Worth Reading: One Book, Two Papers, One Article, and a Blog Post

Using the holiday to catch up on some reading? What are the must-reads from this year? We asked CGAP staff to share their recommendations for the best financial inclusion-related reading of the year. Below is a small selection of the books, articles, and blog posts that made the cut.

One book:
Poor Economics : A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee and Esther Duflo at the Massachusetts Institute for Technology

Abhijit Banerjee and Esther Duflo argue that much anti-poverty policy has failed because of an inadequate understanding of poverty. In Poor Economics they set out to analyze the evidence on the economics of poverty, including hundreds of randomized evaluations that the poverty lab at the Massachusetts Institute for Technology has conducted. That the poor have the same aspirations and abilities as anyone else is perhaps not so surprising. And so why are the outcomes, and the lives that poor people live, so profoundly different?

The book builds on economic and development theory to make the case for some practical policies to address poverty. Banerjee and Duflo also explain some puzzles and surprises: why the poor need to borrow in order to save, why they miss out on free life-saving immunizations but pay for drugs that they do not need, why they start many businesses that they do not grow. They offer no simple formula to rid the world of poverty. Nonetheless this book will be of interest to policy makers, philanthropists, and anyone committed to grappling with complex issues of how to address poverty around the world.

Two papers:
“Anti-money laundering and terrorist financing measures and financial inclusion,” Guidance Paper by the Financial Action Task Force, June 2011

The Financial Action Task Force is the inter-governmental body responsible for combating Money Laundering and Terrorist Financing. In this guidance paper they recommend AML/CFT measures that will meet the national goal of financial inclusion without compromising the measures that exist for the purpose of combating crime.

The paper focuses on ensuring that AML/CFT controls do not inhibit access to well regulated financial services for financially excluded and underserved groups, including low income, rural sector and undocumented groups.

“Pecuniary Mistakes? Payday Borrowing by Credit Union Members” by Susan P. Carter, Marta Skiba Paige, and Jeremy Tobacman. Jeremy Tobacman presented the findings at the RAND Behavioral Finance Forum this year.

Susan Carter, Marta Paige, and Jeremy Tobacman looked at payday clients in the U.S. and found that two thirds of them actually had more than $1,000 in remaining liquidity (savings, lower-cost credit sources, etc.) when they took out their payday loan, costing them on average $200/year in extra finance charges. The authors propose several possible explanations for why they behaved this way. The article appears in a new book edited by Olivia Mitchell and Annamaria Lusardi, Financial Literacy: Implications for Retirement Security and the Financial Marketplace. 2011. Oxford, UK: Oxford University Press, October.

One article:
“A place under the sun for microfinance” by Ramesh Ramanathan, Mint, 4 November 2011. In this piece on Indian microfinance, Ramesh Ramanathan, chairman of Janalakshmi Financial Services, a microfinance institution based in Bangalore, responds to an article published in the Economic and Political Weekly by Former Reserve Bank of India governor Y.V.Reddy. Labelling MFIs as the ‘new moneylenders’ may yield some psychological satisfaction, says Ramanathan. But policymakers must offer rigorous evidence to support their claims. Ramanathan carefully navigates the space between for-profit and non-profit organizations, arguing that for-profit structures can offer significant benefits to the poor when they are regulated effectively.

And a blog post:
Generating Jobs in Developing Countries: A Big Role for Small Firms by Asli Demirguc-Kunt

With job creation a top priority for policymakers the world over, Asli Demirguc-Kunt, Director of Development Policy at the World Bank, argues that small and medium enterprises play an important role in employment generation and economic recovery. Small and medium enterprises are the biggest contributors to employment across countries and they generate the most new jobs across country income groups.

The challenge for policymakers, says Demirguc-Kunt, is not only to create more jobs, but also to create better quality jobs to promote growth: “Overall, our results show that while SMEs employ a large number of people and create more jobs than large firms, their contribution to productivity growth is not as high as that of large firms.”

What articles and books related to financial inclusion would you add to this shortlist of the year’s recommended reading?