“Rs 1,200.”
“But I don’t know how to drive and I don’t have the time to learn. How much would it cost?”
“Rs 1,200.”
Whether you knew how to drive or not is immaterial.
You were doing some work in the area of women who sell fruits and vegetables on the streets in developing countries. I am told they paid almost half of their profits as interest to the moneylender each day. You got them grants to pay off their debts and then tracked their behaviour.
Could you take us through the entire thing?
What was funny about this business model was that these women borrowed a thousand rupees every day at the rate of 5% per day, and their mark-up is only 10%. So this women might make Rs 100 a day. Of this, Rs 50 goes to servicing interest (5% of Rs 1,000) and Rs 50 is left for themselves.
Now imagine a project that could double your income. So here we have a great project that could double income just by getting rid of the debt load. For half the women we paid of their loans and for half we didn’t and we crossed that by giving half of them financial literacy. So 25% got both the loan pay off and financial literacy, 25% got just the loan pay off, 25% got just the financial literacy and the remaining 25% got nothing. And we found out that financial literacy doesn’t seem to do much, which is consistent in what we tend to find in lots of other places. The poor are pretty savvy, if anything, they are savvier than the middle-class because they have to actually manage their finances.
The middle-class never have to manage money. They get paid monthly. Have bills that are monthly. What is there to manage? If someone gets paid daily but she has some needs that are monthly, some needs that are weekly, and she actually is running a business, they are financially savvy.
We also find that if we look ahead a few weeks or few months out, they are still out of debt. So it’s not that they are so myopic. But a year out that they have fallen back into debt, and we conjecture that when they get hit by a financial shock.
In the group whose loans were paid off, they could just take the money that they were using to buy vegetables and use that to deal with that shock. And then they would borrow to buy vegetables. Now there is no one there forcing them to put the money back into the business and self control is very difficult. It’s a subtle problem with self control, the thing gets magnified because everyone gets hit by a shock at some point and then you are back into the debt cycle.
In India, the middle class doesn’t go out there and vote. Why is that happening and how can we get more people to vote?
I wish that I had a good answer to that. I don’t have enough sense of what drives voting in India. But I have a student who has now gone on to do a bunch of get-out-and-vote experiments in the US. He runs a big organisation there and they co-ordinate for the Democratic Party. There results are just striking as to what actually gets people to vote.
If I ask you will you vote? Well that has some effect on voting. But if I say to you, will you vote, and you say yes. And then I ask you: tell me when are you planning to go to vote? And you say around 5 p.m. Asking how are you going to implement your intention increases voting by 5%.
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