Monday, March 28, 2016

Using the ATM Debit Card to Build Trust and Savings: A Study through Mexico's Oportunidades

Trust is an essential element of economic transactions. This is especially true for savings where transactions take the form of a promise to future returns. Unfortunately trust in financial institutions appears low across the world and even more so among the poor and less educated. In Mexico, for instance, 25 percent of those with primary school education admitted to having "no trust at all" in banks, while 18 percent of those with more than primary school education expressed some trust in the banks (Gallup World Values Survey). This is not entirely inexplicable, given that in the last 15 years, there have  probably been hundreds of frauds in Mexico which led poor savers to lose all the money they deposited in financial institutions. Researchers have also noted that poorer clients who received assistance in surmounting the initial costs of opening bank accounts often ended up using the account to merely withdraw money from transfers and let the account remain idle the rest of the time. Along with transaction costs, low trust frequently figures as the main reason cited by the poor for not using savings account. Overall, this state of affairs might help us to explain why there is little savings in formal accounts.

In our study we were interested in finding out whether ATM debit cards and mobile banking could potentially alleviate this problem since these technologies potentially lower the cost of monitoring movements in the account and simultaneously increase convenience and access to savings. Ideally, this could be tested using a randomized experiment where we award savings accounts with and without ATM cards randomly. Unfortunately, such a randomized experiment does not yet exist in the given context. Thus, in our study, we look at the effect of giving debit cards to the beneficiaries of a Mexican state conditional cash transfer program Progresa/Oportunidades (now Prospera). The beneficiaries had already received their transfer at a government development bank Bansefi but had not been given a debit/ATM debit card connected to the account. For the study, we have used account level information on more than 300,000 accounts some of which received an ATM debit cards in a staggered fashion.

                              Photo: Will Kay, Flicker, Creative Commons:

At the beginning of the research, we were intrigued in part, by the stories of Oportunidades beneficiaries who complained about money disappearing from their account. We found that this was due to the substantial fees they were incurring by frequently checking their account balances. This was so particularly in the beginning when they did not have any trust in the banks and resorted to making sure that their money was there by checking their accounts several times in a single day. Since there was a transaction cost involved in the process, the beneficiaries lost a substantial amount of their funds in this way. We focused on the increase in the savings account of the group that had received the debit cards. For purposes of comparison, we also had a control group that had not received any debit cards as a part of the program. For analysis, we undertook a differences-in-differences empirical design to approximate the causal effect of receiving the card on savings in the account.

As mentioned in the beginning, we found that when they first got the debit card, customers checked their saving balance frequently, but the frequency of this checking declined over time. Most notably, beneficiaries with more than 6 months with the card checked 57 percent less frequently per bimester. This evidence strongly suggests that initial use of ATM debit cards to frequently check and monitor savings account helps to build up trust. Additionally, the increase in saving was gradual and coincided with the increase in directly elicited trust in the bank account and was not related to the learning curve for the debit card use. We found that in the groups using the debit cards, the savings increased dramatically, almost tripling in a span of 2 years after receiving the ATM card vis-à-vis the control group (without the ATM card). We noted that the increase in trust was contemporaneous with increases in savings amount in the bank account.

In addition, the use of a consumption-income survey showed that the increase in savings in the account comes from new savings and not just from savings shifting. We found that although income did not change, consumption decreased after getting the ATM card. One interpretation of this finding is that the account allows for some commitment to saving and avoidance of "temptation goods" like high sugar foods that would otherwise be consumed. In our final report we lay out some alternative explanations such as mechanical savings where saving increases related to more frequent but lower amount withdrawals, and differential changes due to changes in the amount of the Oportunidades transfer. 

All in all these findings indicate good news. Trust and how to increase trust has not received enough attention in the academic literature. Our results suggest that an existing and simple technology – namely the debit card could increase trust, account use, and savings. Furthermore our findings show that in contexts such as the one examined in this study, the experiment can be easily scaled up. Increasingly, the world over, tens of millions of poor households in dozens of countries currently receive cash transfer programs, more and more into bank accounts. Given the possible benefits, providing ATM cards for these accounts appears to be a worthwhile measure worth ensuring.

The final report of the study on how the ATM card has an effect on trust, savings, and the use of formal savings accounts can be found here.

