Important Things to Remember
Credit Markets:
1. Miracle of Microfinance: Spandana loan
2. Making Microfinance work:
i) Saving accounts
ii) Asset-based contracts: to graduated borrowers
iii) Insurance products against shocks
iv) Business skills
v) Technology
3. Graduating out of Poverty: Program for ultra-poor
It is better than microfinance when it comes to benefits. However, it is expensive.
Cost-to-benefit analysis ratio.
Saving Brick by Brick:
1. Why people save?
2. Why saving is difficult? External internal reasons
3. M-PESA ….. Pakistan (easy paisa)
4. Forms of saving Money by poor:
i) Committee system
ii) Self-help groups (people save money in bank together )
iii) Save money yourself in any app
iv) Invest in asset
5. Dupas and Robinson Saving account
6. Why don’t people save?
i) Value present more than future
ii) Consume today, work hard tomorrow.
iii) Hyperbolic discounting
iv) We think (hope) that we will be more patient tomorrow than we were today.
7. SAFI program (farmers and fertilizers)
8. People borrow money so that there is something that forces them to save
9. Commitment issues in banks because they feel that they might need the money. (lockbox)
10. Poverty and saving:
i) Stress leads to wrong choices.
ii) Goals seem too intimidating so do not bother to begin.
11. Nudges (pension plans) to make poor save.
12. S-shaped relationship between income today and tomorrow
13. Increase hope in people: Microcredit.
Entrepreneurship:
1. Natural entrepreneurs:
i) No of employees
ii) Own vehicles?
iii) Own machinery?
iv) Non-agricultural businesses?
v) Size is small.
vi) Exist in multiple sectors.
2. Small businesses are not profitable (avg and marginal returns)
3. Store example:
Initially small investment, marginal returns are high but overall return is low. When
investment increases, our marginal return falls but overall returns increase.
4. Diagram of MR and AR
5. Small businesses have constraints of investment. If we remove these constraints, they can
increase their MR.
6. New diagram (stuck in trap and need large capital injection)
7. Maybe its not only capital, maybe what we need it ideas, managerial skills and human
capital.
8. Money or Ideas Experiment (not very productive)
9. Poor entrepreneurs do not have the innovative spirit.
10. People prefer stability and cannot take risks.
11. Better management leads to more growth.
Policies and Politics:
1. Failing govt is one of the most important reasons for failing policies.
2. Good governance:
i) Voice & Accountability
ii) Political Stability and Lack of Violence
iii) Government Effectiveness
iv) Regulatory Quality
v) Rule of Law
vi) Control of Corruption
3. Poverty is caused by corruption. (patron-client relationship)
4. Great injection of foreign aid can help escape this poverty trap.
5. Some forms of good institutions:
i) Property rights
ii) Rule of law
iii) Representative form of government
iv) Constraints on executive
6. Extractive INSTITUTIONS:
i) Designed to benefit an elite group often at the expense of other populations
ii) Impede incentives or opportunities to invest
iii) Feudal land control, Colonial Mercantilism, Slavery, Cartels …
7. Major proportion of pie goes to govt. Good institution increases size of pie.
8. Colonizers couldn’t settle down so they called institutions to take charge instead of them.
9. Banerjee and Iyer (2005):
Zamindar system and Rayatwari system
10. Even if we don’t replace authoritarian regimes in one go, we can take slow steps:
China is an example. Allowed elections, not very fair but still works. Reveral of one child
policy.
Decoys in police stations in Rajasthan – ordinary people have a hard time getting FIRs
registered because police stations are evaluated on the basis of number of unsolved cases;
when decoy visits were introduced by the police department, FIR registration rates went up
drastically
11. Women in politics. One way to bring about change is to increase representation of the
underrepresented people. Women take different decisions than men. In India, women had
fixed no. of seats.
12. People vote on basis of ethnicities
13. Technology can play a better role. Keep the health sector connected.
14. Politicians that are connected to one area invest in only that area. Assign doctors but their
attendances do not increase.
15.
