by Dean Karlan
Sure enough, it did. More shoppers were drawn to the unmistakable bounty of the twenty-four-flavor table, at least initially—60 percent of passersby stopped to have a sample, compared with 40 percent at the six-flavor table—but ultimately it proved to be more than they could swallow. Customers were ten times more likely to buy jam (30 percent versus 3 percent) after visiting the six-flavor table.
The simple explanation was that people were overwhelmed by the two-dozen options and, rather than navigate the complicated choice, decided to write off exotic jams altogether. Goodbye, gooseberry. Hello, strawberry. Whatever was already in the refrigerator at home would be just fine after all.
Now, you could object that in the South Africa example-loans table we weren’t bombarding people with a ton of options—at most, four! But if choice overload features in such trivial decisions as what to put on our toast, then surely it could afflict people—perhaps even more strongly—when they take on big choices, like whether to take out loans.
Doubling the Number of Families with a Safety Net
If you are feeling a twinge of unease about using insights from jam sales and pictures of pretty women to entice poor people into taking on consumer debt, that’s a good sign. We have not seen yet whether Credit Indemnity’s loans are actually a good thing! In the next chapter we’ll address that question, and the issue of microloans in general, in much greater depth. First, though, let’s see whether the lessons from South Africa hold up in a much different context, marketing a product that is much more transparently beneficial—rainfall insurance policies for poor farmers in India.
These policies work. They pay off in the event of lower-than-average rainfall, so policyholders can be assured of having at least some income in dry years, even with a diminished (or completely failed) crop. In effect, they offer financial protection against unpredictable changes in the weather—protection that, based on farmers’ own descriptions of struggling through bad growing seasons, is much needed.
But they have not been adopted as widely or consistently as you might expect. Why not? In 2006, Shawn Cole, Xavier Giné, Jeremy Tobacman, Petia Topalova, Robert Townsend, and James Vickery (an eclectic group of economists drawn from academia, the World Bank, the International Monetary Fund, and the Federal Reserve Bank of New York) designed an RCT to find out: How do you get farmers in rural India to buy insurance? Partnering with local microfinance organizations in the states of Gujarat and Andhra Pradesh, they developed and tested a slew of strategies for marketing a basic rainfall insurance policy.
As Zinman and I had done in South Africa, the research team in India aimed to find the secret to selling by randomly assigning various marketing approaches to different potential customers and tracking sign-ups. But there were big differences between the two studies—not just the fact that the insurance product was more of a no-brainer.
First, there were the people. Most of the people we worked with in South Africa, despite being fairly poor on the whole, had formal jobs and earned steady salaries. The majority of men and women being offered insurance in India were small-scale rural farmers living off the land, with all the uncertainty that implies. They had known fat years and they definitely had known lean years.
Then there was the setting. In South Africa we worked in urban and semiurban areas and sent promotional flyers through the mail. In India, marketing had to be done in person, either at the village level or door-to-door. People didn’t have street addresses, let alone mailboxes. (Even if they had, there was no postal delivery in the rural areas of Andhra Pradesh where the study took place.) It was the kind of project where you got your feet muddy walking along the raised dirt paths between fields of sorghum, where farmers invited you to sit down on little wooden stools in the shade in front of their houses.
Now, we need not belabor the point that the South African and Indian contexts are different. You get it. But I do want to show that the differences are stark enough that we should not expect to find the same set of advertising features driving consumers’ choices in both places. That said, the India research team’s findings agreed with what Zinman and I saw in South Africa on the central point: Marketing matters. A lot.
Again, knowing that marketing matters is one thing; knowing which pieces of a marketing campaign matter is another. As we had done in South Africa with race, the India research team tested a sensitive issue by randomizing the religious content of photographs on the insurance flyers. Some featured a Hindu man standing in front of a temple, others featured a Muslim in front of a mosque, and the rest showed a neutral-looking man in front of a nondescript building. They found, as we had, no difference in sign-ups. Nor did it make a difference whether the flyer emphasized the benefits of insurance for the purchaser alone or for her family.
If subtle advertising variations weren’t having a big effect, maybe a bigger information problem was to blame. Many potential customers did not understand exactly what the rainfall insurance policy was or how it worked. The researchers figured people might warm up to the product if they learned more about it. So some marketing treatments were randomly chosen to include a few minutes’ presentation about measuring rainfall and the connection between rain, soil moisture, and optimal planting practices. But that was a wash too—people didn’t buy any more (or less) insurance after hearing the educational material.
What did generate a significant response was a personal touch. In communities where marketing was done face-to-face by agents from the insurance company, getting a sales visit at home increased the likelihood of signing up by two-thirds, though most everyone (including those not visited at home) knew that policies were available. But that isn’t all. Those in-person marketing visits became a third more effective when the insurance salesman was introduced by a known and trusted agent from a local microfinance bank.
