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Project: Financial Services Assessment

Sponsoring Partner: The IRIS Center at the University of Maryland, College Park with support from the Bill & Melinda Gates Foundation

 
Microfinance Opportunities with a sub-grant from the IRIS Center at the University of Maryland is helping assess the impact of grants provided by the Bill & Melinda Gates Foundation to microfinance organizations for the design and development of financial services innovations in five developing countries. The research is assessing the impact of new financial products, services and delivery systems on outreach and ultimately client welfare. The Financial Services Assessment project addresses issues such as access to financial services and the role of the enabling environment.

In Kenya and Malawi, the project is using Microfinance Opportunities’ Financial Diaries methodology to gather weekly transactional data from low-income households and examine how e-money and mobile banking initiatives are influencing local money management.

In northern Pakistan, the project is utilizing qualitative research techniques, such as focus groups and individual interviews, to examine the accessibility of a new health microinsurance product for low-income households and how the product is affecting local health-seeking behaviors.

In Peru, consumer research is being used to assess the specialized credit innovations of Pro Mujer Peru, a local microfinance organization providing financial services, health care and training to poor women entrepreneurs.

And in India, information from focus groups and interviews is being combined with the analysis of local quantitative data to measure the impact of a community-managed health microinsurance program that delivers health education, access to quality health care and hospitalization insurance to poor, urban consumers.

This five-year initiative will extract valuable lessons from its research to improve financial innovations in order to reach larger numbers of low-income households with financial services across the globe.
 

Publications:

 

Kenya

 

Cash In, Cash Out Kenya: The Role of M-PESA in the Lives of Low-Income People. Stuart, Guy and Monique Cohen. 2011.

Policy Briefs based on Cash In, Cash Out Kenya: The Role of M-PESA in the Lives of Low-Income People:

Kenya Notes from the Field: The Emerging Effects of M-PESA’s Rural Outreach at the Household Level. Ferguson, Michael. 2010.

 

India

 

A Fine Balance: A Case Study of the Client Value of Health Microinsurance-Uplift I.A. McGuinness, Elizabeth. 2011.

Policy Briefs based on A Fine Balance: A Case Study of the Client Value of Health Microinsurance-Uplift I.A.:

 

Malawi

 

Cash In, Cash Out: Financial Transactions and Access to Finance in Malawi.Stuart, Guy, Michael Ferguson and Monique Cohen. 2011.

Policy Briefs based on Cash In, Cash Out: Financial Transactions and Access to Finance in Malawi:

Branchless Banking and Rural Outreach in Malawi: Opportunity International Bank of Malawi’s Impact on the Market. Ferguson, Michael. 2011. Assessing the Impact of Innovation Grants in Financial Services.

Malawi’s Financial Landscape: Where Does Opportunity International Bank of Malawi Fit? McGuinness, Elizabeth. 2008. Assessing the Impact of Innovation Grants in Financial Services.
 

Pakistan

 

Assessment of Health Microinsurance Outcomes in the Northern Areas, Pakistan— Baseline Report. McGuinness, Elizabeth and Jennifer Mandel, with Holly Korda and Ayesha Tayyab. 2010.

Policy Brief based on Health Microinsurance Outcomes Assessment Baseline Pakistan:

 

Peru

 

Financial Landscape Baseline: Service Innovations of Pro Mujer Peru. Ferguson, Michael. 2008. Assessing the Impact of Innovation Grants in Financial Services.

An Appetite for Credit: A Study of Product Innovation by Pro Mujer Peru. Ferguson, Michael. 2009.

Policy Briefs based on An Appetite for Credit: A Study of Product Innovation by Pro Mujer Peru:

 

General

 

Microinsurance – Exploring Ways to Assess its Impact. Young, Pamela. 2006. Microfinance Opportunities.

