Contemporary Authors

• The Economics of Microfinance MIT Press (Cambridge, MA), 2005
• Financial Performance and Outreach: A Global Analysis of Leading Microbanks World Bank (Washington, DC), 2006
• Banking the World: Empirical Foundations of Financial Inclusion MIT Press (Cambridge, MA), 2013
• Macroeconomics McGraw-Hill Education (New York, NY), 2014
• Microeconomics McGraw-Hill Education (New York, NY), 2014
• Economics McGraw-Hill Education (New York, NY), 2014
• The Financial Diaries: How American Families Cope in a World of Uncertainty Princeton University Press (Princeton, NJ), 2017

1.  The financial diaries : how American families cope in a world of uncertainty LCCN 2016955128 Type of material Book Personal name Morduch, Jonathan. Main title The financial diaries : how American families cope in a world of uncertainty / Jonathan Morduch, Rachel Schneider. Published/Produced Princeton, NJ : Princeton University Press, 2017. Projected pub date 1703 Description xii, 233 pages ; 25 cm. ISBN 9780691172989 (alk. paper) Library of Congress Holdings Information not available. 2.  Economics LCCN 2016030925 Type of material Book Personal name Karlan, Dean S., author. Main title Economics / Dean Karlan, Yale University and Innovations for Poverty Action, Jonathan Morduch, New York University ; with special contribution by Meredith L. Startz, Yale University and Innovations for Poverty Action. Edition Second Edition. Published/Produced Dubuque : McGraw-Hill Education, 2017. Projected pub date 1701 Description pages cm ISBN 9781259193149 (alk. paper) Library of Congress Holdings Information not available. 3.  Macroeconomics LCCN 2013019262 Type of material Book Personal name Karlan, Dean S. Main title Macroeconomics / Dean Karlan, Yale University and Innovations for Poverty Action, Jonathan Morduch, New York Universtiy ; with special contribution by Meredith L. Startz, Yale University and Innovations for Poverty Action. Published/Produced New York : McGraw-Hill Education, [2014] Description vi, 500 pages : illustrations ; 26 cm ISBN 9780078111815 (pbk.) 0078111811 (pbk.) Shelf Location FLM2015 044223 CALL NUMBER HB172.5 .K374 2014 OVERFLOWJ34 Request in Jefferson or Adams Building Reading Rooms (FLM2) 4.  Microeconomics LCCN 2013018523 Type of material Book Personal name Karlan, Dean S. Main title Microeconomics / Dean Karlan, Yale University and Innovations for Poverty Action, Jonathan Morduch, New York University ; with special contribution by Meredith L. Startz, Yale University and Innovations for Poverty Action. Edition First edition. Published/Produced New York, NY : McGraw-Hill Education, [2014] Description xxxviii, 571 pages : color illustrations ; 26 cm. ISBN 9780077332587 (alk. paper) 007733258X (alk. paper) Shelf Location FLM2015 152335 CALL NUMBER HB172 .K36 2014 OVERFLOWJ34 Request in Jefferson or Adams Building Reading Rooms (FLM2) 5.  Economics LCCN 2013013695 Type of material Book Personal name Karlan, Dean S. Main title Economics / Dean Karlan, Yale University and Innovations for Poverty Action Jonathan Morduch, New York University ; with special contribution by Meredith L. Startz, Yale University and Innovations for Poverty Action. Edition First edition. Published/Produced New York, NY : Mc Graw Hill Education, [2014] Description xxxiii, 913 pages : color illustrations ; 26 cm. ISBN 9780073511498 (alk. paper) 0073511498 (alk. paper) Shelf Location FLM2015 145866 CALL NUMBER HB171.5 .K297 2014 OVERFLOWJ34 Request in Jefferson or Adams Building Reading Rooms (FLM2) 6.  Banking the world : empirical foundations of financial inclusion LCCN 2012016234 Type of material Book Main title Banking the world : empirical foundations of financial inclusion / edited by Robert Cull, Asli Demirgüç-Kunt, and Jonathan Morduch. Published/Created Cambridge, Mass. : MIT Press, c2013. Description vi, 511 p. : ill., map ; 24 cm. ISBN 9780262018425 (hardcover : alk. paper) 026201842X (hardcover : alk. paper) Shelf Location FLM2016 110281 CALL NUMBER HG195 .B356 2013 OVERFLOWJ34 Request in Jefferson or Adams Building Reading Rooms (FLM2) CALL NUMBER HG195 .B356 2013 CABIN BRANCH Copy 2 Request in Jefferson or Adams Building Reading Rooms - STORED OFFSITE 7.  The economics of microfinance LCCN 2009034760 Type of material Book Personal name Armendariz, Beatriz. Main title The economics of microfinance / Beatriz Armendáriz and Jonathan Morduch. Edition 2nd ed. Published/Created Cambridge, Mass. : MIT Press, c2010. Description xix, 468 p. : ill. ; 23 cm. ISBN 9780262513982 (pbk. : alk. paper) 9780262014106 (alk. paper) Shelf Location FLM2016 046305 CALL NUMBER HG178.3 .A76 2010 OVERFLOWJ34 Request in Jefferson or Adams Building Reading Rooms (FLM2) CALL NUMBER HG178.3 .A76 2010 CABIN BRANCH Copy 2 Request in Jefferson or Adams Building Reading Rooms - STORED OFFSITE 8.  Financial performance and outreach a global analysis of leading microbanks LCCN 2005705547 Type of material Book Personal name Morduch, Jonathan. Main title Financial performance and outreach [electronic resource] : a global analysis of leading microbanks / Jonathan Morduch, Robert Cull, Asli Demirguc-Kunt. Published/Created [Washington, D.C. : World Bank, 2006] Links http://econ.worldbank.org/external/default/main?pagePK=64165259&piPK=64165421&theSitePK=469372&menuPK=64166093&entityID=000016406_20060124163013 CALL NUMBER Electronic resource Request in Jefferson or Adams Building Reading Rooms 9.  The economics of microfinance LCCN 2004060952 Type of material Book Personal name Armendariz, Beatriz. Main title The economics of microfinance / Beatriz Armendáriz de Aghion, Jonathan Morduch. Published/Created Cambridge, Mass. : MIT Press, c2005. Description xiv, 346 p. : ill. ; 24 cm. ISBN 0262012162 (alk. paper) Links Table of contents http://www.loc.gov/catdir/toc/fy054/2004060952.html CALL NUMBER HG178.3 .A76 2005 Copy 2 Request in Jefferson or Adams Building Reading Rooms CALL NUMBER HG178.3 .A76 2005 CABIN BRANCH Copy 1 Request in Jefferson or Adams Building Reading Rooms - STORED OFFSITE 10.  Microeconomics LCCN 2016034532 Type of material Book Personal name Karlan, Dean S., author. Main title Microeconomics / Dean Karlan, Yale University and Innovations for Poverty Action, Jonathan Morduch, New York University. Edition Second edition. Published/Produced New York, NY : McGraw-Hill Education, [2017] Projected pub date 1701 Description pages cm ISBN 9781259813337 (alk. paper) Library of Congress Holdings Information not available. 11.  Macroeconomics LCCN 2016034553 Type of material Book Personal name Karlan, Dean S., author. Main title Macroeconomics / Dean Karlan, Yale University and Innovations for Poverty Action, Jonathan Morduch, New York University. Edition Second edition. Published/Produced New York, NY : McGraw-Hill Education, [2017] Projected pub date 1701 Description pages cm ISBN 9781259813436 (alk. paper) Library of Congress Holdings Information not available.

• Portfolios of the Poor: How the World's Poor Live on $2 a Day - 2010 Princeton University Press, Princeton, NJ

• Amazon -

  Jonathan Morduch is an economist at New York University. He writes about the financial lives of low-income families and how they connect to poverty and inequality.

  Morduch teaches on international development economics, but his most recent book, The Financial Diaries (with Rachel Schneider), tells the stories of families in the United States.

  Morduch is Executive Director of the Financial Access Initiative at NYU, and a professor of public policy and economics at NYU's Wagner Graduate School of Public Service.

  website: https://wp.nyu.edu/jmorduch/

• Wikipedia -

  Jonathan Morduch
  From Wikipedia, the free encyclopedia
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  Jonathan Morduch
  Born
  October 3, 1963 (age 53)
  Nationality
  American

  Academic background
  Alma mater
  Brown University,
  Harvard University
  Academic work
  Discipline
  Economics
  Sub discipline
  microfinance
  Institutions
  New York University
  Jonathan Morduch (born October 3, 1963) is a Professor of Public Policy and Economics at the Robert F. Wagner Graduate School of Public Service.[1] He is a development economist most well known for his significant academic contributions to assessing the impact of microfinance since the early years of the movement. He has written extensively on poverty and financial institutions in developing countries and on tensions between achieving social impacts and meeting financial goals in microfinance.
  Morduch is the Managing Director of the Financial Access Initiative,[2] a consortium of leading development economists (including Sendhil Mullainathan at Harvard and Dean Karlan at Yale) that aims to expand access to financial services for low-income individuals in developing countries through research, supported by the Bill and Melinda Gates Foundation.
  Morduch is currently chair of the United Nations Committee on Poverty Statistics. He is a member of the Editorial Board of the World Bank Economic Review and of the UN Advisors Group on Inclusive Financial Sectors. Murdoch also serves on the advisory board of Academics Stand Against Poverty (ASAP).

  Contents  [hide] 
  1
  Life
  2
  Books and Selected Publications
  3
  Portfolios of the Poor
  4
  Works
  5
  References
  6
  External links

  Life[edit]
  He holds a BA from Brown University and Ph.D. from Harvard University, both in Economics. In January 2009, Morduch was awarded a Doctorate Honoris Causa from the Université Libre de Bruxelles.[3]
  Books and Selected Publications[edit]
  Morduch is co-author of The Economics of Microfinance (2005) [4] with Beatriz Armendariz de Aghion. His upcoming book, Portfolios of the Poor: How the World's Poor Live on $2 a Day[5] is co-authored with Daryl Collins, Stuart Rutherford, and Orlanda Ruthven. His most recent publication, Microfinance Meets the Market, in the Journal of Economic Perspectives (Winter 2009)[6] investigates the tensions and opportunities for microfinance as it embraces the financial markets. Morduch’s work and views on access to finance and social investment are widely cited.[7][8][9]
  Portfolios of the Poor[edit]
  Portfolios of the Poor: How the World's Poor Live on $2 a Day was published in 2009 and went on to become a widely recognized book for its realistic presentation of the way poor people manage their money.[10] The book aims to answer one fundamental question: how the poor make ends meet? Portfolios of the Poor presents research findings based on the "financial diaries" that the authors collected by tracking financial records of more than 250 families across South Africa, Bangladesh, and India throughout one year.
  Works[edit]
  Beatriz Armendariz; Jonathan Morduch, The economics of microfinance New Delhi : PHI Learning Press, 2011. ISBN 9788120342712, OCLC 818854062
  D Collins; Jonathan Morduch; Stuart Rutherford; Orlanda Ruthven, Portfolios of the poor : how the world's poor live on $2 a day, Princeton : Princeton University Press, 2015. ISBN 9780691148199, OCLC 940547709
  Jonathan Morduch; Rachel Schneider, The financial diaries : how American families cope in a world of uncertainty, Princeton, New Jersey : Princeton University Press, 2017. ISBN 9780691172989, OCLC 958799688[11][12][13][14][15]

• Innovations for Poverty Action Website - https://www.poverty-action.org/people/jonathan-morduch

  Jonathan Morduch

  Professor
  New York University
  Jonathan Morduch is Professor of Public Policy and Economics at the NYU Wagner Graduate School of Public Service, and Managing Director of the Financial Access Initiative (www.financialaccess.org), a consortium of researchers focused on financial inclusion. His research centers on microfinance, social investment, and the economics of poverty. He is currently developing a theoretical framework with Jonathan Conning for understanding how governments and philanthropists can use market forces to create social change.
  Morduch is co-author of Portfolios of the Poor: How the World's Poor Live on $2 a Day (Princeton 2009) and The Economics of Microfinance (MIT Press 2005, 2nd edition 2010). He has taught on the Economics faculty at Harvard University, and has held visiting positions at Stanford, Princeton, and the University of Tokyo. Morduch has worked with the United Nations and World Bank, and advises global NGOs. He is Associate Editor of the Journal of Economic Perspectives and on the board of the Journal of Globalization and Development.
  Morduch holds a BA from Brown and Ph.D. from Harvard, both in Economics. He was awarded an honorary doctorate from the Université Libre de Bruxelles in December 2008 in recognition of his work on microfinance.

