers are working with Give Directly to study the long-term impacts of cash payments on local economics, by measuring outcomes like business activity and job creation. Over time, electronic cash transfer programs could improve the efficiency and transparency of international giving and serve as a benchmark by which other anti-poverty programs are measured.