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MARKETSFORTHEPOORB8354

Schedule:T/R-BTerm,9:00AMto10:30AMSPRING2018

Uris Hall room 326(TUESDAYSANDTHURSDAYS)--------------------------------------------------------------------------------------------------------------------------------------------------

INSTRUCTOR:SureshSundaresanOfficeLocation:401UrisHallOfficePhone: 212-854-4423Fax: 212-316-9180E-mail:ms122@columbia.eduOfficeHours: TBD

TA:TBD

REQUIREDCOURSEMATERIAL

o Copiesofslides/articlesthatwillbedistributedinclassandpostedinCanvas.

RECOMMENDEDTEXTS:

o TheNewMicrofinanceHandbook,(2013),EditedbyJoannaLedgerwood,withJulieEarneandCandanceNelson.

o $2.00aDay:LivingonAlmostNothinginAmericaPaperbackbyKathrynEdinandLukeShaefer.

REQUIREDPREREQUISITESANDCONNECTIONTOTHECORE

Nopre-requisites.Justanopenmindaboutexploringtheimportanceofdeliveringfinancialandothercoreservicestocommunitiesthatareunder-served,andawillingnesstostudyandanalyzethebusinessmodels,literatureandcasespertainingtothemarketsforthePoor.

COURSEDESCRIPTION

A. CourseDescription:

Thepurposeofthiscourseistogivestudentsanin-depthdiscussionofacademicandpolicy/practitionerresearchtobeabletoaddressandevaluatethefollowingquestions.

a) Whatarethechallengesinmeasuringpoverty?

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b) Howpervasiveispovertyandwhataretheunderlyingdriversofpoverty?

c) Haseconomicgrowthindevelopingcountries(suchasBrazil,ChinaandIndia)helpedtoalleviatepoverty?

d) HowpervasiveispovertyintheUnitedStates?

e) Whatareinformalcreditmarkets?Whoparticipatesinthem?Whataretheinterestratesanddefaultratesinthesemarkets?

f) Whatarethechallengestotheflowofcredittothepoorborrowers?Howcantheybesurmounted?

g) WhatistheroleofmicrofinanceindeliveringfinancialservicestothePoor?Howsuccessfulhasbeenthiseffort?Whatarethechallenges?

h) WhataresomeoftherecentcapitalmarketinnovationsinthemarketsforthePoor?Cantheyhelptoscaleupandbringdowninterestrates?

i) Whataresomeoftheinnovationsintroducedbycorporationsandgovernmentsinthisfield?

j) SpecialtopicsaddressedbyGuestSpeakers:

a. PrivateequityinvestmentsattheBottomofthePyramid(BOP).

b. AgriculturalFinance.

c. DeliveringSolarEnergy–offthegrid.

d. Low-incomehousing.

e. NGO-Donor-FundedModelsinAfrica,andelsewhere.

Withaviewtoaddressingthequestionsabove,thecoursewillbeginbyexamininghowpovertyismeasured,andcharacterize(usingdifferentmeasures)howpervasivepovertyis.Inthiscontext,wewillpayspecialattentiontosimple(exogenous)measuresofpovertyrates,andmulti-dimensionalmeasuresofpoverty,whichlinkpovertytosomeunderlyingdeprivations(suchaslackofaccesstoeducation,healthcare,livingstandards,etc.).Wewillalsoexaminehowthepoororganizetheirlives,budgettheirconsumptionexpenditures,andsurveytheiraccesstocertainservices.Afterthisthecoursewillpresentevidenceontheextenttowhichpovertyhasbeenalleviatedindifferentpartsoftheworld,andhowtheresultscomparewiththeMillenniumDevelopmentGoals(MDG)setbytheUnitedNationsin2000.NewlyestablishedSustainableDevelopmentGoals,signedbymanycountriesfortheperiodextendinginto2030willbebrieflypresented.Wewillalsoexploretheextenttowhicheconomicgrowthincountrieshasinfluencedpovertyrates.Inthiscontext,wewillexaminethepovertyalleviationthroughtheeconomicgrowthprocessandmajorindicatorsofpovertyinBrazil,ChinaandIndiabeforeandaftertheseeconomiesbegantoexperiencesignificanteconomicexpansion:thisdiscussionwillshedsomelightontherelationshipbetweeneconomicgrowthandpovertyrates.