Monday, March 21, 2016

"The Mobile Money Experience in Sub-Saharan Africa" in The African Technopolitan Magazine

Take a look at IMTFI Postdoctoral Scholar Mrinalini Tankha's article, The Mobile Money Experience in Sub-Saharan Africa, featured in the most recent issue of the African Technopolitan, a magazine of the African Centre for Technology Studies (ACTS).

The article is part of the January 2016 issue on "The Poverty of Development Strategy in Africa" and provides a comprehensive look into IMTFI's research findings in Sub-Saharan African since 2009. It traces shifts in the mobile money landscape and also discusses patterns that endure by highlighting the role of deep histories, rank and hierarchy, ritual and religion and the stickiness of trust in understanding user interaction and uptake of new technologies. The article further emphasizes the role of  locally embedded rich qualitative research and offers suggestions for new future directions in mobile money research in the region.

Read the rest of the issue here.

Monday, March 14, 2016

Financial Education via Television Comedy: Evidence from a Pilot Study in Cambodia

Andrew Crawford, Paul Lajbcygier and Pushkar Maitra, Monash University

Spreading financial literacy and fostering financial inclusion across a heterogeneous population is crucial for sustained and inclusive economic growth and development. Our goal is to explore the potentials of broadcast television to spread basic financial literacy at low cost across entire populations especially in remote locations. Broadcast TV may be able deliver accessible, memorable, and entertaining education to those normally excluded from financial services.
Financial education skit
The Cambodia Microfinance Association (CMA), in conjunction with our research team, produced a 5-minute skit that will ultimately be a part of a highly rated weekly comedy show in the country. The show involves a storyline focusing on concepts related to financial knowledge, loan management and savings. The video was shown to a randomly selected group of garment factory workers during their lunch break in a ‘pilot study’ (the episode is yet to be broadcast on television). A second similarly selected group of garment factory workers were shown a financial literacy slideshow video covering the same material without any comedy content. The financial topics that were covered in the video and slide show included debt, savings accounts, and microfinance business loans. Figure 1. presents the percentage of time spent on each component of financial literacy. 
Figure 1: Time allocation to different aspects of financial education in the video
After watching the respective videos, the participants were asked to participate in a survey to collect information on their financial knowledge and attitudes toward the related financial products. The results were compared to that of a third (baseline) group that consisted of randomly selected garment factory workers who participated in the same survey as the two treatment groups without having watched either of the two videos. All the sessions were conducted in garment factories located in the Special Economic Zones that are within 50 km of the capital city of Phnom Penh. 

Screening of videos in garment factories
Figure 2 shows clear signs of increased attraction to savings accounts following the screening of the comedy video. Out of those who watched the comedy show, only 5% are ‘not interested’ in savings accounts afterwards compared to 21% of slideshow video viewers and 18% in the control group. Both 'very interested' and 'somewhat interested' scores were higher for individuals assigned to the comedy treatment compared to those assigned to the slideshow or the control treatments. Using multivariate regressions we found that the likelihood of reporting 'interested' or 'very interested' is almost 14 percentage points (or 17%) higher in the comedy treatment group than in the control treatment group and almost 18 percentage points (or 19.5%) higher than in the slide show treatment. We believe that the comedy story line and narrative about savings accounts made their benefits more real and relevant in comparison to the slide show.

Figure 2:  Interest to obtain information on savings and microfinance loans

While the video was effective in changing attitudes to savings accounts it was less successful in changing attitudes toward microfinance loans. Approximately 36% of comedy viewers, 38% of slideshow viewers and 32% of those in the control treatment disclosed lack of interest in microfinance loans for business. Similarly over 70% of respondents in each group said they would not apply for a loan in the next 6 months. This was corroborated using multivariate regression analysis. Furthermore, we found that individuals randomly assigned to the comedy treatment report were significantly more likely to have their own savings account in the next 6 months. However there seemed to be very little effect on the willingness to have a new microloan in the next 6 months.

Further examination of the survey data reveals the reasons for the differential effect. Both savings and loans respondents were asked why they had never used the products. With regards to savings, over 16% of all respondents said it was because they had no previous knowledge of savings accounts. On the other hand less than 3% had no previous knowledge of microloans. Over 64% replied they had never needed a microloan and only 20% of all respondents had previously taken out a microloan. This deeper examination suggests that a large number of respondents have knowledge of microloans but feel that they have no need for them. Other reasons for not borrowing included cost of interest (7%), belief that MFIs are expensive (6%), fear of repayment (5%), and lack of collateral (2%). Thus, in this context, the information delivery mechanism (i.e., entertainment or slide show) would have less impact on microfinance business loans.