 

Abstracts and Full Reports:

 

Kenya

 

Cash In, Cash Out Kenya: The Role of M-PESA in the Lives of Low-Income People. (2011)

 

Abstract

Using a Financial Diaries methodology, Microfinance Opportunities undertook a study to examine how low-income Kenyans use M-PESA, that country’s pioneering e-money service. The study focused on (1) the value of M-PESA to low-income individuals; (2) the most likely areas for M-PESA’s future growth; and (3) whether M-ESA can serve as a platform for financial services beyond remittances. The study sample consisted of 92 low-income respondents (median of average per capita income $2 per day) from three research sites. Researchers recorded all weekly financial transactions for these respondents between November 2009 and June 2010 for a total database of more than 18,000 records. The study found that “cash is king.” E-money’s share of transactions was less than 6 percent, compared to more than 94 percent for cash. M-PESA is still primarily used to send money home, usually from urban to rural, cash out almost always happens quickly, often the same day the remittance is received. Respondents did not appear to use M-PESA as de facto savings accounts, but the service was an important part of their coping strategies for unusual large expenses, particularly hospital bills. The study provides a Distance/Purpose Framework that segments the e-money market by intended use (business or household) and the distance (local or long-distance) it travels. Within that framework, the study draws on concepts from economic sociology to show that Kenyans’ use of M-PESA is “embedded” in preexisting social and spatial relations and that M-PESA usage patterns mimic to some degree those of cash. It also examines the length of the “e-money loop” (number of times an e-money unit is transferred before it is cashed out) the transaction fees M-PESA users pay in order to identify cost and price implications of current and potential uses. The Distance/Purpose Framework suggests that e-money providers have a virtually untapped potential “sweet spot,” in terms of cost and price, serving the business market segments provided that issues of trust can be overcome.

Keywords: Kenya, Financial Diaries, formal finance, financial services, M-PESA, mobile bank

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Policy Briefs based on Cash In, Cash Out Kenya: The Role of M-PESA in the Lives of Low-Income People:

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India

 

A Fine Balance: A Case Study of the Client Value of Health Microinsurance—Uplift I.A. (2011)

 

Abstract

Microfinance Opportunities (MFO) undertook research in February 2011 to understand the financial value of a health microinsurance product known as the HMF (health mutual fund) offered by Uplift India Association (Uplift). MFO used a mixture of on-site interviews with key stakeholders in Pune, India and an analysis of the program’s claims and financial data. The research included a case study which yields interesting insights into the experience and coping strategies of households responding to malaria, a serious but common disease among the local population. Taken together, the findings of the case study and the data analysis suggest that Uplift is providing substantial financial value to policyholders within certain constraints. The case study sample of Insured households had lower out-of-pocket (OOP) costs for malaria care compared to similar Uninsured households. These Uplift households also paid less for debt financing than the Uninsured if they had to borrow to cover their medical costs. The study finds that the HMF program is providing financial protection to Insured families through claims reimbursements and access to lower cost medical care. Uplift’s business model is a client-managed, mutual insurance model; ultimate decision-making on claims reimbursements and other substantive matters is made by policyholders themselves. Policyholder participation was found to shape the financial value delivered via claims reimbursements by spreading them across more members with reduced average claims payments. The report also finds that ongoing attention is needed in the area of client education if policyholders are to understand how to use the product to their maximum benefit. Finally, MFO proposes the following expanded definition of financial value for health microinsurance: “Financial value of health insurance is the degree to which membership in a health microinsurance program lowers the overall financial costs incurred due to ill health.”

Key Words: India, Pune, malaria, health microinsurance, Uplift India Association, Client Value

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Policy Briefs based on A Fine Balance: A Case Study of the Client Value of Health Microinsurance-Uplift I.A.:

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Malawi

 

Cash In, Cash Out: Financial Transactions and Access to Finance in Malawi (2011)

 

