Yale Graduate School of Arts and Sciences

Graduate School News and Events

Microfinance in Mali

Aletheia Donald (IDE) spent last summer in Mali, a landlocked country in western Africa, gathering data from village moneylenders to test hypotheses about microfinance and the informal banking system that flourishes in many parts of the world. The information was being collected for research conducted by an organization known as Innovations for Poverty Action (IPA), whose founder is Yale Professor Dean Karlan.

“IPA and J-PAL [an MIT-based sister organization] represent a new kind of academic NGO that uses econometric techniques and randomization to evaluate social policy and not only get rigorous results, but also combat donor fatigue and advise policy makers like the World Bank,” Aletheia says.

She was part of a team of sixteen interns scattered around the world from Peru to India. Team members conducted fieldwork for the Informal Finance Project, which studies a range of global savings and lending practices that occur beyond the walls of formal banks. Banks are often unavailable to poor people. Sometimes the problem is distance: the bank is simply too far away from one's village to be a practical resource. Other times, the bank requires collateral before it agrees to lend money, and the needy borrower has no collateral to advance. And when the dollar amount of a loan is very small, it is not worth the bank's time to do the paperwork.

Informal loans work differently in different places. Mali has a population of 14.5 million people, most of them Muslims. Because Islam frowns on charging interest when making loans, most loans are “in kind” rather than cash transactions. An enterprising individual with some ready cash might buy 40 liters of gasoline, which he would then subdivide and sell for cash or on credit.

“People able to pay up front would be charged one price; people who needed to postpone payment would be charged a higher price. Charging interest for loans is discouraged in Islam, and this becomes a way to make the transaction profitable for the lender,” she explains.

She chose three different locations within Mali and used several tactics to approach moneylenders and interview them, surveying a total of 53 individuals and asking each around 200 questions. “We now have a lot of data, and a paper about the findings is underway,” she says.

The three locations were the capital city of Bamako, a small village in the north called San, and the town of Sikasso.

IDE - Main street San

“I knew San would be a source of great data because it was surrounded by many small mud-hut villages fairly easily accessible by motorcycle,” Aletheia says. Her translator was also her driver, and she reports that just getting around was an adventure. Mali's hot, dry weather was punctuated by torrential rainstorms which suddenly transformed the dirt roads into impassable lakes. Several times, she and her driver had to turn around when they encountered flooded-out roads and change their plans. In San, she lived alone for almost a month in a brick house provided by IPA. It was one of very few houses in the area with electricity and running water.

In Sikasso Aletheia lived with her translator/driver's family. “I learned to love showering with one pail of water,” she laughs. Meals were based around rice and (similar to polenta, but maize-based), with meat or fish and sauce on the side. Many dishes used peanuts, which are a local crop. Mangoes were in season, as well as “an odd fruit that resembles a coconut on the outside, but is stringy and orange inside the shell.”

IDE - View from the horsecart

“The most interesting and novel part of the project was using SMS text-messaging to 'track' the moneylenders and so calculate the time as well as the pecuniary costs of lending,” she says. After conducting the informational surveys, Aletheia would train the moneylenders to respond to text messages that they would receive every two hours by tapping in one of about fifteen different codes, “so we could estimate exactly how they spent their day over an extended amount of time. We wanted to establish the 'opportunity cost' of the loans to the moneylenders. We wanted to know how much time and effort had to be expended to find an interested borrower, transact a loan, collect on it, and enforce repayment” in order to establish whether the interest being charged reflected the real costs. Moneylenders were prompted to choose from sample codes that indicated what they were actually doing at that moment: Were they at a bank? Were they collecting a loan repayment, doing household chores, socializing with friends? “The amount of interest built into the transaction depended on the actual costs to the lender.” Interest rates varied wildly, from a low of 2.8% to a high of 133%.

IDE - Spot the moneylender

“An interdisciplinary approach is important to understanding the implications and outcomes of the health interventions that J-PAL and IPA evaluate,” Aletheia says. To further that end, she took a course at the School of Public Health called "Global Aspects of Food and Nutrition," which covered the biological effects and determinants of malnutrition. She did a food security assessment research project for the US government's Feed the Future Initiative, a program that improves agricultural productivity, links farmers to local and regional markets, enhances nutrition, and builds safety nets around the world.

This semester, she is taking two additional public health courses: "Critical Issues in Global Health" and "Haiti: Sustainable Development in Post-Disaster Context," which is jointly offered by the School of Forestry and Environmental Studies. Over spring break, Aletheia went to Haiti, where she gave a presentation on delayed cord clamping of newborn infants at the Albert Schweitzer Hospital and conducted focus groups with community health workers on “tippy taps,” inexpensive hand-washing stations that “will hopefully help with the cholera and diarrhea situation there,” she explains.

Last year, Aletheia spent five months prepping data from the savings side of Informal Finance, which is still in its first year. One of the questions under examination is the relative risk of different approaches to saving money: accumulating money at home, putting money into a bank account at a financial institution, and participating in an informal savings organization, such as a Revolving Savings and Credit Association (ROSCA) or Accumulating Saving and Credit Association (ASCA). The savings vehicles she collected data on in Mali are ROSCAs, in which a group of women agree to each put a fixed amount of money, perhaps five dollars, into a common pot every week for 20 weeks. Each week, one woman gets to keep the entire pot, till everyone has had a turn. The predictable availability of a relatively large amount of capital enables the ROSCA participants to purchase supplies to establish a money-making endeavor, cover an emergency, or fulfill another need.

“There are clear advantages to this method over privately stashing money under the mattress,” she says. “In a ROSCA, everyone but the last woman in the chain has access to the whole amount of money sooner than if she were saving it up on her own; the social pressure of the peer group ensures that individuals continue to contribute the weekly amount; and because the collective pot isn't at home, the women aren't tempted to dip into it for minor purchases, and other family members don't have access to it.”

The data are still being analyzed, and according to Aletheia, more research needs to be conducted before coming up with any preliminary results. This summer IPA will again be sending a group of interns into the field in various developing countries to collect more data and continue with the research.

After graduation in May, Aletheia is interested in working full-time for IPA or J-PAL. “The kind of work I did in Mali is exactly what I'd like to do in the future,” she says, adding, “that kind of research is incredibly interesting, invigorating and gratifying.”

Aletheia Donald