• TEDx Wilmington - http://www.tedxwilmington.com/speakers/jonathan-morduch/

  Jonathan Morduch
  Steady Jobs without Steady Pay.

  Jonathan Morduch is Professor of Public Policy and Economics at the Wagner Graduate School of Public Service at New York University. His research focuses on finance, inequality, and poverty.
  Morduch is the author with Rachel Schneider of The Financial Diaries: How American Families Cope in a World of Uncertainty (Princeton 2017), which reports on the financial lives of 235 working Americans over the course of a year (www.usfinancialdiaries.org). With Dean Karlan, he has written a new, empirically-oriented principles of economics text, Economics (McGraw-Hill 2017, 2nd ed.).
  Morduch is also co-author of Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton 2009) and The Economics of Microfinance (MIT Press 2010). He is coeditor of Banking the World: Empirical Foundations of Financial Inclusion (MIT Press).
  Morduch is a founder and Executive Director of the NYU Financial Access Initiative (www.financialaccess.org). He has taught on the Economics faculty at Harvard, and has held visiting positions at Stanford, Princeton, Hitotsubashi University and the University of Tokyo. Morduch received a BA from Brown, Ph.D. in Economics from Harvard, and an honorary doctorate from the Free University of Brussels for his work on microfinance. In 2016-17, Morduch was the Roger W. Ferguson. Jr. and Annette L. Nazareth member at the Institute for Advanced Study in Princeton.

• Next Billion - https://nextbillion.net/the-hidden-tragedy-of-the-poor/

  Quoted in Sidelights: “The poor are not as bad at financial planning as we always thought,” he said. “They try to save, to plan ahead. They have to, because the real problem is not that they make little money, but that the money comes in very irregularly.” He continued: “Behavioural finance shows that all people have a sometimes irrational attitude towards money. The poor are no different. But because they have so little money, they get into financial problems more easily.”
  ‘The Hidden Tragedy of the Poor’: An interview with Jonathan Morduch, executive director of the Financial Access Initiative
  Jonathan Morduch is professor of Public Policy and Economics at the NYU Wagner Graduate School of Public Services, and executive director of the Financial Access Initiative. In the nineties he became interested in the subject of microfinance, following the success of the Grameen Bank in Bangladesh, founded by Nobel Laureate Muhammed Yunus.
  “Here was a new kind of bank that could reach poor people in a way traditional institutions never could,” he said. “The bank seemed to solve fundamental problems for the poor. It was interesting from an academic point of view, but it also attracted me as a way to make the world a better place.” However, since then his views on microfinance have changed.
  Morduch spoke with André de Vos in an interview published on Upsides (cross-posted with permission). Their conversation is transcribed below.
  André de Vos: Why have you changed your opinion on microfinance?
  Jonathan Morduch: In researching microfinance, we found that we know very little about the day-to-day financial lives of the poor. I still think the instrument of microcredit has beauty, but it also has distorted our view. We see the poor through the lens of microfinance. In that view the poor are frustrated entrepreneurs that you help by providing capital to run their own businesses. But if you look closely at microcredit, you see that it resembles consumer credit more than anything else. The borrower starts repaying immediately once she gets the loan, which doesn’t make much sense if you need to invest in a business.
  Also, evidence is mounting that loans are used for many purposes beyond business. Some studies show that perhaps half the money from microcredit goes to business. The other half is used for basic expenses like a bus ticket, school fees or health insurance. Of course, this is not often mentioned, even though the microfinance institutions are aware of this. But it’s difficult for them to change their language. It’s easier to attract donors if you say you help the poor start their own business to get out of poverty.
  ADV: So what is really the problem?
  JM: 2.5 billion people live on two dollar a day. For the book Portfolios of the Poor, my colleagues Daryl Collins, Orlanda Ruthven, and Stuart Rutherford started doing very detailed research in Bangladesh, India and South Africa on the way the poor manage their finances. They used accountants’ tools to see how households earn and spend money. We came to some remarkable conclusions. The poor are not as bad at financial planning as we always thought. They try to save, to plan ahead. They have to, because the real problem is not that they make little money, but that the money comes in very irregularly. Two dollar a day is only an average. But they might make ten dollars a day or even more and then earn nothing at all for some time. So they need to plan ahead to pay future bills.
  What makes it difficult is that most banks are not interested in the poor. The savings of the poor are too small, as is their need for credit. So the households often create their own mechanisms. They start saving clubs, they deposit money with a trusted person. Sometimes they pay to save money, whereas richer people expect to get interest. Even with very low incomes they sometimes are able to save 20 percent or 30 percent of their income.
  ADV: Your conclusion is that the poor’s attitude towards money is not that different from that of the average person.
  JM: Behavioural finance shows that all people have a sometimes irrational attitude towards money. The poor are no different. But because they have so little money, they get into financial problems more easily. A person like myself tends to have a much more regular income pattern than a typical poor person. That makes it easier for me to plan ahead. My insurance, my rent and other expenses are automatically transferred from my account, I can’t even forget to pay them. As a result I never see most of my money.
  The poor don’t have that advantage. They get all their money in cash and then they have to make complicated financial decisions – which they do on a regular basis. Our research shows that the poor use a lot of financial instruments to cope – formal, informal, sometimes microcredit. In this sense, they have a surprisingly rich financial life. But the instruments are not always very reliable or flexible. It’s the hidden tragedy of the poor that they lack the right instruments to make the most of what little money they have.
  ADV: Why did you start researching poor Americans [in the U.S. Financial Diaries project]?
  JM: Portfolios of the Poor opened up new conversations about the future of microfinance. It started new ways of thinking about the poor. Maybe the poor in the West and in developing countries aren’t that different, even though the income levels are. We don’t really know, we don’t do much research on the poor in the West. It seemed an interesting line of research, and some donors, like the Ford Foundation and Citi Foundation, were interested in the subject as well. They supported our research. For me personally, it gave me new insights. I live in New York, but for this research I spent time with people I don’t normally meet.
  ADV: What do the results show?
  JM: We found strong similarities between the poor in the developing countries and those in the U.S. You see the same patterns: irregular income, with high peaks and deep troughs, multiple jobs, no money for health insurance. And also, at least in the U.S. – it might be different in Europe – although most low-income households have access to banks, they still use informal finance often (for example, borrowing or saving with family and friends), not unlike the poor in developing countries.
  ADV: How does this affect the way we should help the poor?
  JM: They need to get better access to financial institutions which can help them plan. At the moment they are not an attractive segment for most banks. But modern instruments like smartphones can make regular financial services more affordable. The West might even learn here from developing countries. I don’t think there is a viable business case yet for commercial financial institutions for the poorest communities, but new technologies may help by cutting costs. It’s significant that Grameen Bank II nowadays is more important as a savings bank than as a money lender – while even Yunus once claimed that the poor are too poor to save.
  ADV: Is there still a future for microcredit?
  JM: Definitely. But it should not only focus on entrepreneurs. Poor people that are not self-employed should get access to credit as well. We need to make microcredit available to non-entrepreneurs – and thus aim for billions of customers.
  André de Vos is a freelance finance journalist based in Utrecht, the Netherlands.

• - https://wagner.nyu.edu/community/faculty/jonathan-j-morduch

  Jonathan J. Morduch
  Professor of Public Policy and Economics, Executive Director of the Financial Access Initiative
  Contact Details
  jonathan.morduch@nyu.edu
  212.998.7515
  Office
  The Puck Building
  295 Lafayette Street
  2nd Floor
  New York, NY 10012
  Hours
  Wednesday 3-4 pm. Room 3028

  Bio Courses Research Grants
  Jonathan Morduch is Professor of Public Policy and Economics at the Wagner Graduate School of Public Service at New York University. His research focuses on finance and poverty.
  Morduch is the author with Rachel Schneider of The Financial Diaries: How American Families Cope in a World of Uncertainty (Princeton 2017), which reports on the financial lives of 235 working Americans over the course of a year (www.usfinancialdiaries.org). With Dean Karlan, Morduch has written a new, empirically-oriented principles of economics text, Economics (McGraw-Hill 2017, 2nd ed.).
  He is also co-author of Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton 2009) and The Economics of Microfinance (MIT Press 2010). He is co-editor of Banking the World: Empirical Foundations of Financial Inclusion (MIT Press).
  Morduch is a founder and Executive Director of the NYU Financial Access Initiative (www.financialaccess.org). He has taught on the Economics faculty at Harvard, and has held visiting positions at Stanford, Princeton, Hitotsubashi University and the University of Tokyo. Morduch received a BA from Brown, Ph.D. in Economics from Harvard, and an honorary doctorate from the Free University of Brussels for his work on microfinance.
   
  New Grants:
  Ford Foundation, US Financial Diaries project.
  Citi Foundation, US Financial Diaries project.
  IMTFI and IGC, Mobile banking in Bangladesh

  Bio/cv
  Jonathan Morduch is Professor of Public Policy and Economics at the Wagner Graduate School of Public Service at New York University. His research focuses on poverty and finance.
  Morduch is the author with Rachel Schneider of The Financial Diaries: How American Families Cope in a World of Uncertainty (Princeton 2017), and co-author of Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton 2009); The Economics of Microfinance (MIT Press 2010); and Economics (McGraw-Hill 2017, 2nd ed.), an introductory text. He is coeditor of Banking the World: Empirical Foundations of Financial Inclusion (MIT Press).
  Morduch is a founder and Executive Director of the NYU Financial Access Initiative. He has taught on the Economics faculty at Harvard, and has held visiting positions at Stanford, Princeton, Hitotsubashi University and the University of Tokyo. Morduch received a BA from Brown and a Ph.D. in Economics from Harvard. He was awarded an honorary doctorate from the Free University of Brussels for his work on microfinance.