Policy Implications

The survey results indicate changed attitudes to some of the topics covered. We find evidence that attitudes towards savings accounts were significantly different for those who viewed the comedy show in comparison to those who viewed the slide show as well as to those who were assigned to the control group. It is to be noted that 30% of the video was devoted to savings accounts. Recently, policy makers and governments have promoted savings accounts in the developing world for use with transfer payments (see for example the Pradhan Mantri Jan Dhan Yojna – PMJDY – program in India). However, barriers preventing uptake of savings accounts continue to exist due to lack of access (e.g. proximity of branches, onerous paperwork) and business issues (e.g., lack of profitability of savings accounts for banks). In Cambodia, most garment factory workers could see the benefit of savings accounts after watching the comedy video and were interested in pursuing more information about them. The video was also more effective in piquing workers interests in savings accounts: possibly because the comedy video delivered the financial literacy content in a manner that was entertaining, accessible, memorable.

The successful use of financial education through entertainment media has broad implications for the delivery of financial education. It demonstrates that it could be an engaging and cost effective way to financially educate a broad range of people in developing countries around the world irrespective of their location as well as literacy levels. Television comedy therefore could be leveraged as a means of financial education and future TV shows should incorporate more content on financial matters, particularly if knowledge is low across the population.

Link to Final Report: Financial Education Via Television Comedy

Monday, March 7, 2016

Mobile money and savings in Mali: A potential leverage effect for greater bank access

Mariam Sangaré (with Isabelle Guerin)

In this blog post we discuss the relationship between the use of mobile services and access to other financial services, particularly savings services and bank account holding. Our purpose is to show, on one side, how Malian users try to fit available mobile financial services to their saving needs, and on the other, to what extent mobile money can be a vector of greater bank access through the development of mobile savings. Our analysis of mobile money users’ financial profiles sheds some light on these questions.

The market for mobile financial services is witnessing a significant growth in Mali and the UEMOA zone in general.(1)  Between 2013 and 2014, the value of transactions increased by 122%, reaching 3,760 billion CFA francs at the end 2014 for 259.3 million operations. Mali occupies the second rank in the zone in terms of transaction value, with 20% out of 3,760 billion CFA francs. The country is even ranked first in terms of P2P transfers, realizing 47.48% of operations value in this category (BCEAO, 2015). Two mobile network operators (MNOs), Malitel and Orange-Mali, share the Malian market. Both offer mobile transfer and payment services.

Mobile networks presently cover more than 40% of the territory and 40% of the population uses a mobile phone. In this context of low bank access and growing mobile phone utilization, the aim of our IMTFI-funded project has been to assess how mobile services are contributing to financial inclusion in Mali.

Very frequent billboards on access to Mobile (here Mobile wifi) at the side of an avenue in Bamako. 
(Picture from the field, Mariam Sangaré)
Access to the mobile network can contribute to financial inclusion through three possible channels. First, mobile financial services can increase the range of available financial services, thereby providing broader choice and eventually lowering prices. A larger suite of mobile products can benefit the entire population, independently of access to banks or other financial service networks. The second channel impacting financial inclusion are the linkages of banks to mobile users, which can facilitate access to bank accounts by reducing information requirements. Finally, competitive pressure may incentivize banks to win new customers by developing competing or complementary mobile services.

Traditional pottery of Mali. (Picture from the field, Mariam Sangaré)
From our observations in Mali, only the first channel is running, with the development of P2P transfer services proving to be valuable in the Malian context. However, the potential of this channel to lead to greater bank access remains limited. Indeed, the current bank/MNO cooperation model in supplying mobile services has so far not resulted in a lasting connection between banks and unbanked mobile users. The current cooperation between MNOs and banks is limited to the interface with the central bank, which guarantees electronic money. Our field data in Mali show that users of mobile financial services already possess a bank account, rather than the mobile account generating new bank accounts. This suggests that the use of a mobile account has not improved access to banks for new populations in Mali.