Taken together, those two tweaks—making in-home sales visits and getting a foot in the door with an introduction from a trusted organization—fully doubled the chances that a person would sign up. Apply them across the board and you get twice as many insured people. In the overall poverty picture, that’s twice as many families who have a safety net; twice as many who don’t need to worry about going hungry when the rains are bad.
The Importance of Selling
Often when I talk about these projects to noneconomists, to nonacademics, I am struck by how out of touch they think I am. And, frankly, how stupid I feel. News flash: We’ve got to sell this stuff!
Maybe the reason we don’t think much about the marketing of aid and development is that we don’t want to feel like we are peddling something. It clashes with our idea of what aid should be. Most people who have a hand in development programs around the world—practitioners, policymakers, and donors great and small—are in it for the right reasons. They want to help people in need. And (at the risk of oversimplifying) many of the people in need really do want help. Since both parties’ basic intentions are aligned, why should we have to resort to the dark arts of advertising to get people on board?
Whether we should have to or not, the fact is that we can dramatically increase participation by presenting programs in the right way. And the more we find out about what works, the more we—and the poor—stand to succeed by doing it.
Most of the research in this book—in fact, most of the recent push in rigorous development research—focuses on developing effective programs. And that’s great. Finding the things that work to fight poverty is the first step.
Making those things enticing is the second.
There is nothing to be ashamed of here. Actively marketing development programs does not mean misleading recipients or presuming that they cannot make good decisions on their own. It just means acknowledging that they’re like anyone else: susceptible both to reason and to suggestion, subtle and otherwise.
Why not see that as an opportunity? If we’ve managed to convince millions upon millions of people—most of whom, by the way, already have blankets—that they need Snuggies, then surel
y we can find a way to sell proven solutions to the problems of poverty.
4
TO BORROW
Why the Taxi Driver Didn’t Take a Loan
When a European compact sedan dies, I do not know where its soul goes. Often its body goes to Ghana, where it may be reborn as a taxi. In heaven, some believe, we are made whole again; but in Ghana cars are not. Neither their window cranks nor their turn signals have been restored. Instead of being made whole, they are made orange. The government mandates that every licensed taxi have four bright orange panels on its body: one above each wheel well. This makes them especially easy to spot, but more often than not you can identify a taxi without the aid of vision. You know them by the squealing, jostling sound they make as they trundle down the road, and by the acrid smell of exhaust and burning transmission fluid that follows them like an angry ghost.
One such taxi swerved across two lanes of traffic toward the curb where Jake stood. It sailed in with the grace of a misshapen bowling ball. The driver leaned over toward the open window on the passenger side and said, “Good afternoon, sir. Where going?”
Jake told him where and named his price. Then ensued the usual lively joust of lamentations, appeals, and umbrage taking, and soon they had an agreement. They set out toward the Labadi Bypass, which runs along the beach that marks the southern boundary of Accra, the capital city.
As they drove Jake began to ask the driver his usual suite of questions: whether he owns his taxi; who pays for upkeep and repairs; whether he’s married; how many children he has; whether he keeps any formal savings. He also asked Jake about his work. When Jake said he was working with the savings and loans company where he had flagged down the cab, the driver wanted to know more.
The driver’s goal was to own his own car, and he felt he would need a loan to buy one. He asked good questions about the process of accessing credit through the bank. Would he have to hold a savings account to be eligible for a loan? (Yes.) What kind of interest rate do they charge? (3.17 percent per month, flat, calculated on the initial balance of the loan.) How often would he have to make repayments? (Monthly.) Could he repay over a year? (No, the maximum tenor of a client’s first loan is six months.) Would he need to offer land as collateral for the loan? (No, he would have to provide a guarantor for security—not collateral.)
By the time he eased the car around the traffic circle at Independence Square, he was enthusiastic. “Tomorrow morning I will come straight to the banking hall before I start work,” he said. He knew which documents would be needed to open an account, and whom to ask about starting a loan application. The path forward had been illuminated. Here was a man with the will and aptitude to succeed; he had just been unaware of the resources already available to him.
He and Jake shared a few minutes of pleasant silence as they traced an arc around the football stadium and the edge of Osu Cemetery. Jake could tell he was satisfied. As they came closer to the destination the driver asked one more question: “Do you know another obruni [foreigner] at that very bank? He is called James.” Jake did know James, a member of the bank’s executive management team, and told the driver so.
The driver said he remembered picking James up from the same office and driving him home. This had been some time ago, “at least one year. I think even more than that.” The ride had stuck in his memory because it was, like his ride with Jake, relatively eventful. On that evening James had answered “so many questions” about the process of accessing credit at the bank.
Jake asked, “Well, what did you say to James once he told you all of that?”
He said, without so much as a whiff of irony, “I told him I would come tomorrow.”