  CV: https://18798-presscdn-pagely.netdna-ssl.com/jmorduch/wp-content/uploads/sites/5267/2017/09/Morduch-CV-Sept-2017.pdf

Quoted in Sidelights: sharp-eyed, sympathetic study
a must-read for anyone interested in causes of--and potential solutions to--American poverty.
The Financial Diaries: How American Families Cope in a World of Uncertainty

264.9 (Feb. 27, 2017): p90.
Copyright: COPYRIGHT 2017 PWxyz, LLC
http://www.publishersweekly.com/
* The Financial Diaries: How American Families Cope in a World of Uncertainty
Jonathan Morduch and Rachel Schneider.
Princeton Univ., $27.95 (240p) ISBN 978-0-691-17298-9

This sharp-eyed, sympathetic study from Morduch, a public policy and economics professor, and Schneider, a financial services company vice president, has a compelling new angle on the effects of long-term financial instability on working-class families. The authors' focus is on cash flow and how it can reveal instability that's not otherwise obvious from simple income information. They designed the titular financial diaries by recording a total financial picture for each of 235 households in five states: dollars earned, spent, and received in government entitlements. The study shows how cash-flow uncertainty prevents people from sticking with long- or even short-term financial plans. Using the narratives of a handful of survey respondents--including a casino card dealer and a performing arts teacher--the authors discuss various coping methods: saving, borrowing, and drawing on communities and networks. They also examine how pervasive financial uncertainty drains people's time and energy, citing a 2014 survey in which 92% of respondents said they would prefer economic stability to extra income. This is a must-read for anyone interested in causes of--and potential solutions to--American poverty. Agent: Ted Weinstein, Ted Weinstein Literary Management. (Apr.)
Source Citation   (MLA 8th Edition)
"The Financial Diaries: How American Families Cope in a World of Uncertainty." Publishers Weekly, 27 Feb. 2017, p. 90. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA485671227&it=r&asid=6c2accd6b872c3dec75f036e47270d2b. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A485671227

The Economics of Microfinance

Prabirendra Chatterjee and Sudipta Sarangi
73.1 (July 2006): p259.
Copyright: COPYRIGHT 2006 Southern Economic Association
http://www.utc.edu/Outreach/SouthernEconomicAssociation/southern-economic-journal.html
The Economics of Microfinance By Beatriz Armendariz de Aghion and Jonathan Morduch. Cambridge, MA: The MIT Press, 2005. Pp. 352. $45.00.
The year was 1998: Professor Jonathan Morduch was visiting Princeton University and Professor Beatriz Armendariz de Aghion was visiting the Massachusetts Institute of Technology (MIT). Armendariz de Aghion had studied microfinance in Latin America (including founding Grameen Trust Chiapas in Mexico), and Morduch had researched microfinance in Bangladesh, Indonesia, and China. They both were concerned because their experiences in Asia and Latin America seemed to conflict with the theoretical literature. It was during this time that their common interest in microfinance prompted them to undertake a series of joint projects. One of these projects was to write the first draft of the initial chapters of a book entitled The Economics of Microfinance. Following this early start, it took quite a while--almost seven years--before the book was finished. In the meantime, there was an explosion of research on microfinance, greatly expanding the scope of the book. The popularity of microfinance as a poverty alleviation strategy also grew during this period, increasing the demand for published works on the topic. Sheer coincidence or not, both of these economists, as well as MIT Press, must have been very happy to be able to publish this book in 2005, the year the United Nations' designated as the International Year of Microcredit. The time was right to deliver this extensively researched, much-needed book.
The microfinance revolution, particularly the success stories of institutions like Grameen Bank in Bangladesh, Banco Sol in Bolivia, and Bank Rakyat in Indonesia, attracted several economists to study microfinance in the latter half of the 1990s. The authors themselves belonged to this group of enthusiastic people who were conducting both theoretical and empirical research on a topic that now forms an integral part of the new development strategies. However, for undergraduate and graduate students of economics, public policy, and development studies, there was a nagging problem--the plethora of mechanisms and institutions that fell under the label of microfinance were varied and complex, and there was no accessible source that presented all the material coherently. There were two excellent surveys of the literature--Ghatak and Guinnane (1999) and Morduch (1999)--but these were not exhaustive; in addition, many exciting new developments and innovations that subsequently occurred were not included. Moreover, attempts to translate various microfinance mechanisms from one country to another had repeatedly failed, and several theoretically promising mechanisms were ignored because practitioners were skeptical about implementing them. Therefore, even in the presence of several hundred research papers, students, researchers, and practitioners needed something more accessible and handy that provided a thorough understanding of the basic concepts, as well as extensive information about this growing development strategy. Without a doubt, Armendariz de Aghion and Morduch's The Economics of Microfinance is a one-of-a-kind book and fills this void admirably!
"Rethinking Banking," the introductory chapter of the book, is an overview. It begins by explaining the need for microfinance programs and whether such programs can be operated profitably. It is now well recognized that the development banks of the 1950s and 1960s were not very successful in helping the poor. Of course, given the myriad asymmetric information problems inherent in lending to the poor, formal credit institutions have shied away from providing credit to this group of borrowers, thereby setting the stage for microfinance. Early in this chapter, the authors distinguish between the words microcredit and microfinance. According to Armendariz de Aghion and Morduch, the notion of microcredit focuses on poverty reduction through loans and social change, while the newly coined term, microfinance, emphasizes the benefits to households of receiving a wider variety of financial services. These precise definitions are important, as they will help to reduce the extent to which both terms are misused. More importantly, by establishing this difference, the chapter makes abundantly clear the need for microfinance as a poverty-reduction strategy. It provides a cogent summary of the achievements and challenges of microfinance programs and forms the reference point for the ongoing debates in microfinance that are examined in subsequent chapters. Primarily, this chapter helps readers to understand how a simple but sound idea has led to fascinating new strategies that create a "win-win" situation for all.
In Chapter 2, the authors make a case for intervention in rural credit markets. It introduces readers to the basic toolbox of asymmetric information problems in the context of credit markets. Terms such as agency problems, limited liability, adverse selection, ex-ante moral hazard and ex-post moral hazard are explained. Without stressing technicalities (a consistent overall feature of the book), the authors use simplified versions of classic models to explain adverse selection and moral hazard problems associated with the credit markets. While these credit market imperfections can lead to higher interest rates, Armendariz de Aghion and Morduch make a vital point relating to microfinance. Higher interest rates cannot be the raison d'etre for intervention in credit markets--rather, microfinance has to be justified on grounds that it can provide a host of financial services at reasonable costs. The authors stress that although the interest rates cannot be too low, they cannot be too high either--there needs to be a happy medium.
Chapter 3 is a "back to the roots" chapter. It deals with the worldwide evolution of the two predecessors of joint liability lending--Credit Cooperatives and Rotating Savings and Credit Associations (ROSCAs). This chapter provides a detailed discussion of these two institutions, including their organizational structures, simple analytics, and basic mechanisms adopted, as well as their success and failure. This information enables the reader to grasp the significance of these two institutions for joint liability lending. ROSCAs are simple but limited mechanisms for generating savings. Credit cooperatives are more flexible arrangements for mobilizing local resources that demonstrate the benefits of peer monitoring. The authors cite recent evidence from Grameen credit cooperatives that highlights their role in promoting savings. They go on to suggest that the extraordinarily high repayment rates of group-lending programs may be socially suboptimal and may be the result of excessive peer monitoring.
Chapter 4 focuses on group lending, which is the most well-known form of microfinance. Using essential results from contract theory, Armendariz de Aghion and Morduch illustrate how imposing joint liability on the borrowers can alleviate adverse selection and moral hazard problems. The chapter intuitively explains how assortative matching emerges as the first-best outcome under group lending, and therefore is mutually beneficial to both the lender and the borrower. The authors also provide a survey of the recent empirical work on group lending. In the concluding section of this chapter, the authors discuss the limitations of conventional group-lending programs. They explain how hidden costs, collusion among borrowers, or the tension arising from conflict between results on paper and in reality can hinder the achievement of group-lending goals.
Chapter 5, which is appropriately titled, "Beyond Group Lending," discusses the relatively new lending mechanisms known as progressive lending or complementary information mechanisms. Inspired by its previous success, in 2001 the Grameen Bank launched a new program they christened the Grameen Generalized System (GSS) or Grameen Bank II. This second-generation idea is commercially more sophisticated and better equipped than its earlier lending program, now called the Grameen Classic System (GCS) or Grameen Bank I (Yunus 1999).
In this chapter, Armendariz de Aghion and Morduch systematically attempt to answer the question of whether group lending is really necessary or if there are other alternatives. They discuss a variety of second-generation microfinance institutions, including new techniques to secure repayment and improve the existing first-generation schemes. These techniques consist of measures such as smaller but more frequent repayment installments and replacing the joint-liability clause with a requirement of public repayment. One interesting approach that is becoming popular requires the microlenders to help borrowers acquire financial assets, which may be used as collateral later. Moreover, many of these new flexible approaches adopted by the second-generation lenders provide borrowers with a much-needed safe savings option. With the help of a simple theoretical model, the authors show that instituting a collateral requirement actually reduces the rate of default or debt burden.
Another interesting topic in this chapter is the role of dynamic incentives in new microfinance schemes. Armendariz de Aghion and Morduch analyze how, in terms of dynamic incentives, women who have access to relatively fewer sources of credit are more likely to repay their debts than men. Progressive lending schemes (loan size increases over time) and easy installments are important tools to attract female borrowers, as women are more concerned with household improvement, children's education and their health, than are male family members.
Chapter 6 concentrates on the activities responsible for the transition from microcredit to microfinance. The authors argue that, for the poor, neither the ability to save nor borrow is more important than the other. Instead, they are possibly complementary, with the prefix "micro" in front of both activities being the key. In fact, a holistic picture emerges only when we study both the saving and borrowing constraints. This chapter stresses that the poor need to have the ability to conduct small but frequent transactions of either type. The authors believe that low-income households have difficulty generating savings, and thus find it relatively expensive to accumulate capital as documented by Rutherford (2000). They attribute this problem to a lack of effective institutions. They claim that most new-generation microfinance programs have a predilection for microsavings for obvious reasons--mobilizing savings, acting as collateral, and providing loanable funds. They also discuss microinsurance, which is a growing movement that helps give low-income households accessibility to loans on fair terms. A typical microinsurance package may offer a variety of insurance methods, such as life, health, and property insurance--even rainfall insurance. The idea of providing life insurance at the grass roots level has been welcomed by people worldwide. However, this chapter points out that providing insurance at the microlevel is not an easy task, and that institutions that do so have to contend with numerous problems. Apart from the usual issues of adverse selection and moral hazard, the authors express concern about practical issues, such as the positive correlation between the loan size and the premium, and the limited duration of insurance coverage (it only lasts for the duration of a loan). Paying a large premium or remaining excluded from the program between loans may create tension and push borrowers toward risky situations. In spite of these problems, the authors believe that program diversification is a necessity.
Chapter 7 deals with issues of gender empowerment, emphasizing that women are the agents of change in the household. The chapter lists numerous reasons why microfinance should target women. Given that most women are credit constrained, they tend to have a conservative attitude in their investment strategies, thus improving their chances of success. Women are more concerned about children's health and education, making them the ideal borrowers to have an impact on poverty. Another reason for focusing on women is gender empowerment, as women in developing countries face great social, legal, and economic obstacles. This chapter asks the question of whether or not microfinance enhances the bargaining power of women. To address this issue, the authors briefly introduce the theory of intra-household decision-making in the tradition of Becker (1981). This model suggests that the credible threat of leaving the household determines bargaining power in the house. Even after accounting for the fact that, because of their limited access to inputs, supplies, and marketing facilities, women must rely on male family members, the authors argue that it might be a better policy to have women as direct customers of the microlending institutions. The authors then use studies from Africa, Latin America, and Asia to justify favoring women in microfinance schemes. Another fact that emerges from these empirical studies is that although women's empowerment can be achieved through microfinance, the program design needs to take this specific objective into consideration. An important caveat is that such gender-driven social goals might be in conflict with financial sustainability. The authors conclude by stating that there are a number of interesting questions on the relationship between gender and microfinance that are open to debate and deserve further study, in particular, its impact on education, skill acquisition, and access to the formal sector.
The discussion in Chapter 8 is empirically oriented. Using longitudinal data from India, Peru, and Zimbabwe, and cross-sectional data from Bangladesh, the authors evaluate the performance of different microfinance programs. According to Armendariz de Aghion and Morduch, the main challenge in evaluation is due to selection bias--not every individual in an economy has access to microcredit. Microfinance institutions choose their operating region and clients. In order to do a proper evaluation, relevant characteristics such as age, gender, education, social status, and the profession of the borrower must be taken into consideration. Good infrastructure in chosen areas may also lead to upwardly biased estimates. The authors suggest a variety of approaches to address the selection problem. They cite Coleman's (1999) approach, which uses information on borrowers before the microfinance program arrives. One potential problem with Coleman's approach is that the researcher seldom gets a chance to evaluate a program where the concerned authorities have taken the trouble to organize all of the villagers. Consequently, using cross-sectional data, researchers often end up doing a comparison of "old borrowers" with "new borrowers" within the same area. Karlan's study in Peru (2001) is an example of this. The drawback of this approach is "attrition bias," i.e., the exit of unsuccessful agents. The authors also discuss using an instrumental variable to approach the problem in a different way. As measurement errors, reverse causality, and omitted variable bias are common problems in this area of research, the authors believe finding a good instrument may ease the pain. One such instrument possibly could be the interest rate, as it is not a direct determinant of income, but explains the need for a specific credit volume. Though the authors are concerned with these biases (selection, attrition, omitted variables), they also criticize the pessimistic attitude of some observers. In conclusion, the authors advocate simple and credible impact studies like Coleman's 1999 study in Northeast Thailand over complicated ones.
Chapters 9 and 10, which are entitled "Subsidy and Sustainability," and "Managing Microfinance," respectively, cover important policy issues and will be of great help to practioners. Most microfinance programs rely on domestic and foreign subsidies to a varying extent, which has been the subject of a fair amount of criticism. Morduch (1999) pointed out the overdependence of microfinance programs on subsidies as one of their major limitations. Chapter 9 explores the advantages and disadvantages of subsidy dependence in great detail. Critics often point to ASA Bangladesh as the success story for the "no subsidies" case. Detailed studies from Bangladesh (Grameen Bank) and Thailand (Bank for Agriculture and Agricultural Cooperatives), among others, show that even though substantial subsidies are required to support these programs, such support is indeed a good social investment. However, after acknowledging the fact that subsidies may be a good investment, the authors express their concerns regarding three issues--proper channeling and usage of the subsidy, leading to the need for smart subsidies; reliance on subsidies limiting the scale of operations, affecting poverty eradication; and the emergence of "induced innovations" that may outweigh the gains from the subsidy. This last term, which was coined by Danish economist Esther Boserup, refers to subsidies replacing innovations that help in achieving financial sustainability.
Chapter 10 is a lesson in microfinance management. The authors analyze common but important problems arising from multiple-objective issues, such as poverty reduction versus profitability, or high-powered versus low-powered incentives or team incentives. (Bonus schemes are considered as high-powered incentives, whereas low-powered incentives are basic combinations of fixed wages and rewards, such as promotion.) These problems have been examined in the framework of principal-agent models and incentive theory. The authors provide a systematic way of looking at incentive problems and discuss the pros and cons of each type of scheme. They recommend that when creating optimal incentive structures, it is crucial to not only be concerned with risk, loan volume or quality, but also with improved teamwork, pursuing a balanced mix of short-term versus long-term objectives, discouraging fraud, and creating and maintaining an organizational culture within the microfinance institutions.
An interesting feature of the book is the inclusion of analytical and mathematical problems at the end of each chapter. This makes it handy for teaching an advanced undergraduate course, or a graduate course in development economics. Another attractive feature for graduate students is that, throughout the book, a number of open research questions are identified. However, while the book is reasonably comprehensive, the authors have ignored a few important contemporary topics in the microfinance literature. For example, most countries now have competing microfinance providers. The book fails to address such competition and its social impact. Other contract theory topics like auditing and enforcement, advantages and disadvantages of simultaneous versus sequential group lending, and risk heterogeneity among borrowers are either missing or have not been dealt with adequately. This last topic, for instance, is an important design issue that would be of great help to practitioners. Of course, the replacement of such technical material with more intuitive explanations does make the book more accessible. Other aspects of microfinance that have been overlooked are the free-tiding tendency that arises from the group liability structure and predicted patterns of risk-taking and risk-sharing due to identical group liability. The authors could also have mentioned recent experimental field and lab work on group-based mechanisms. In conclusion, The Economics of Microfinance is a splendid book that will be invaluable for helping academicians and practitioners understand the pros and cons of many aspects of microfinance.
Additional suggested readings for each chapter:
(I) Rethinking Banking: (1) Stiglitz, J. 1990. World Bank Econ. Rev., (2) Yunus, M. 1999. Public Affairs, (3) Khandekar, S. R. 1998. OUP, (4) Armendariz de Aghion, B. 1999. Jour. of Dev. Econ. (II) Why Intervene in Credit Markets: (1) Paulson, A. and Townsend, R. 2001 Working Paper, University of Chicago, (2) Adamas, D. W., Douglas, H. G., and Pischke, D. J. 1984. West View Press, (3) Fuentes, G. 1996. Jour. of Dev. Stud. (III) ROSCAs and Credit Cooperatives: (1) Banerjee, A., Besley, T., and Guinnane, T. 1994. QJE, (2) Gugerty, M. K. 2003. Manuscript, University of Washington, (3) Besley, T., Coate, S., and Loury, G. 1993. AER. (IV) Group Lending: (1) Ghatak, M., and Guinnane, T. 1999. Jour. of Dev. Econ., (2) Laffont, J., and Rey, P. 2003. Draft, IDEI Toulouse and University of Southern California, (3) Rai, A., and Sjostrom, T. 2004. Rev. of Econ. Stud. (V) Beyond Group Lending: (1) McIntosh, C., and Wydick, B. 2005. Jour. of Dev. Econ. (2) Khandekar, S. R., Khalily, B., and Kahn, Z. 1995. Worm Bank DP 306, (3) Rutherford, S. 2000. OUP. (VI) Savings and Insurance: (1) Deaton, A. 1992. Clarendon Press, (2) Richardson, D. 2003. Microbanking Bull., (3) Cohen, M., and Sebstad, J. 2003. MicroSave Africa Report. (VII) Gender: (1) Udry, C. 1996. JPE, (2) Keavane, M., and Wydick, B. 2001. Worm Dev., (3) Goetz, A. M., and Sengupta, R. 1996. WorldDev. (VIII) Measuring Impacts: (1) McKeman, S. M. 2002. Rev. of Econ. and Star., (2) Coleman, B. 1999. Jour. of Dev. Econ., (3) Karlan, D. 2001. Jour. of Microfinance. (IX) Subsidy and Sustainability: (1) Townsend, R., and Yaron, J. 2001. Econ Perspectives, (2) Morduch, J. 1999. Jour. of Dev. Econ., (3) Matin, I., and Hulme, D. 2003. Worm Dev. (X) Managing Microfinance: (1) Hart, O., and Moore, J. 1998. Working Paper no. 1816, Harvard Institute of Economic Research, (2) Drake, D., and Rhyne, E. 2002. Kumarian Press, (3) Bazoberry, E. 2001. Microbanking Bull.
(XI) Some other interesting papers: (1) Roy Chowdhury, P. 2005. Jour. of Dev. Econ. (sequential lending), (2) Jain, S. and Mansuri, G. 2004. Working Paper, University of Virginia. (competing providers), (3) Abbink, K., Irlenbusch, B. and Renner, E. 2003. CeDEX WP 2003-7, University of Nottingham. (lab experiment), (4) Xavier, G., Jakiela, P., Karlan, D. and Morduch, J. 2005. Mimeo, University of Groningen, (field experiment) (5) Aniket, K. 2005. Working Paper, University of Edinburgh (savings and microfinance), (6) Ahlin, C. and Townsend, R. 2004, 2005. Working Paper, Vanderbilt University (various empirical aspects).
References
Becker, G. 1981. A treatise on the family. Cambridge, MA: Harvard University Press.
Coleman, B. 1999. The impact of group lending in northeast Thailand. Journal of Development Economics 60:105-42.
Ghatak, M., T. Guinnane. 1999. The economics of lending with joint liability: Theory and practice. Journal of Development Economics 60:195-228.
Karlan, D. 2001. Microfinance impact assessments: The perils of using new members as a control group. Journal of Microfinance 3:76-85.
Morduch, J. 1999. The role of subsidies in microfinance: Evidence from the Grameen Bank. Journal of Development Economics 60:229-48.
Rutherford, S. 2000. The poor and their money. New Delhi, India: Oxford University Press.
Yunus, M. 1999. Banker to the poor. New York: Public Affairs.
Prabirendra Chatterjee
University of Washington
Sudipta Sarangi
Louisiana State University
Chatterjee, Prabirendra^Sarangi, Sudipta
Source Citation   (MLA 8th Edition)
Chatterjee, Prabirendra, and Sudipta Sarangi. "The Economics of Microfinance." Southern Economic Journal, vol. 73, no. 1, 2006, p. 259+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA149769653&it=r&asid=8606cc612edf32bf1cfa7f5c81eb652a. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A149769653

