The Unfun
The new book by Dean Karlan and Jacob Appel, More Than Good Intentions, How a New Economics is Helping to Solve Global Poverty has much to teach savings group practitioners. The book is sprinkled with insights about commitment, abstinence and plain old irrational behavior, at least on the face of it.
If you are low on time, skip straight to Chapter 7, “To Save, The Unfun Option.”
This chapter opens with a story of a woman who survives by stringing flowers into garlands. Should she possess the self-control required to set aside a few rupees for 20 weeks, she would no longer be in debt. She could keep the interest that otherwise would accrue to the moneylenders who visit her almost daily. Yet, as a saver free of debt, this woman’s worries would not be over. Were she a client of a bank or member of a credit union, she would find herself in a thicket of deposit and withdrawal fees and minimum balance requirements, And, of course, were she to save at home, she would be subject to the dozens of little temptations that gnaw away at whatever rupees she might stash under the mattress.
Chapter 7 of More Than Good Intentions is chock full of savings experiments that have produced interesting results. For example, Pascaline Dupas and Jonathan Robinson created a no-frills or basic savings account with a Kenyan cooperative, and selected half a sample of hawkers, market vendors, barbers, and bicycle taxi drivers to join. The mirror image sample enjoyed the same profile as the treated clients but were not offered the chance to join the cooperative. 89% of those offered the account opened one, and 55% made at least one deposit within six months.
There are several lessons here for savings group aficionados. First, while Karlan and Appel claim this activity is high (55% of those opening an account make a deposit within a few months), promoters of savings groups would think this percentage low. Far more savings group savers would have made an additional deposit into their group savings fund. In fact, most would have made at least six deposits into the fund in the same timeframe, and depending on the savings frequency established by individual group rules, savers might have made up to twenty four deposits each within the six month period.
Second, “the strongest predictor of account usage was participation in a home-grown savings scheme, like the Rotating Savings and Credit Association mentioned earlier. That people were already savings (albeit not in a formal bank) at the time of the offer were significantly more likely to become active users of the new accounts.” Karlan and Appel seem surprised: “That’s sort of a strange finding. Participants in a homegrown savings schemes had already found a way to save; why did so many of them rush to sign up for the new accounts? One explanation is that the new accounts were actually better than the existing alternatives.”
I would offer another explanation – that they opened new accounts precisely because they already were good savers and wanted an alternative to existing options; they were ready to diversify. The new account was not necessarily better, it was just different, and addressed different needs. I have found this evidence all over the world, people often belong to several groups or several services want more. They don’t just have one mutuelle, or one bank, or one ROSCA. They have many instruments, all working together. Indeed, this is the finding of Portfolios of the Poor (Collins et al).
There is no evidence from Karlan’s research savers stopped using their ROSCAs to join the credit union. It was probably quite the contrary, that they added a deposit account to their portfolio of financial options, which if you are an educated saver seems like an entirely reasonable thing to do. That only 55% of savers made a second deposit tells me that for some, the ROSCA is still the preferred option.
Guy Stuart. Lecturer in Public Policy, Harvard Kennedy School, also has opinion about More That Good Intentions. He writes less about the lessons of the book and more about its promotion of a specific research method, the Randomized Control Trial. In a recent post for the Center for Financial Inclusion Blog:
“Karlan and Appel want us to believe that Randomized Control Trials (RCTs) are an essential tool in identifying solutions to problems through research. In fact, there is clear evidence that they think this is the only way to do research. They continuously, and condescendingly, equate “rigor” with the use of RCTs, which begs the question: Are all the people who generate evidence about what works and what does not work without using RCTs not doing rigorous work? Are RCTs the only way to get to the truth of the matter?”
I think Stuart asks a great question. While the findings in this book are interesting, do equally valid findings await the reader that have been distilled using a different research approach. We take up this question and offer a few solutions in a summer series called Rigor for the Rest of Us. Stay tuned.
NB: This was originally posted in June 2011. We have re-posted it with a later date to move it closer to the top of our reverse-chronological list. Dean Karlan's research is still pertinent, and Kim Wilson's comments and reservations are still important. In fact, it's perhaps more important than it ever was as some misguided people wander off into the desert of thinking that all poor people need a loan.