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Aftercharacterizingpoverty,weexaminethegroup-lendingconcept,pioneeredbytheGrameenBankofBangladesh.Thepopularityofthismodel,anditsimpactinBangladeshandbeyondwillbediscussed.Thebenefitsandcostsofovercomingtheabsenceofphysicalcollateralwithsocialcollateralwillbeexplored.Wewillexamineacasestudyonmicro-loaninterestrates,andloanenforcementinAndhraPradesh,inIndiawhereState-sponsoredloanprogramscollidedwithprivatesectormicro-financeinstitutions.TheadaptionoftheGrameenmodeltotheUnitedStateswillbeexaminedthroughacasestudy.

Thecoursewillturntotheroleofmarkets(broadlydefinedtoincludeprivatemarkets,corporateinitiatives,andgovernmentinitiatives)thataddresstheneedsofthepoor.Thecoursewillfirstintroduceandexamine“informalcreditmarkets”suchasRotatingSavingsandCreditAssociations(ROSCA),Paydayloans,andmoreestablishedmarketsinconsumercredit.Wewillexaminehowthesemechanismswork,whattheprevailinginterestratesinthesemarketsare,andthemotivationsforpoorborrowerstoselectthesemarketsfortheirconsumption/savingsneeds.Thesemarkets,outsidethebankingsector,playanimportantroleintheprovisionofcredittoasectorunderservedinformalcreditmarkets.WewillexamineapaperindetailthatdocumentsaninterestingstylizedfactinKibera:marriedwomenparticipateinROSCAspredominantly,eventhoughtheorderofgettingthepotispre-determined.

Thediscussionofinformalcreditmarketswillbefollowedbymicrofinance,broadlydefinedtoincludea)loans,b) savings,andc)insurance.Afterdescribingtheextentofthemicrofinancemarket,wewilldrilldowntosomebasicissuesinmicrofinance:a)aremicro-loaninterestrateshigh?b)Whataresomeofthefactorsthatcontributetohighinterestrates?c)Whatistheroleofpeer-monitoringinloanenforcement?d)Issuessuchasjoint-liability,group-lending,absenceofcollateralwillbeaddressed.Potentiallyundesirableconsequencesofexcessivecommunitypressureasamechanismtoensurelowdefaultswillbeexamined.Wewillreviewapaperthatmeasuresthemarginalproductivitycapitalforhouseholds,whichtakemicro-loanstocomparetheirreturnwiththeinterestratesthattheypay.Resultsofcarefullyconductedpovertyimpactstudiesusingrandomizedsamplingmethodswillbesummarized.

Thecoursewillthenturntodifferentprovidersofmicrofinance:Non-GovernmentalOrganizations(NGO),creditunions,non-bankmicrofinanceinstitutions(MFI),banks,etc.Wewillshowtheseinstitutionsdifferintermsoftheborrowerstheyattract,andtheformoflendingtheyprovide.Thecoursewillprovidesomeinsightsonhowaccesstocapitalmarketsbywayofdebtissues,initialpublicoffers,andcollateralizeddebtobligationshavechangedthelandscapeofmicrofinance:ineffectthecreditmarketsforthepoorhavebothveryoldinstitutionssuchasNGOsaswellasinstitutionssuchasSKS,whichhavesuccessfullytappedequityfinance.Securitizeddebtissuanceshavealsobeenmadeinmicrofinance,andwewillreviewthismarket,usingacasestudyonsecuritizationofmicro-loans.Theadventofmobilephonetechnologyhasallowedsometelecomcompaniestousethistechnologytodeliververysmallloans:thishasthepotentialtoimprovethescalabilityofmicrofinance.

Inaddition,wewillexaminesomecorporateandgovernmentinitiativesthathavealteredmarketsforinabigway:peer-to-peer(P2P)lendinghasgrowndramatically;“no-frill”bankaccountscoupleswithUniversalID(UID)hasintroducedseachangeinthefinancialaccessforthePoorinIndia.MobilephonedeliveryofbankinghasalteredthelandscapeinKenya,(andothercountries)–wewillstudytheEquityBankcaseinthiscontext.