The Economics of Microfinance

Bryan Barnett
31.1 (Winter 2011): p166.
Copyright: COPYRIGHT 2011 Cato Institute
http://www.cato.org/pubs/journal/index.html
The Economics of Microfinance
Beatriz Armendariz and Jonathan Morduch
Cambridge, Mass.: MIT Press, 2007, 360 pp.
It is one of the sad facts of recent human history that the economic prosperity enjoyed by so many remains unknown to most of the rest. The causes of poverty have long been debated and much has been spent in the effort to ameliorate it. Reliable estimates suggest as much as $2.3 trillion has been spent over the last several decades, most of it in the form of sponsored aid programs conceived and pursued by governments and large foundations in developed countries. Despite this investment, however, poverty remains widespread and has worsened in many places, especially in Africa. These basic facts now fuel a vigorous debate over the scale and ultimate value of traditional aid programs and a search for more effective solutions.
Against this backdrop microfinance stands out as a private sector market-based strategy to improve the lives of the poor. Predicated on the assumption that even the poorest have the ability to improve their own circumstances given appropriate resources, microfinance seeks to overcome the barriers that deprive them of access to critical financial services taken for granted elsewhere. What began more than 30 years ago as microcredit for the poor has since grown into a large industry that increasingly seeks to offer savings and insurance products as well as unsecured loans to those otherwise overlooked by established financial institutions. The Economics of Microfinance offers a comprehensive exploration and analysis of the underlying theory of and research into the business of microfinance, covering a range of issues relevant to investors, managers, and researchers. The book looks broadly at four sets of issues: barriers that prevent established banks from providing services to the very poor, innovations that microfinance institutions (MFIs) have relied upon to overcome these barriers, the potential and consequences of MFIs becoming fully commercial enterprises, and the ultimate impact of microfinance on poverty and gender equality.
The poor have always borrowed and saved. They borrow from friends, employers, family, and village money lenders. They save by hiding cash or depositing it with friends. And in most parts of the world they can join one of a variety of informal rotating savings and credit associations. At the same time commercial banks face significant obstacles to serving poor customers. Where legal systems for enforcing contracts are especially weak, making a large number of very small loans without collateral means significant risk and high transaction costs. To succeed, microfinance must overcome these barriers while offering value not otherwise available through traditional savings and credit mechanisms. This book provides an excellent theoretical and practical analysis showing how key innovations such as group lending models and innovative contract terms address these barriers. They also consider the key issue of high transactions costs and inefficiency that still make for relatively high interest rates. Most of this territory is well understood and uncontroversial, but perhaps not as well appreciated as it should be. Other aspects of microfinance, on the other hand, remain the subject of often intense debate.
Today microfinance institutions number in the thousands. Some have achieved significant scale; most remain relatively small. Most begin as philanthropies, usually organized as NGOs, often financed with grants from foundations or private individuals. If successful they can ultimately access commercial credit and potentially even sell shares to raise capital. As such, there is an inevitable tension between a social mission to ameliorate poverty and pressure to increase profits to attract capital and make the institution self-sustaining and independent of donor support. Increasing profits often means targeting better-off customers with larger loans to reduce risk and lower transaction costs, referred to in the industry as "mission drift." Whether and to what extent mission drift is an inevitable consequence of reliance on commercial sources of capital is still an open issue, one that potentially undercuts the claim that microfinance can ultimately succeed as a business. Notwithstanding that some MFIs have achieved significant scale, most MFIs are still subsidized to some degree, directly or indirectly. Whether they can ultimately fulfill the goal of serving the very poor without reliance on subsidies, or indeed whether microfinance actually has a determinative effect on reducing poverty, are large issues still very much debated, often in the absence of meaningful data. Here Armendariz and Morduch provide a nuanced analysis of the arguments, examining both the value commitments underlying different positions and discussing methodological issues complicating research into various claims. In particular, discussion of the use of randomized trials is a very useful introduction to one of the most important current trends in evaluation research.
Reliance on subsidies is often defended as a means of enabling otherwise well run and profitable MFIs to serve poor customers they might not otherwise be able to serve. Because they are often indirect and hidden, subsidies are often difficult to quantify. Moreover, because they offset costs generally, it is difficult to assign any benefit to a particular segment of customers. Open questions include not only whether subsidies are ultimately essential but also how subsidies impact the overall supply of credit and interest rates. In keeping with their generally moderate view, the authors argue for a middle ground: "From a theoretical vantage, the argument for using ongoing subsidies is solid, and, in practice, well designed subsidies may be easy to implement and effective for borrowers" (p. 332). Yet they acknowledge that sufficient data are lacking and much more research is needed, as well as improvements in financial reporting to ensure full and accurate disclosure.
While it is at least theoretically possible for an MFI to become self-sufficient relying only on retained earnings from the loan portfolio, in practice this is rarely if ever sufficient to enable the institution to grow and expand. If not subsidized by grants and gifts, the institution must look to commercial credit, equity investment, or savings. Of these the last is perhaps most important though it has not been the subject of much attention. A move to accept savings means becoming a regulated financial institution, a barrier that most MFIs cannot overcome. Yet, there is increasing evidence that savings are if anything more important than credit to alleviating poverty and to the long-term viability of microfinance. The authors provide too scant a treatment of a subject critical to the future of microfinance, especially the potential impact of different regulatory schemes and the potential for regulatory innovation to encourage growth in savings-led microfinance.
Despite much anecdotal evidence supporting microfinance, there have been few rigorous studies able to establish conclusively that microfinance is determinative in lifting people out of poverty. Though clearly sympathetic to the cause of microfinance, Armendariz and Morduch are careful to note the limitations of current research and to highlight the challenges going forward. While randomized trials are clearly the gold standard for research, they are exceedingly difficult and expensive to conduct, especially when there are legitimate questions about how applicable the results of any study can be given the wide variation in local contexts and MFI business models. Even though vested interests are prone to dismiss any research that questions the value of microfinance, this research is essential. Governments may have a tendency to support programs that do not live up to expectations, but private investors (and, increasingly, well-run foundations also) do not. Any research that illuminates clearly the long-term impact of micro finance activity can only serve to direct scarce resources to the most efficient uses and pressure microfinance institutions to adapt their products and practices accordingly.
One aspect of microfinance largely overlooked by the authors is the impact of technology. New mobile payments schemes such as M-PESA in Kenya, as well as access to scalable robust back office systems for managing loan and savings portfolios, have the potential to drive down transaction costs dramatically and reshape business models in an industry that is still heavily reliant on manual processes and face-to-face transactions. While it is perhaps too early to undertake a definitive evaluation of the impact of these technologies, it is not too soon to consider the possibilities and lay out a research agenda (as the authors have done in other areas).
For anyone seriously interested in the economic underpinnings that account for the success of microfinance to date and who wants a clear sense of the issues and controversies facing microfinance going forward, The Economics of Microfinance is well worth the investment.
Any research that illuminates clearly the long-term impact of micro finance activity can only serve to direct scarce resources to the most efficient uses and pressure microfinance institutions to adapt their products and practices accordingly.
One aspect of microfinance largely overlooked by the authors is the impact of technology. New mobile payments schemes such as M-PESA in Kenya, as well as access to scalable robust back office systems for managing loan and savings portfolios, have the potential to drive down transaction costs dramatically and reshape business models in an industry that is still heavily reliant on manual processes and face-to-face transactions. While it is perhaps too early to undertake a definitive evaluation of the impact of these technologies, it is not too soon to consider the possibilities and lay out a research agenda (as the authors have done in other areas).
For anyone seriously interested in the economic underpinnings that account for the success of microfinance to date and who wants a clear sense of the issues and controversies facing microfinance going forward, The Economics of Microfinance is well worth the investment.
Bryan Barnett
Grameen Foundation
Barnett, Bryan
Source Citation   (MLA 8th Edition)
Barnett, Bryan. "The Economics of Microfinance." The Cato Journal, vol. 31, no. 1, 2011, p. 166+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA252553767&it=r&asid=1c7232c1d4848abd9e4c70333b4c728e. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A252553767