But he didn’t come tomorrow. Not a year before, and not this time either. He did say he wanted a loan, although that alone is a fairly weak signal of intent. An unscientific review of conversations with Ghanaians over two years suggests that the number of people who say they want loans is much, much larger than the number of people who actually do something about it. What makes this case especially puzzling is that the driver’s enthusiasm only increased as he learned all the gory details—about account opening, loan features, security requirements, and the like—and that he actually made a plan (albeit a simple one) to follow through. He knew what he had to do and seemed eager to do it. What went wrong?
Getting poor people to borrow money has become one of the best hopes for alleviating global poverty. So should the taxi driver’s failure to show up be a cause for puzzlement and regret? The next few chapters are devoted to finding out.
The Miracle of Microcredit
Maybe the taxi driver hadn’t read enough of the promotional literature published by microfinance organizations and their advocates. If he had, he would have known that this is life-changing stuff—not the kind of thing to be casually passed up. Client testimonials practically jump off the pages and grab you by the lapels: “Look! We used to suffer, but now we’re prospering thanks to a loan from . . .” Beside the uplifting story is a photograph of a woman dressed in bright clothes, smiling widely. She is standing in front of the stocked shelves of her recently expanded convenience store or opening the door of her new bread oven, her smile full of dignity and satisfaction and her gaze fixed on a point beyond the camera, fixed on a bright future. Have you seen this woman?
If not, check out the Web sites or annual reports of a few microlenders. You won’t have to look too hard. Here is an example from FINCA, the organization that introduced me to microcredit:María Lucía Potosí Ramírez . . . has spent her lifetime knitting beautiful wool sweaters and selling them in the local market. But the income she earned from selling her handiwork went toward providing daily necessities for her family, which never allowed her to save so she could buy wool in bulk at a lower cost. And, because she had no collateral, she couldn’t access a loan from a traditional lending institution. When Mrs. Potosí learned about FINCA in 2001, she took out a loan for two hundred dollars. This allowed her . . . to purchase more wool at a lower price. Now her family eats better and her loans have tripled, allowing her to purchase and save more. Mrs. Potosí says she is grateful to FINCA for things that go beyond the tangible.
To readers in wealthy countries, stories like these are powerful for two reasons. First, they show loans improving borrowers’ material standard of living. Where a family used to have to choose between, say, eating nutritious meals and buying necessary medicines, now it can do both. Second, they suggest profound changes taking place—changes that extend, as Mrs. Potosí says, “beyond the tangible,” and into the lofty realms of empowerment and transformation. This is about more than dollars and cents, and donors value that.
Opportunity International, a global microfinance network serving over a million clients, features a testimonial in its quarterly newsletter from an American donor who visited with some Ghanaian borrowers:We heard from Marta, who buys and sells palm oil. She uses her Opportunity loans to pay for her products, giving her the funds to set up a kiosk in town. Her children are in secondary school and have a brighter future. She looked at us and said, “Now I am free!” This statement said it all. Without question, the women we met have experienced transformation. We witnessed it directly and felt their incredible spirit. Our trip to Ghana . . . reaffirmed our reasons for supporting Opportunity International and helped us understand the power of microfinance to change lives.
Before we are swept away in the tide of good feeling, let’s get our bearings. While the shiny veneer of microcredit is new, debt is old. People in every corner of the world, rich and poor alike, have borrowed money for millennia. We usually think of debt as a burden and an obligation, not as a miracle cure for poverty. There must be something truly alchemical about microcredit to have turned the act of borrowing money into the kind of transformative, life-affirming experience described by Marta.
The heartwarming success stories we hear about microcredit date from 1976, when Muhammad Yunus, then the head of the Economics Department at Chittagong
University in Bangladesh, embarked on a research project about the feasibility of delivering formal credit and banking services to the poor.
Yunus made his first loan, of twenty-seven dollars, to a group of forty-two bamboo craftswomen who, up to that point, had financed the purchase of raw bamboo by borrowing from moneylenders at high interest rates. He was interested in poverty alleviation, not profiteering, so he gave the women a better interest rate—low enough so that they could keep a greater share of their profits than before, but high enough to recoup his investment.
The new loan enabled the women to escape from the cycle of moneylender borrowing, and Yunus saw that his lending idea could work. But he had bigger ideas. Unlike the moneylenders he replaced, Yunus had an explicit social agenda—namely, pulling borrowers out of poverty—and he saw the loans themselves as just one arrow in a big quiver. The other arrows were behaviors and habits, like sending children to school, having smaller families, digging sanitary latrines in homes, and growing vegetables to supplement purchased food. These arrows, unfortunately, were not Yunus’s to shoot; they were choices that clients would have to make on their own.
What he could do was to encourage them, using the loans as an incentive. Yunus founded the Grameen Bank to make group loans like the one he had made to the bamboo craftswomen. He wove in the behavioral goals directly. Women who wanted to borrow had to commit not just to paying off their debts, but also to a set of Sixteen Decisions (from which the above four are taken), which would contribute to prosperity and progress for themselves and their families. Suddenly, and for the first time, borrowing money had become a socially redeeming activity.