Abstract

Using a Financial Diaries methodology, Microfinance Opportunities undertook a project to explore the extent to which Opportunity International Bank of Malawi (OIBM) added value through the introduction of a mobile “bank-on-wheels” serving rural locations in Central Malawi. We collected the transactions data (all inflows and outflows, including use of financial services) for just under 200 low-income households, half of whom were OIBM clients using the mobile bank, for 18 months over 2008-09. The sample was mostly a mix of poor farmers and microentrepreneurs (median per capita daily income: $2 purchasing power parity [PPP]). The study found that banks and individual cash transfers dominated the financial service market—banks captured the “big money,” while individual cash transfers helped mediate day-to-day needs. Use of the OIBM van dropped off over time, though several factors unrelated to the bank may have been at work. Multiple lines of transactional evidence suggest that OIBM and its van succeeded in adding value for its women clients. On the topic of risk management, cash flow was unsteady—business owners commonly faced weeks of zero income, for example—and banks including OIBM played a smoothing role, though it was small compared to informal mechanisms. Also, households commonly needed to pay lump-sum expenses that exceed the sample’s median weekly income for an entire household ($55). Again, the banks played a role in supporting clients through these circumstances, but only in a small minority of cases. The behavioral insights from this study will help inform improvements in microfinance operations, and we will continue to develop the Diaries as a practitioner’s tool.

Keywords: Financial Diaries, formal finance, financial services, OIBM, Opportunity International Bank of Malawi, mobile bank, Malawi Savings Bank, National Bank of Malawi, Standard Bank, Malawi Rural Finance Company Ltd

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Policy Briefs based on Cash In, Cash Out: Financial Transactions and Access to Finance in Malawi:

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Pakistan

 

Health Microinsurance Outcomes Assessment Baseline Pakistan (2010)

 

Abstract

The Health Microinsurance (HMI) is a voluntary private insurance product developed by the Aga Khan Agency for Microfinance (AKAM) with support from the Bill & Melinda Gates Foundation (BMGF). The HMI Outcomes Assessment examines whether the HMI product helps reduce out-of-pocket health-care costs and leads to positive change in health-seeking behavior and health outcomes. Findings from this baseline study demonstrate a multitude of serious health issues for the Ghizar population. When formal care is needed, hospitals in the Aga Khan network are preferred, but out-of-pocket costs can run quite high. At present, people most often borrow to cover the expense, even though options for obtaining loans are limited, especially for the middle and lower classes. Although the HMI can effectively protect families from most direct costs for a week of hospitalization at an AKHSP hospital or a much longer stay at a government hospital, a baseline view of enrollment suggests that relatively few people are buying the insurance. The main reason is upfront cost, particularly for those living in large or joint households. Summing up on value proposition, the program does indeed offer considerable value to the residents of this area, but the value is unevenly distributed across the population—the middle class and those living close to major hospitals benefit disproportionately. Lessons applicable to AKAM/FMIA and the industry include rethinking the plan’s market strategies, which employed existing community organizations to reduce costs but may have dragged down enrollment in the end due to inconsistent efforts.

Keywords: microinsurance, literature, healthcare cost, aga khan health services, health insurance, First Microinsurance Agency, Karakorum Cooperative Bank, National Bank of Pakistan, New Jubilee Life Insurance Company, Soneri Bank, Muslim Commercial Bank, Habib Bank, Bank Al-Falah, aga khan agency

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Policy Brief based on Health Microinsurance Outcomes Assessment Baseline Pakistan

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Peru

 

Financial Landscape Report: Peru (2008)

 

Abstract

The purpose of the Financial Landscape research is to understand access to financial institutions and services in areas to be covered by Pro Mujer Peru’s (PMP) service innovations. This study focused on two innovations funded by BMGF: 1) the Premium Product, a large group loan for relatively successful microentrepreneurs; and 2) the Feria Product, a small group loan targeting petty traders at traditional markets in more rural areas. Research at the pilot/launch sites for these products revealed intense competition for PMP, from formal to informal sources of credit. PMP is regarded as a leader in the provision of credit in these areas, but these innovations mostly do not improve on the offerings of its competition in terms of highly valued credit features (e.g. interest rate). Instead, the value proposition for the Premium product is found in its potential to help PMP retain relatively successful clients, while rewarding those clients with a bigger loan. It also may become a niche product for successful microentrepreneurs interested in large group loans over individual loans. The Feria’s value proposition pertains primarily to the service-delivery model. PMP’s consistent presence in the rural launch areas brings the potential to educate clients about the product and credit in general, thereby activating a mostly dormant market. The delivery model also presents real advantages over nearly all competitors in terms of transaction costs, which will drive down the net expenditures for accessing credit.