Banking the World: Empirical Foundations of Financial Inclusion

Deborah M. Figart
48.2 (June 2014): p590.
DOI: http://dx.doi.org/10.2753/JEI0021-3624480236
Copyright: COPYRIGHT 2014 Taylor & Francis Group LLC
http://www.mesharpe.com/mall/results1.asp?acr=jei
Banking the World: Empirical Foundations of Financial Inclusion, edited by Robert Cull, Asli Demirguc-Kunt, and Jonathan Morduch. Cambridge: MIT Press, 2013. Hardcover: ISBN 978-0-262-01842-5, $45.00, 517 pages.
One step toward full participation in the economy is having a stable, good-paying job --"economic inclusion." A necessary second step is having access to reasonably priced and readily available financial services, such as banking and credit--"financial inclusion." These twin pillars imply a kind of belonging and membership in our economy. Without them, persons can feel disconnected and disaffected.
Financial inclusion entails access to non-exploitative institutional arrangements for engaging in transactions to provision for oneself or one's family, like paying bills. In addition, people need institutional mechanisms for saving and access to non-exploitative credit if they need to borrow money. Sadly, more than one in four American households are either "unbanked" or "underbanked." The problem is worse globally. According to Banking the World, just over half of the world's adult population lacks bank accounts (about 2.5 billion adults) (p. 5). This book covers new research on strategies to extend financial services to the unbanked, including mobile banking and microfinance, and evaluates the relationship between financial services and income.
Banking the World contains an introduction by the three editors, thirteen content chapters organized into five key sections, and a concluding chapter, titled "Ten Research Questions" authored by coeditor Jonathan Morduch. The number of contributors total at an impressive thirty-eight, who are located at universities, government organizations and NGOs, and consulting or research firms. The strength of the book is in its rich and detailed empirical work that seeks to understand the financial lives of the poor. The varied research methods employed by the authors include randomized controlled trials (RCTs), evaluation of household financial diaries, financial surveys and household survey analysis, comparisons of regions with and without banks operating in retail stores, and econometric analysis (e.g., the link between a country's financial access and hunger; the effect of international remittances on socioeconomic indicators; the effect of social capital on the availability of credit).
Each of the chapters adds tangible value to the literature on financial access. I will highlight just a few of the preeminent examples. Daryl Collins (chapter five) uses financial "diaries" to assess the usage of financial services in 152 black, poor households in South Africa. This is a creative methodology when household surveys may not fully capture the behavior of the poor. The diaries are not self-reports, but a year-long series of interviews every two weeks to track income, expenses, and financial transactions. Collins argues that "understanding the economics of poor households means understanding the cash flows they see on a day-to-day basis" (p. 130). The author shows several descriptive tables of sources of funds and expenditures of funds. In one table about the use of specific financial instruments, he points out that the least-mentioned financial instruments were formal, traditional bank services. Instead, poor households reported use of savings clubs for savings and nontraditional means of obtaining credit, such as borrowing from the local store, from family, friends, and neighbors, and from informal moneylenders.
In a cross-sectional study, coauthors Stijn Claessens and Erik Feijen (chapter seven) explore the links between access to finance, on the one hand, and economic growth, inequality, poverty, and hunger, on the other. They find that a 1.0 percent increase in the ratio of private credit to GDP (a proxy for financial development) reduces the prevalence of undernourishment by 0.19 to 1.57 percent. "This is further evidence of the importance of financial development for countries' growth and wellbeing," according to Claessens and Feijen (p. 159). To be more specific, the route to growth and wellbeing seems to he through agriculture. Financial development is associated with increases in agricultural productivity, livestock production, and cereal and crop yields. Of course, the main financial access measure--private credit to GDP, focuses on formal institutions: the density of mainstream hank branches per 1,000 square kilometers.
Personal financial literacy has been a fad since the financial crisis of 2008. Surveys from developed countries show a positive relationship between financial literacy and household wellbeing. Less is known about the impact of financial literacy in developing countries. Shawn Cole, Thomas Sampson, and Bilal Zia (chapter twelve) provide one of the first studies in a developing country, Indonesia. The authors perform a randomized experiment, measuring the effect of financial literacy training and financial incentives on respondents' decisions to open a bank account. Financial incentives, even small monetary incentives, announced during financial literacy training did have a positive effect on opening a bank account. Without the financial incentives--even with financial literacy training--the effect was zero for the whole population. When the population was divided into subgroups on the basis of education, there was some positive effect for households that reported they had no schooling. Thus, by itself, the effect of financial literacy on one's financial behavior (opening a bank account) seems to be little to none.
Banking the World is intended for researchers and policymakers. The volume would appeal to an audience of specialized scholars and graduate students interested in topics, such as development, microfinance, banking, and monetary policy. There is not much to criticize about the book. The editors are open to methodological pluralism. And they do not assume that there is a unitary path toward financial access, indeed recognizing the diversity of countries, regions, households, and cultures.
To find that half the world is unbanked does not mean that households do not utilize financial services. Rather, households tap into more informal networks and draw on non-bank financial services. In terms of public policy, the objective is to ensure that access to both transactions and credit are readily available and non-exploitative. Until policymakers and regulatory authorities directly address the informal sector, recommendations will revert to the oft-spoken standard ones: increasing personal financial literacy, encouraging households to open bank accounts, and bringing bank branches to more rural communities. This leads to the one omission I saw in this otherwise comprehensive book--the need for more chapters devoted to explorations of effective financial regulations covering for-profit banks, nonprofit institutions, and even informal financial products, especially on the lending side. Often, innovative financial products and services grow at a pace far greater than the requisite regulatory environment. Here is where scholars can make considerable contributions by weighing and modeling regulatory alternatives, alternatives that police formal and informal financial products, and also regulations and policies that could help financial services better reach the poor.
DOI 10.2753/JEI0021-3624480236
Deborah M. Figart
The Richard Stockton College of New Jersey
Deborah M. Figart is a professor of education and economics at The Richard Stockton College of New Jersey and the director of the Stockton Center for Economic and Financial Literacy.
Figart, Deborah M.
Source Citation   (MLA 8th Edition)
Figart, Deborah M. "Banking the World: Empirical Foundations of Financial Inclusion." Journal of Economic Issues, vol. 48, no. 2, 2014, p. 590+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA372553948&it=r&asid=9721cb5efa23b04a0f43298aa00b25e8. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A372553948