Retail trading in Bamako. (Picture from the field, Mariam Sangaré)
More generally, the financial profiles of our sample of 300 respondents (22% of whom are women) noticeably show that users of mobile services are very dynamic in their use of formal and informal financial services. We observed that 40% of respondents hold a bank account. This figure is largely above the level of bank access in the total population (which is less than 11%). Furthermore, the gender dimension in bank access is significant here: 73% of women in the study do not have a bank account compared to 56% of men, despite the higher education level of women in the sample.(2)

A young man making a transaction
with an Orange Money agent in Bamako. 
(Picture from the field, Mariam Sangaré)
A second important observation based on respondents’ financial profiles is the prevalent use of informal saving groups by men as well as women: 32% of the sample is a member of a ROSCA or other savings association. This figure is quite high given the greater participation of men in the study; women, 67% of whom are members, are culturally more accustomed to take part in these clubs than are men, but are less represented in our sample. In the Malian context, the search for adequate means of saving appears to be one of the reasons that men and women are juggling between different financial services.

Indeed, the high demand for savings options actually calls for improved access to banks, because in Mali MNOs are not allowed to offer savings or investment products, which are available only through banks. Unless the mobile phone succeeds in creating a more sustainable relationship between users and banks, its effect will be minimal in facilitating clients’ access to an adequate suite of savings options.

Reliance on cash in the largely informal economy is one of the important elements impacting the adoption of mobile money in Mali. Our study suggests that mobile services in Mali are attracting people who are accustomed to bank relationships and who are generally used to “hiding” their money. These users are better able to arbitrate between multiple services to choose the one best suited to their needs. For example, 88% of the respondents in our sample declared having access to other informal and formal transfer means like bank transfers, road haulers or "hand-to-hand" sending. But only 32% actually use them in parallel with mobile transfer services. The majority ends up choosing mobile transfer due to its safety, speed and often lesser cost relative to the alternatives.(3)

In the present context then, it seems that “bank educated” users are benefiting more from mobile financial services than the unbanked. For example, users with accounts at the partner bank of Orange Money (BICIM-Mali) can now make transfers free of charge between their mobile wallet and their bank account or vice versa. With the current trend in the development of mobile payment services, the gap between the banked and unbanked may increase if mobile phone use does not encourage new linkages between banks and mobile users. Users already accustomed to bank accounts will easily follow the trend, while those dependent on cash and without formal access to banks will have trouble. The model of commissions sharing between banks and MNOs for the m-payment service may privilege those already included in the formal financial system rather than encouraging unbanked mobile users' full access to banks.

A typical multi-selling point, with the storekeeper serving as agent for different money transfer services
 in addition to his grocery trade(Picture from the field, Mariam Sangaré) 

Our study underscores the saving potential of mobile users, which can be beneficial to banks. We observed in Mali, as studies have shown in other contexts, that respondents frequently use the mobile wallet for precautionary savings. In this sense, mobile transfers largely feed mobile saving in Mali. Mobile transfers are in fact a form of saving with the mobile phone, one that banks could channel toward greater financial inclusion.

We conclude that given the extent of mobile network access and use in Mali, the development of new operating models between banks and MNOs could help to achieve a higher level of financial inclusion. These models must involve greater synergies between MNOs and banks, and facilitate more information and experience sharing in order to develop a wider range of bank services that can be extended to mobile users. The operational model based on partnerships between banks and MNOs is diversifying the scope of mobile financial services in the most mature markets in Sub-Saharan Africa. Mobile savings and short-term credits are now possible in leading markets like Tanzania (GSMA, 2015)(4). In the partnership model, each partner takes advantage of their strengths in reaching new customers: the mobile networks have the advantage of technology, physical access and operational costs reduction, while banks bring the necessary licenses and experience for savings collection and credit disbursement. Exploiting synergies is thus a key element in speeding up financial inclusion and can impact considerably the level of accessibility and diversity of mobile financial services.

(1) BCEAO, (2015), Situation des services financiers via la téléphonie mobile dans l’UEMOA, BCEAO ; 24 pp.
(2) In the sample, 71% of women have at least a secondary school level, compared with 43% for men.
(3) Nevertheless, we point out that the price of mobile financial services is considered too high for users, as a large part of our sample (29%) reported that high cost is the greatest inconvenience in using them.
(4) GSMA (2015), State of the Industry: Mobile Financial services for the Unbanked, 2014 Report.

Read Mariam Sangaré's final report “Mobile money and financial inclusion in Mali: what has been the impact on saving practices?”