Initiative to examine if access to savings services benefits world’s poor

Yale has received a $7.3 million grant from the Bill & Melinda Gates Foundation to create the Microsavings & Payments Innovation Initiative (MPII), a research effort designed to understand and communicate the development potential of microsavings and money transfer services for the world’s poor and those without access to a formal bank account, and research better ways of delivering these services.

“For years, microfinance has been focused on the provision of credit. Savings have been neglected, despite early evidence suggesting that the impact could be bigger,” says Dean Karlan, professor of economics at Yale and MPII principal investigator. “Mobile money is now providing new opportunities for expanding financial access for the poor. With this expansion comes a host of questions about how to design products best.

“This initiative will ask important questions about the impact of savings and payment services, and on how to design such services to have the greatest possible impact on poverty,” he adds.

Administered by the Economic Growth Center of the Yale Department of Economics, MPII will build off the limited, but promising evidence to date.

For example, in the Philippines, a study conducted by Karlan, found that access to savings accounts can help mobilize savings and improve household decision making for women. In western Kenya, a study conducted by Pascaline Dupas and Jonathan Robinson, research affiliates at Innovations for Poverty Action (IPA), an MPII partner, suggested that simple savings accounts can have significant positive impacts on the lives of poor entrepreneurs.

The four-year grant will provide support for MPII to augment these early research findings by designing and conducting a range of methodologically rigorous research projects aimed at determining what works, what doesn’t work and why. This research adds to foundation-funded work already underway at IPA to replicate on a larger scale, in four new countries, the western Kenya study evaluating the impact of access to basic savings accounts.

The research will be conducted in association with banks and microfinance institutions in developing countries, with the resulting analysis focusing on the reasons behind the success of specific financial products and services and their ability to enhance welfare. The initiative will also build in a comprehensive and systematic research dissemination infrastructure so that regulators, policymakers and practitioners in developing countries have full access to the latest findings.

In making the announcement, President Richard C. Levin said, “We are honored that the Bill & Melinda Gates Foundation is supporting the Microsavings & Payments Innovation Initiative. We are committed to discovering solutions that increase the welfare of the world’s poor and financially disenfranchised, and we look forward to working on this important initiative in the years ahead.”

The core activities of the MPII include: the creation and administration of two research funds to support specific research projects by Yale, IPA, and external researchers, as well as a robust communication agenda to inform policymaking and best practices with MPII research results. The program’s geographical reach will be broad but focused on areas with the most potential for powerful policy effects, such as Sub-Saharan Africa and South Asia.

A complementary activity of MPII’s research creation and results communication is a plan to recruit, train and work with scholars from developing countries. By building research capacity in developing countries, MPII aims to augment both the quality of research conducted by academics around the world, and the ability of local researchers to connect with practitioners and policy makers to communicate results.

In addition to support from the Gates Foundation, Yale will partner with Innovations for Poverty Action in the implementation and management of MPII. IPA is a U.S.-based non-profit organization founded in 2002 with the goal of serving as the link between academic research and real-world problems faced by the poor in developing countries. IPA conducts rigorous research in over thirty countries on topics ranging from microfinance to education to community governance, and has worked with more than fifty development organizations worldwide.

Under the direction of Karlan and other faculty, Yale has also successfully worked with the Centre for Micro Finance at the Institute for Financial Management and Research in Chennai, India and the Institute for Statistical Social and Economic Research in Ghana as part of a larger, University research program to carry out a wide range of studies of the changes taking place during the process of economic development. The MPII represents another level of engagement with critical research and problem-solving dealing with some of the most profound issues facing the developing world and the global economy at large.

This grant was announced Nov. 16 by Melinda French Gates at the Global Savings Forum in Seattle, Washington, as a part of the foundation’s $500 million pledge to expand access to savings accounts and help the world’s poor build financial security. The pledge included a package of six grants, totaling $40 million, from the foundation’s Financial Services for the Poor initiative, to support projects and partnerships that will bring quality, affordable savings accounts and other financial services to the doorsteps of the poor in the developing world.

“Savings doesn’t just help people mitigate the risks posed by a medical emergency or a bad crop,” said Gates at the foundation-hosted event. “It also gives them the ability to marshal their resources to build something better for themselves and their children. It allows them to fund their own businesses, to look ahead with confidence. Savings helps families to take the giant leap from reacting to events to planning for a healthier, happier future.”