The Economics of Microfinance

Julie H. Gallaway
41.3 (Sept. 2007): p873.
Copyright: COPYRIGHT 2007 Association for Evolutionary Economics
http://www.orgs.bucknell.edu/afee/jei/
The Economics of Microfinance by Beatriz Armendariz de Aghion and Jonathan Morduch. Cambridge, Massachusetts: The MIT Press. 2005. ISBN: 0-262-01216-2, $45.00 352 pages.
The most common story about what we now think of as microfinance involves Muhammad Yunus using $27 of his own money to make 42 small loans in 1976. This became the foundation for what is now known as the Grameen Bank in Bangladesh (Yunus 2002). Microfinance programs are well known for providing small loans to people who would not otherwise have access to credit because they are considered high risks by the commercial banking community (through lack of collateral or credit history). Moreover, microfinance institutions are increasingly providing additional financial services, e.g., savings deposits and insurance, to the poor. The awarding of the 2006 Nobel Peace Prize to the Grameen Bank and its founder, Muhammad Yunus, recognized the importance of microfinance as a tool for economic development and aiding the poor. Beatriz Armendariz de Aghion and Jonathan Morduch provide an extensive overview of the microfinance revolution in their book The Economics of Microfinance. The book aims to serve multiple purposes and appeal to multiple audiences. It could be used as a textbook for academics or a reference book for practitioners.
The book consists of ten chapters. Chapter 1, "Rethinking Banking," is crucial to understanding why modem microfinance is needed. For example, the authors explain that while the principle of diminishing returns suggests that capital should flow to the poor and theoretically microfinance should not be necessary, the reality is that risk, asymmetric information, high transactions costs, and legal institutions all work to undermine the provision of microcredit by commercial banking industries. This chapter also outlines the aims of the book: 1) describe the innovations resulting in modem microfinance, 2) discuss the current debates about and insights from microfinance, and 3) dispel commons myths about microfinance.
Chapters 2 and 3 continue the discussion about why microfinance exists and its historical roots. Chapter 2, "Why Intervene in Credit Markets?" presents detailed explanations of the asymmetric information problems of adverse selection and moral hazard. Chapter 3, "Roots of Microfinance: ROSCAs and Credit Cooperatives," then gives a brief history of two types of financial institutions that preceded what we now think of as microfinance institutions.
Chapters 4 and 5 address the major innovations that enable microfinance to provide solutions to the problems from chapters 1 through 3. Chapter 4, "Group Lending," explains that one way to mitigate problems arising from asymmetric information is to structure the borrowers in such a way that they monitor themselves, eliminating the need for providing risk information to the lender. This is one of the most studied aspects of microfinance. However, by focusing on the monitoring aspect of group lending, the authors overlook other possible reasons that group lending schemes may be so successful. Bernasek and Stanfield (1997) argue peer-mentoring, networking, redistribution of power, and changes in gender relations are also important. Recognizing that group lending schemes may not be as desirable or successful in different situations, Chapter 5, "Beyond Group Lending," discusses additional innovations in microfinance, such as flexible repayment schedules, public repayments, and flexible collateral.
Chapter 6, "Savings and Insurance," further expands on the transition from microcredit to microfinance. In fact, some have argued that a means of saving may be even more important to low-income customers than lending, although the authors convincingly argue that the two are complements. Microsaving and microinsurance provide additional mechanisms for low-income households to smooth consumption and deal with economic and natural shocks.
Worldwide, the majority of the participants in microfinance programs are women. "While the authors discuss this throughout the book, they also devote Chapter 7 to the important issue of "Gender." The chapter discusses the relationships between women and repayment rates, poverty, empowerment, and children's health and education.
Chapter 8, "Measuring Impacts," emphasizes that while a plethora of anecdotal evidence about the success of microfinance exists, only recently have academically rigorous studies been conducted. Problems of selection bias and reverse causation make measuring the actual impacts difficult and costly.
The book wraps up with two chapters about future prospects and issues for microfinance. Chapter 9, "Subsidy and Sustainability," explores the possibility that some microfinance organizations may be able to become self-sufficient, but others may not. Yet, long-term reliance on subsidies may be acceptable from an outreach and social program viewpoint. Chapter 10, "Managing Microfinance," explores the managerial problems microfinance organizations face due to multiple objectives. Unlike the typical profit maximizing firm, microfinance organizations must balance financial sustainability with social missions. Therefore, measuring a program's success and providing appropriate internal incentives are complex management issues.
The authors recognize the disconnect between academics and practitioners. Both have published extensively on the topic as well as worked in the field. Armendariz de Aghion founded the Grameen Trust in Chiapas, Mexico, while Morduch has conducted research and advising in Bangladesh, Indonesia, and China. Their book provides an excellent balance between economic theory and real world examples designed to interest students, teachers, researchers, practitioners, and anyone wishing to learn more about the economics of microfinance. The authors even provide exercises at the end of each chapter that could be useful pedagogical tools in advanced undergraduate or graduate courses. The Economics of Microfinance would be a good supplement for courses in Public Policy, Economic Development, and Money and Banking. It is loaded with interesting statistics and examples that could be used in courses to give international flavor to standard economic concepts such as asymmetric information, principal-agent problem, adverse selection, moral hazard, and marginal returns. Furthermore, the book is a good place to start for anyone interested in microfinance.
References
Bernasek, Alexandra, and James Ronald Stanfield. "The Grameen Bank as Progressive Institutional Adjustment." Journal of Economic Issues 31, no. 2 (1997): 359-366.
Yunus, Muhammad. "Toward Eliminating Poverty from the World: Grameen Bank Experience." In Making Progress: Essays in Progress and Public Policy edited by C. Leigh Anderson and Janet W. Looney, 371-378. Lanham, MD: Lexington Books, 2002.
Julie H. Gallaway
University of Missouri-Rolla
Gallaway, Julie H.
Source Citation   (MLA 8th Edition)
Gallaway, Julie H. "The Economics of Microfinance." Journal of Economic Issues, vol. 41, no. 3, 2007, p. 873+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA169022504&it=r&asid=55039efcc55b069447a957bc9d46250d. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A169022504
Quoted in Sidelights: a fascinating and humanizing insight into the economic lives of the global poor, and a valuable resource for attempting to improve those lives.
Portfolios of the Poor: How the World's Poor Live on $2 a Day

23.4 (Winter 2009): p431.
Copyright: COPYRIGHT 2009 Carnegie Council on Ethics and International Affairs
http://www.cceia.org/index.html
Portfolios of the Poor: How the World's Poor Live on $2 a Day, Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven (Princeton, N.J.: Princeton University Press, 2009), 320 pp., $30 cloth.
Portfolios of the Poor is the culmination of a research project that spans ten years and three countries, and examines the cash flow of almost 300 households among the poorest of the world. The result is a fascinating and humanizing insight into the economic lives of the global poor, and a valuable resource for attempting to improve those lives.
The authors focus on the financial "triple whammy" of low incomes, work that can be irregular and unpredictable, and a lack of financial tools. Living on $2 a day does not mean receiving that exact amount each day; incomes can be casual, seasonal, or subject to all sorts of unpredictability. Yet money is needed on a daily basis to keep a household running, and occasionally in large sums to address emergencies.
Interestingly, the research reveals that none of the households studied lived hand to mouth, despite their extreme poverty; all juggled both savings and borrowings on a regular basis, sometimes even going hungry in order to save. The diversity of "financial instruments" used by poor households is remarkable, from savings clubs and money-guards (freelance individuals who hold savings for a fee) to informal lending of both money and food between neighbors and acquaintances. "The diaries have shown that it is because of, not in spite of, their low and uncertain incomes that poor people are extremely active in financial intermediation."
One of the central arguments of the book is that while the informal sector has evolved to suit the needs of poor households, formal financial institutions have been lagging behind in terms of flexibility, accessibility, and convenience, despite an enormous potential demand for financial products that suit the cash flows of the poor. On the other hand, the informal sector can be unreliable and lacking in privacy, often leaving families vulnerable.
The authors thus argue that an appreciation of the small balances and irregular incomes of poor households, combined with the stability of the formal financial sector, is what is most necessary to improve the everyday lives of the world's poorest. Further, microfinance can be extremely important for satisfying broader needs, such as education and health, facilitating regular savings to deal with school costs, or providing lump sums to deal with medical emergencies.
Prospects appear positive as the recent boom in micro finance institutions spreads further. In particular, the notable progress of Bangladesh's pioneering pro-poor Grameen Bank is analyzed in detail, and offered as an exemplar for the microfinance sector. Nonetheless, even Grameen remains imperfect in terms of its appreciation of the financial needs of the poor, and the book concludes with an illuminating analysis of the way forward for the sector.
Source Citation   (MLA 8th Edition)
"Portfolios of the Poor: How the World's Poor Live on $2 a Day." Ethics & International Affairs, vol. 23, no. 4, 2009, p. 431+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA216848346&it=r&asid=2d2a0a7a31dc244c3305ca026cca5721. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A216848346

Portfolios of the Poor: How the World's Poor Live on $2 a Day

256.13 (Mar. 30, 2009): p36.
Copyright: COPYRIGHT 2009 PWxyz, LLC
http://www.publishersweekly.com/
Portfolios of the Poor: How the World's Poor Live on $2 a Day
Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Buthven. Princeton Univ., $29.95 (320p) ISBN 978-0-691-14148-0
Veterans in economics and microfinance scrutinize the finances of the poor in India, Bangladesh and South Africa. Following their 250 subjects for a year, the researchers compile family "financial diaries" and report on how the poor spend money and the myriad resources that function like portfolios. A confluence of circumstances the authors term a "triple whammy" (low and unreliable income, irregular cash flows and financial instruments ill-suited to the needs of this population) makes saving essential, and the poor depend on savings clubs, insurance clubs, money guarders or microfinance institutions. It is often a piecemeal approach, and any emergency can have disastrous consequences. With the advent of Muhammad Yunus's Grameen Bank in Bangladesh in 1976 and Grameen II in 2001, the growing global profile of microfinance might give the population more access to funds through reliable, flexible means--but the majority must turn to family, friends, neighbors or moneylenders. While the book's methodology and conclusions are fascinating, it is a complex and technical analysis best suited for those fluent in economics and public policy. (June)
Source Citation   (MLA 8th Edition)
"Portfolios of the Poor: How the World's Poor Live on $2 a Day." Publishers Weekly, 30 Mar. 2009, p. 36+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA200341817&it=r&asid=4064da9e8060bf6f244c2b5776cc1683. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A200341817
Quoted in Sidelights: “invaluable.”
Portfolios of the Poor

85.19 (June 29, 2009): p79.
Copyright: COPYRIGHT 2009 Conde Nast Publications, Inc.. All rights reserved. Reproduced by permission of The Conde Nast Publications, Inc.
http://www.newyorker.com/
Ten years ago, the authors of this unusual study began collecting detailed yearlong "financial diaries" from households in Bangladesh, India, and South Africa, with a focus on those living on less than two dollars a day per person. They found, to their surprise, that none of the families lived hand to mouth; even the poorest relied on complex combinations of financial strategies, including joining savings clubs, buying funeral insurance, and acting as "money guards" for neighbors. The diarists did things that might seem irrational--borrowing in order to save; paying interest on savings--but that made sense given their unpredictable incomes and limited options. While the authors do offer prescriptions for how to expand those options, it's their scrupulous attention to actual behavior that makes this book invaluable.
Source Citation   (MLA 8th Edition)
"Portfolios of the Poor." The New Yorker, 29 June 2009, p. 79. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA202572991&it=r&asid=0ceb68e4d358ffb1b864dcf164b5e974. Accessed 2 Oct. 2017.
Gale Document Number: GALE|A202572991
Quoted in Sidelights: “While a study of ‘financial diaries’ has the making of a dry sounding book, this study provides some interesting insights into the ingenuity of the poor as they struggle to scrape together a reliable livelihood and provide for the needs of their families,” related Todd Scribner in the National Catholic Reporter. The authors, he said, do not simply expose these conditions, but “highlight the ways in which financial tools can be improved upon so as to better respond to the needs of the people.”
Diaries highlight the daily ingenuity of the world's poor: authors hope to provide insights to financial institutions that address poverty