Keywords: pro mujer peru, premium loan, credit and cash management, mandatory savings, business investment

 

An Appetite for Credit: A Study of Product Innovation by Pro Mujer Peru

 

Abstract

This investigation concerned use of the Premium loan, Pro Mujer Peru’s (PMP) largest credit ever offered. The most common motivation for seeking the Premium loan was that clients simply wanted more capital for their businesses. In nearly every case, clients realized their plans for the loan, which is to say, nearly all the funds went directly into business investment. But the Premium loan was just part of broad credit and cash-management strategies among these clients. In total over the past year, they had taken out 5-6 separate loans averaging over $5,000 between them, with the Premium loans comprising just 30 percent of the total. The dominant pattern of business investment was loan patching. The Premium loan was taken up simultaneously or in sequence with other credits, both at PMP and other institutions, and applied toward the same purpose of business investment. Many people reported increased profits, compared with years past, as a result of the capital boost from the Premium loan. The Premium loan also enabled some clients to respond to opportunities to upgrade their businesses and to strengthen vertical and horizontal relationships in the value chain. All clients were engaged in obligatory savings connected to the Premium loan, which was noted as a pleasing feature. These clients like to be forced to save, but also wanted reasonable access to those savings when they needed them, which PMP’s policies provided. Few had or wanted conventional voluntary savings accounts. These initial observations on savings inspired a follow-up investigation in June 2009, which combined MIS analysis with additional interviews to challenge some of the conventional wisdom on limited value of obligatory savings. Key takeaways from the study included this rethinking of mandatory savings and complication of the notion of “graduation”– i.e. many clients “graduated” from PMP in the conventional sense (i.e. sought bigger loans with competitors), but retained their smaller group loans for intangible reasons such as loyalty and friendship.

Keywords: pro mujer peru, premium loan, credit and cash management, mandatory savings, business investment

Policy Briefs based on An Appetite for Credit: A Study of Product Innovation by Pro Mujer Peru

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General

 

Microinsurance – Exploring Ways to Assess its Impact (2006)

 

Abstract

The purpose of this study was to identify and refine indicators that can be used to assess the impact of microinsurance on the poor. Specifically, it examined changes in household financial behavior and risk coping strategies among insurance policyholders compared to non-policyholders.

The research methods consisted of focus group discussions with members of FINCA Uganda, Save for Health Uganda, and two groups of non-members (one rural, one urban), in addition to individual interviews with key informants. This study relied on qualitative techniques. While the results cannot be generalized, they do indicate areas of potential impact of insurance, and will be used to inform the design of future studies on the impact of microinsurance. Respondents with health coverage, through either microinsurance or emergency credit, were more likely to report seeking medical treatment early on and following the full and appropriate course of treatment than respondents without cover. Insurance policy holders also indicated an increased feeling of safety and a greater likelihood of taking preventative health precautions, such as boiling water. Health insurance was also said to help decrease the financial burden associated with a health shock. Customers of FINCA’s group accident policy did not report behavior changes. This may be due to the short policy term, which was limited to the loan term, and to the fact that many FINCA clients lacked knowledge of this product.

Current measures for assessing the impact of microfinance, especially credit, are inadequate to assess microinsurance. Microinsurance has a particular effect on client attitude and behavior. While it is difficult to measure the extent to which microinsurance can impact a client’s sense of security, behavioral changes, such as seeking health treatment early on, can be assessed. It is also essential to consider how the client’s knowledge and awareness of the insurance product affects its impact on the client, such as in FINCA’s group accident policy. Finally, assessment techniques and the indicators used to measure the impact of microinsurance need to take into consideration the variability of types of insurance products available.

Keywords: microinsurance, FINCA Uganda, Save for Health Uganda, health insurance, microcredit, microsavings, Uganda, Kampala, Luwero

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