Todd Scribner
47.22 (Aug. 19, 2011): p19.
Copyright: COPYRIGHT 2011 National Catholic Reporter
http://ncronline.org/
OROTFOLIOS OF THE POOR: HOW THE WORLD'S POOR LIVE ON $2ADAY
By Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven Published by Princeton University Press, $19.95
Want to know how the poor live? Read their diaries. Subir and Mumtaz live with their five children in Dhaka, Bangladesh. With the help of odd jobs and inconsistent employment they aim at making $1 a day per person. Even during the good times they rarely make that much and in bad times they typically earn less than half. Eating three square meals every day is a blessing, but it is not unusual to eat only twice and sometimes once. Given the unpredictability of their finances, carefully managing any money that they are able to acquire is a constant concern.
The daily struggles of Subir and Mumtaz are just one story among many highlighted in Portfolios of the Poor: How the World's Poor Live on $2 a Day. In this book the authors analyze about 300 "financial diaries" from households in India, Bangladesh, and South Africa. While a study of "financial diaries" has the making of a dry sounding book, this study provides some interesting insights into the ingenuity of the poor as they struggle to scrape together a reliable livelihood and provide for the needs of their families. Unlike studies that focus on the structural causes of poverty, this book focuses specifically on how the world's poorest earn and manage their money on a day-to-day basis.
Providing for basic needs like food, clothing and shelter is just one obstacle confronting them. Dealing with unexpected expenses compounds their financial difficulties. In South Africa, for instance, social custom often requires elaborate funeral ceremonies for deceased loved ones. It is not unusual for such ceremonies, which are often stretched out over weeks, to cost $1,500 or more. For a family making only $200 a month, such an expense would seem to be an unbearable financial stress. While difficult, the authors note the savvy financial character of many of the poor who confront this type of obligation. They rely on a wide range of preexisting, although typically rudimentary, financial institutions that help them secure funding for the funeral ceremony. These typically include community and personal savings accounts and high-interest loans.
Unexpected health crises also take their toll on the financial stability of families in the developing world. Typically without access to any reliable health insurance system and even then only able to make enough money to scrape by, an injury or prolonged sickness often has a devastating financial impact on the family. For this reason, the authors stress the importance of developing reliable insurance systems that will provide protections for the poor and minimize risk in the process. However important the individual stories accounting for the daily struggles confronting those with little or no money, the authors have a much larger objective in mind. This book is not intended merely as an expose on the lives of the desperately poor.
Rather, it is the authors' contention that understanding the financial lives of the poor will provide insights into the types of financial institutions that can better equip the poor to cope with their daily struggles. The authors of Portfolios of the Poor consistently emphasize how the creation of locally-based financial institutions can assist in the economic decision-making of the average person and in doing so facilitate wise money management over the, course of a lifetime. This point is made early on when they write, "If poor households enjoyed assured access to a handful of better financial tools, their chances of improving their lives would surely be much higher." It is not surprising then that in their penultimate chapter, the authors specifically address the important role that micro-finance institutions can play in this is process. Using insights garnered from their analysis of the poor's financial diaries, they make preliminary suggestions regarding how microfinancing can be improved upon in the coming years. This larger focus also helps to explain their emphasis on the development of insurance systems and other financial structures that will help to protect the poor in response to health crises and other unpredictable expenses.
While Portfolios of the Poor provides an informative perspective on the daily obstacles that the extremely poor face and thus can be of value to the casual reader, it would likely have little appeal for the average reader. Nor would they seem to be the book's intended audience. The authors' primary targets are people who are directly involved in the development and implementation of financial institutions aimed at helping the poor. Their conclusions highlight the ways in which financial tools can be improved upon so as to better respond to the needs of the people who are taking advantage of these services. The in-depth study of financial diaries that focus on the day-to-day economic decision-making of the average person living in Bangladesh, South Africa and India provides insights into how such improvements can be effectively made.
Reviewed by TODD SCRIBNER
[Todd Scribner works at the U.S. Conference of Catholic Bishops in the Department of Migration and Refugee Services.]
Scribner, Todd
Source Citation   (MLA 8th Edition)
Scribner, Todd. "Diaries highlight the daily ingenuity of the world's poor: authors hope to provide insights to financial institutions that address poverty." National Catholic Reporter, 19 Aug. 2011, p. 19. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA265978456&it=r&asid=b678a60bad29edd2ddbbab5789eaaa79. Accessed 2 Oct. 2017.

Gale Document Number: GALE|A265978456

"The Financial Diaries: How American Families Cope in a World of Uncertainty." Publishers Weekly, 27 Feb. 2017, p. 90. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA485671227&asid=6c2accd6b872c3dec75f036e47270d2b. Accessed 2 Oct. 2017. Chatterjee, Prabirendra, and Sudipta Sarangi. "The Economics of Microfinance." Southern Economic Journal, vol. 73, no. 1, 2006, p. 259+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA149769653&asid=8606cc612edf32bf1cfa7f5c81eb652a. Accessed 2 Oct. 2017. Barnett, Bryan. "The Economics of Microfinance." The Cato Journal, vol. 31, no. 1, 2011, p. 166+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA252553767&asid=1c7232c1d4848abd9e4c70333b4c728e. Accessed 2 Oct. 2017. Figart, Deborah M. "Banking the World: Empirical Foundations of Financial Inclusion." Journal of Economic Issues, vol. 48, no. 2, 2014, p. 590+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA372553948&asid=9721cb5efa23b04a0f43298aa00b25e8. Accessed 2 Oct. 2017. Gallaway, Julie H. "The Economics of Microfinance." Journal of Economic Issues, vol. 41, no. 3, 2007, p. 873+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA169022504&asid=55039efcc55b069447a957bc9d46250d. Accessed 2 Oct. 2017. "Portfolios of the Poor: How the World's Poor Live on $2 a Day." Ethics & International Affairs, vol. 23, no. 4, 2009, p. 431+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA216848346&asid=2d2a0a7a31dc244c3305ca026cca5721. Accessed 2 Oct. 2017. "Portfolios of the Poor: How the World's Poor Live on $2 a Day." Publishers Weekly, 30 Mar. 2009, p. 36+. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA200341817&asid=4064da9e8060bf6f244c2b5776cc1683. Accessed 2 Oct. 2017. "Portfolios of the Poor." The New Yorker, 29 June 2009, p. 79. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA202572991&asid=0ceb68e4d358ffb1b864dcf164b5e974. Accessed 2 Oct. 2017. Scribner, Todd. "Diaries highlight the daily ingenuity of the world's poor: authors hope to provide insights to financial institutions that address poverty." National Catholic Reporter, 19 Aug. 2011, p. 19. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&it=r&id=GALE%7CA265978456&asid=b678a60bad29edd2ddbbab5789eaaa79. Accessed 2 Oct. 2017.

• LSE Review of Books
  http://blogs.lse.ac.uk/lsereviewofbooks/2017/05/19/book-review-the-financial-diaries-how-american-families-cope-in-a-world-of-uncertainty-by-jonathan-morduch-and-rachel-schneider/
  Word count: 1521

  Quoted in Sidelights: “succeeds in shining a light on the extent and experience of volatile household finances in the US,” remarked Joe Lane in the online LSE Review of Books. “Whether it helps to build the case for policies to target insecurity will depend on its reception.”
  Book Review: The Financial Diaries: How American Families Cope in a World of Uncertainty by Jonathan Morduch and Rachel Schneider
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  In The Financial Diaries: How American Families Cope in a World of Uncertainty, Jonathan Morduch and Rachel Schneider focus on the volatility of domestic finances in the USA, presenting the findings of a new study based on the diaries of 235 households. In identifying the shared experience of financial uncertainty and the impact on people’s lives, this book provides a strong case that a new policy agenda is needed to tackle economic insecurity, writes Joe Lane. 
  The Financial Diaries: How American Families Cope in a World of Uncertainty. Jonathan Morduch and Rachel Schneider. Princeton University Press. 2017.
  Find this book: 
  Political and media attention on the increasingly precarious nature of work has been fuelled by the high profile, often controversial, growth of the ‘gig economy’. Insecurity, however, runs deeper than recent changes to the labour market. For many people, it is the volatility caused by the predictable challenges of everyday life, as well as the lack of a reliable paycheck, that makes it difficult to make ends meet.
  In the twentieth century, researchers like Michael Harrington exposed the extent of extreme poverty in the US. In turn, they helped to build the intellectual foundations for policies that aimed to combat that poverty. Though the problem of extreme poverty is by no means consigned to history, an equivalent success for researchers in the twenty-first century might be to do the same for insecurity. Financial Diaries: How American Families Cope in a World of Uncertainty succeeds in shining a light on the extent and experience of volatile household finances in the US. Whether it helps to build the case for policies to target insecurity will depend on its reception.
  The primary value of Jonathan Morduch and Rachel Schneider’s work lies in the uniqueness of the research. The book is based on diaries with 235 households, conducted in five states across the US: Ohio, Kentucky, California, Mississippi and New York. Building on research in low income communities, including by Morduch, the diaries recorded every transaction made by households over the course of 2012-13. The resulting 300,000 transactions give an unrivalled insight into the cash flows as well as the hidden rhythms, concerns and aspirations of people’s financial lives.
  The structure of the book is clear. There are three main sections: the first describes how insecure US households have become; the second, how they cope; and the third sketches what that means for how we should think about poverty and what might be done about it. Section One contains the two most illuminating chapters.
  Image Credit: Broken piggy bank (http://401kcalculator.org CC BY SA 2.0)
  In the first chapter, the researchers focus on household earnings. Much of the content is familiar. The decline of manufacturing and trade unions, the shifting nature of work and the rise of contingent, or ‘gig’, labour are all cited as reasons for the growing volatility and insecurity of people’s incomes. The diaries allow the authors to dig below the surface and add colour to that picture. For every new statistic – nearly half of participant households had a gain or loss of income of 25 per cent or more from one year to the next – there is a detail no national survey could tell you. For instance, for one participant, Janice, a card dealer in Mississippi, a cause of income insecurity was the fact that in odd years – when Mississippi State’s football team plays two of its key fixtures away – she missed out on two good paychecks.
  If the first chapter is rich but often familiar, in the second chapter – which focuses on spending – the unique contribution of the research is even clearer. Spending is the side of the household balance sheet that is often overlooked by researchers. Focusing, as in Chapter One, on one household, the researchers show how Sarah and Sam, while ostensibly middle-class with an income of $65,000, often struggle to make ends meet. The diaries allow the researchers to see why. Each time the researchers visit the family they have had another major expense: three car breakdowns, two graduations and a burst water pipe, to name a few.
  Sarah and Sam’s experiences, like Janice’s in Chapter One, are not anomalies. On average, the research found that spending is almost as volatile as income. Typically, households had five months in the year where their spending was either 25 per cent above, or 25 per cent below, their average monthly spending for the year.
  Three important arguments run throughout the book. The first is that insecurity and uncertainty do not just make it difficult for people to make ends meet; it often directly conflicts with aspirations of mobility. The diaries show both sides of the coin. One participant, Jeremy, a car mechanic, moved to a lower paid, but more stable job. In contrast, Sarah, who we meet in Chapter Two, continued to aim high by studying for a college degree instead of a full-time job. The consequence for Sarah and her family was sacrificing stability in the short term.
  The authors are also carefully critical of the most common response to the type of challenges faced by the diaries’ households: namely, better budgeting. The assumptions made by too many financial education initiatives about how households live mean they are often irrelevant – focusing on long-term goals and the allocation of spare resources. Moreover, they often make moral judgements about the use of money: people who can’t manage their money use ‘debt’; those who can use ‘credit’.
  When you step back from a spreadsheet, many ‘non-essentials’ look more like what one participant refers to as ‘really really needs’. What keeps people from building savings isn’t a ‘lack of awareness or a lack of discipline. Rather, it’s that the day they’re saving for isn’t very far away’ (96). In fact, the researchers found that while those who performed better on financial literacy tests were more likely to have lofty savings goals, they were only slightly more likely to actually have those savings. The reality of people’s lives, rather than their attitude or aspirations, had a more dramatic effect on their financial management.
  The third, and most important, theme of the book is highlighting the commonality of uncertainty. The diaries’ households were deliberately diverse: 23 per cent were classified as poor and 26 per cent earned more than twice the poverty line. Yet, nearly a third of participants in the latter group spent at least one month below the poverty line. While the diaries’ participants were not nationally representative, statistics from the Federal Reserve, the University of Michigan’s Panel Study of Income Dynamics and from the JP Morgan Chase Institute’s analysis of Chase accounts are used throughout to corroborate Morduch and Schneider’s findings. Volatility is both widespread and getting worse.
  For many, the long arc of the lifecycle theory of saving simply does not reflect the reality of their experiences. The causes of their insecurity are ‘not infrequent disruptions to basic steady income […] the base condition is unsteady’ (34).  Deviations from that arc are not noise: instead, ‘the noise is the story’ (11).
  On that final point, the book could be more explicit. In the introduction, uncertainty is described as a form of ‘hidden inequality’. There are two weaknesses to that framing. First, it aligns the challenge of volatility and uncertainty with an often intractable political debate. That is likely to trigger instinctive rejection by some policymakers. Second, as a social problem, inequality is more abstract and less relatable. Unlike inequality, financial uncertainty is tangibly experienced across income groups and, as the diaries demonstrate, the impact on people’s lives is stark. It is the commonality of the uncertainty exposed in Financial Diaries that provides the strongest case that a new policy agenda to tackle insecurity is needed.

  Joe Lane is a former history teacher and now works as a researcher for a national charity. His research focuses on household finances, personal debt and consumer markets.
  Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics. 

• Next City
  https://nextcity.org/daily/entry/financial-diaries-book-stability-mobility
  Word count: 1709

  Quoted in Sidelights: “Everything we write about you can find some writing about it somewhere, but the combination of it all is not well understood, and it has implications for saving and borrowing and for understanding why Americans still feel so much anxiety,” Morduch told Oscar Perry Abello in an interview at the Next City Web site. “What the diaries allowed us to see was how all these problems came together, because you see, sitting in someone’s living room, all these silos breaking down.”
  Financial Diaries Show Stability Matters as Much as Mobility
  By Oscar Perry Abello | April 26, 2017
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  “The Financial Diaries: How American Families Cope in a World of Uncertainty,” by Jonathan Morduch and Rachel Schneider
  There are many versions of the “American Dream.” You or your ancestors may have entered the United States by boat, by plane or by foot. Maybe they arrived in chains, or under cover of darkness. Maybe they overcame segregation, mass incarceration or one of the country’s other systems of oppression. But the turning point in every successful version of the tale almost invariably comes down to the same thing: Someone lands a steady job with a steady paycheck, enabling them to save up for a house, to start a business, or pay for college.
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  Yet, when it comes to that steady paycheck, if the lives of 235 low- and middle-income households in Greater Cincinnati, Silicon Valley, eastern Mississippi and New York City are any indication, predictable cash flow is no longer the common thread across every version of the American Dream.
  The lives of those households are detailed in a new book, “The Financial Diaries: How American Families Cope in a World of Uncertainty,” by Jonathan Morduch and Rachel Schneider. The book paints a portrait of a new common theme: volatility. Even for those who technically have a dependable job, steady cash flows are no longer the rule.

  “There’s plenty of examples of having a steady job but not a steady paycheck,” says Morduch, who is also a professor of public policy and economics at the New York University Wagner Graduate School of Public Service. “It’s a pretty obvious point once you say it, but it still hasn’t made its way into a lot of policy conversations.”

  The ideal of the steady paycheck has shaped public policies, institutions and even business models. Everything created to help families get ahead has been designed with that ideal in mind. So even if you’re interested in mobility, perhaps you should also focus on stability, Morduch argues, “because families are focused on stability, and families know that without stability it’s hard to make the right choices about investing in their future.”

  With 10 full-time staff in addition to Morduch and Schneider, the research team behind the book visited each household on a weekly basis, building a trusting relationship and attempting to track every dollar earned, spent, saved, borrowed, loaned out or given away. They also kept track of life events and other context to help explain the undulating cash flows that characterized almost every household they studied. Morduch and Schneider worked through local organizations to recruit research team members and households for the study. For the book, real names and other information were changed to protect the identity of the participants.

  Some 400 households initially agreed to take part, but only 235 stuck with it a full 12 months from 2012 to 2013. Many dropped out because of a move that took them too far away for weekly visits from researchers.

  The team eventually recorded over 300,000 cash flow data points, from transactions as small as buying a pack of gum in a bodega to down payments on cars or major healthcare bills. With the wealth of data, they were able to measure volatility in a number of ways.
  One of the most intuitive ways: measuring how many months of the year a household earned at least 25 percent more or 25 percent less than their average income for the year. Across the 235 households, the average was 2.2 months earning at least 25 percent above average and 2.4 months earning at least 25 percent below average.

  In other words, for about five months a year, households earned incomes that weren’t even close to their yearly average. Only 2 percent of households got through the year with no income spikes or dips that large. Even among the higher earners in the study, earning around the median household income for their location, participants experienced income spikes or dips for about a third of the year. For one middle-class Cincinnati couple, income volatility was such that the husband eventually found a slightly lower-paying job with a longer commute, just to have a steadier income over the course of a year.

  The drivers of income and spending volatility aren’t quite new, Morduch admits. The deindustrialization of cities, and a shift to more service-oriented jobs, especially work that involves tipping. New technology, and not just automation or the gig economy; there’s also new payroll technology that allows firms to better predict how many staff they might need at any given moment, resulting in wildly fluctuating hours and last-minute shifts or shift cancellation. The housing market, with families in changing rental markets due to gentrification or entrenched patterns of eviction. These are all trends that are well known.

  “Everything we write about you can find some writing about it somewhere, but the combination of it all is not well understood, and it has implications for saving and borrowing and for understanding why Americans still feel so much anxiety,” Morduch says. What the diaries allowed us to see was how all these problems came together, because you see, sitting in someone’s living room, all these silos breaking down.”

  To cope with the new reality of volatility, households do what they have done throughout history, in countries all over the world, including households that Morduch studied in his previous book, “Portfolios of the Poor.” They get creative.
  Some use lending circles, also known as tandas or sou-sous. One Ecuadorian immigrant couple in Queens participated in a recurring lending circle requiring them to put $300 a week into a pot that rotates to each household in the circle until every household has had a turn to take it home. With 30 to 50 households in the circle, the weekly pot could be anywhere from $9,000 to $15,000. They’ve participated multiple times, they told “Financial Diaries” researchers, including one time a few years ago when they used it to buy music equipment for the husband’s DJ business and online radio show. The equipment allowed them to expand.

  Policies and institutions largely haven’t caught up to the volatility of today.

  A man identified in the book as Robert Hill, in Brooklyn, worked in tech support at a nonprofit, earning roughly $22,000 a year — not much at all, especially for NYC. Working at a nonprofit, especially in a big city, Hill has access to numerous resources for long-term saving, including retirement savings accounts. There’s also Individual Development Accounts (IDAs), a federal program where savers can have their dollars matched, sometimes two matching dollars for every dollar they deposit. But IDAs are required to go toward a specific long-term purpose: buying a home, paying for college, or investing in a business. Nonprofits run these accounts for clients, in order to ensure they get used for the purpose that policy intends them to be used.

  When Hill needed to save up to move into a new apartment, there was no such program designed to accelerate his savings and thus his ability to get ahead, so he simply let “The Bank of Mom” hold onto his savings, even at age 48. It’s just helpful to keep savings slightly beyond an arm’s length away. A year or so after the diary data collection period ended, Hill estimated he had about $5,000 deposited in “The Bank of Mom.”

  Everything is designed to support the long term, and nothing for what the “Financial Diaries” calls the “now, soon and later.” The book also includes an example from a demonstration project involving 13 IDA sites, involving 2,350 households. Only one-third of the households eventually used their accounts for the intended purpose. Everyone else withdrew savings earlier for other needs, forfeiting the matched dollars. Pre-match, households saved a total of $672,577 across the 13 sites, showing that poor households can and do save. But the early withdrawals meant they decided to leave $1.4 million in matched dollars on the table.

  In another experiment for another program meant to encourage long-term savings, 7,000 households, two-thirds of them with annual incomes below $40,000, deposited more than $14 million into savings accounts over a 15-month period, but only rarely did any one savings account ever accumulate more than $2,000 at any given point in time.

  “There really are emergencies, but then there is another kind of saving, which is more just kind of the ups and downs of life,” says Morduch. “It doesn’t take as much saving at any moment, but it does require vigilance.”

  Since the diary data collection has concluded, Morduch and Schneider have spent the past few years going back to some households, fact-checking, filling in holes and asking new questions for more context. They’ve also been sharing early findings as part of the U.S. Financial Diaries Project. Morduch is certain that there are still useful insights to be gleaned from future research and new policies or programs based on volatility instead of stability as the core assumption.

  “What’s tricky about this kind of work is, it’s not necessarily about one particular mechanism, it’s about people looking for the kind of functionality a mechanism could give you,” he says. “It could be an Informal mechanism that’s convenient and reliable. That took a while to sort out.”

• Stanford Social Innovation Review
  https://ssir.org/book_reviews/entry/the_closer_you_look_the_worse_it_seems
  Word count: 996

  Quoted in Sidelights: “Morduch and Schneider bring home the seriousness of these swings in income and the problems that result through detailed stories of the real families that participated in the study,” Haskins commented, although he added: “The sample, collected through local networks in specific communities, isn’t necessarily representative of the overall US population.” He saw a lack of evidence that their proposed solutions would have the desired effect, and concluded: “Further studies that test such policy proposals may be the best hope for helping struggling families like the ones profiled in this book.”
  The Closer You Look, the Worse It Seems
  New research details how US families struggle with unstable income not just from year to year but even from week to week.
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  Review By Ron Haskins Summer 2017

  The Financial Diaries: How American Families Cope in a World of Uncertainty
  Jonathan Morduch
  223 pages, Princeton University Press, 2017
  Buy the book »
  B
  ack in 2008, Yale University’s Jacob Hacker dubbed major swings in annual income “the new insecurity” and attracted attention in both scholarly circles and the media to what people could immediately see was a big problem. People’s spending, especially on major goods and services such as housing, cars, and their children’s college education, requires stable income. But as impressive datasets such as the Panel Study of Income Dynamics (PSID) demonstrate, income is far from stable for many American households.
  In tracking the same families over multiple years, the PSID yielded important information about annual income volatility. Jonathan Morduch and Rachel Schneider’s new book, The Financial Diaries: How American Families Cope in a World of Uncertainty, provides a more close-up view, looking at the financial transactions of households on a monthly and even weekly basis to reveal a new type of financial insecurity.
  None of the existing big datasets offer this type of detailed household information. So how was it possible for Morduch and Schneider to obtain it? The answer is simple: They went out and collected it themselves. They selected four communities across the United States, in California, Mississippi, New York, and the Ohio-Kentucky border; identified low- to middle-income households through referrals from local organizations; and met new families using references from ones already participating in the study. The only requirement for a household to participate was that it include at least one worker. The researchers then asked each household to take notes on every financial transaction in which it was involved, including earnings transfers, purchases, bill payments, and borrowing. The 235 families that completed the yearlong study recorded an astounding average of about 1,275,000 transactions per household. Given the heavy burden of reporting this data, it’s little wonder that 165 households, or about 40 percent of the original 400, dropped out of the study before it ended.
  The most important observation from this research is just how much the average household’s income varied over the year. The authors looked at the number of months (out of 12) when each family’s income came in at more than 25 percent above or below its monthly average. They found that over the year, households experienced an average of 2.2 months when income spiked above the 25 percent level and 2.4 months when it dipped below. That adds up to nearly five months per year when the average household’s income was very different from its monthly standard. Only about 2 percent of households didn’t see at least one month with this level of variance. Poorer households experienced more volatility, but it significantly affected even households with incomes of more than 200 percent of the poverty level.
  Morduch and Schneider bring home the seriousness of these swings in income and the problems that result through detailed stories of the real families that participated in the study. Descriptions of the problems facing these people, which make up about half of the book, have a powerful effect on the reader. Financial planning is all but impossible when income isn’t reliable. Families find that borrowing, sometimes at high rates, is often necessary, making financial problems greater still. Even using safety net programs becomes difficult when family eligibility for benefits varies from month to month. And, not surprisingly, huge swings in income also increase worrying, which often leads to tension and conflict between members of the household.
  Morduch and Schneider also give impressive examples of how families have tried to cope with the shortfalls in income they so frequently experience. Families may borrow money, often from friends and relatives; manage to build small pools of savings; work extra jobs or hours; and persuade their creditors to extend the due dates of bills. But the authors find that these solutions, creative though they may be, usually provide no more than temporary relief.
  The most significant flaw in the study is that the sample, collected through local networks in specific communities, isn’t necessarily representative of the overall US population. Even so, the fact that the authors selected families from four different areas of the country and from a wide range of income levels provides at least some reassurance that the striking income volatility the authors document is reasonably widespread.
  The authors conclude by providing a brief set of suggestions for policies that might help families cope. They favor laws that would limit employers’ ability to change employee work hours frequently and at the last minute, and regulations on marketing practices of financial products such as high-interest payday loans that can lead families into ever-increasing cycles of debt. But the evidence that these policy suggestions would be effective is lacking. Although short-term income volatility afflicts many families, it’s not yet clear which policies would do most to address the problem. At this point, further studies that test such policy proposals may be the best hope for helping struggling families like the ones profiled in this book.

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