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CourseOutline:

1. OverviewoftheCourse,Poverty,itsmeasurement,CausesandManifestations(about1.5lectures)

• Lecturenotestobedistributedinclass.(*)• Creditmarketswithimperfectinformation(adverseselection,ex-antemoralhazard,andex-

postmoralhazard).• Howtowriteloancontractsandenforcethem,whenborrowershavenocollateral?• GrameenBank(Bangladesh)BusinessModel.• GrameenAmericaCaseAnalysis.(Thecaseisinthecoursepacket).

2. InterestRatesonMicroloans.Aretheytoohigh?(About1lecture)

• Lecturenotestobedistributedinclass.(*)• Breakingdowninterestrates(operatingexpense,defaults,costoffunding,andprofitmargins)• Benchmark–marginalproductofcapital.• “ReturnstoCapitalinMicroenterprises:EvidencefromaFieldExperiment,”bySureshDel

Mel,DavidMcKenzie,andChristopherWoodruff,WorldBankPolicyResearchWorkingPaper(2007).

• CaseAnalysis-APcrisisandsuicidesofborrowers:WhokilledBhavaniManjula?,2010,AstoryofMicrofinanceinAndhraPradesh.(Thecaseisinthecoursepacket).

3. InformalCreditMarkets(Paydayloans,pawnbroking,ROSCAs,etc.)(about1lecture)

• Lecturenotestobedistributedinclass.(*)• WhymarriedwomenpreferROSCAs?• SiwanAndersonandJean-MarieBaland,“TheEconomicsofRoscasandIntra-household

ResourceAllocation,”TheQuarterlyJournalofEconomics,Vol.117,No.3(Aug.,2002),pp.963-995.

4. SecuritizationofMicro-loans(about1lecture)

• Lecturenotestobedistributedinclass.(*)• IntroductiontoSecuritizationofMicroloans.• BRACsecuritizationexperience.• Alignmentofincentives,and“skininthegame”.• IFMRCaseAnalysis.(Thecaseisinthecoursepacket).

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5. RoleofTechnologyintheMarketsforthePoor(about1lecture)

• Lecturenotestobedistributedinclass.(*)• Analysisofdifferenttechnologydrivenbusinessmodels:

i. M-PESA.ii. FINO.iii. EquityBank/M-Shwari

• EquityBankCaseAnalysis.(Thecaseisinthecoursepacket).• Leap-froggingtechnologiesindevelopingworld.

6. AlternativeModelsforDeliveringFinancialServices(about1lecture)

• UniversalIDschemesandintegratingKYCrequirements.• No-frillbankaccounts.• Increasingroleofcapitalmarketsinmicrofinance.• CreditBureausandcreditratingofMFIs:informationsharing.• Alternatemodels:NGOs,CUs,NBFIs,Banks,IPOs,etc.• SKSCaseAnalysis.(Thecaseisinthecoursepacket).

7. NotablePrivateSectorDevelopments(about1lecture)

• Peer-to-peerlending(tohouseholds).o Lendingclubmodel.

• Modelsoffinancialservicestoencourageinclusivegrowth.o OnDeck.o P2PModels

LECTURESBYPRACTITIONERS[tentativelist]

• SimonaHaiduc,OpportunityInternationalo TheBusinessModelofOpportunityInternationalandtheirworkinMalawi.

• BradSwanson,DevelopingWorldMarkets.o InvestingintoMicrofinance/PrivateEquity.

• Jake Goldberg, One-Acre Fund.o Agricultural Financing.

• JonSaunders,SunCulture.o SustainableInnovations.

• JuliaShin,EnterpriseCommunityPartners.o ImpactInvesting/Low-IncomeHousing.

COURSEOBJECTIVES

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Inadditiontoprovidingstudentswithanin-depthdiscussionofacademicandpolicy/practitionerresearch,thepurposeofthiscourseisalsotoprovideasoundandcomprehensiveworkingknowledgeofthemarketsforthepoorwithanemphasisonhowtheinstitutionsservingthemhaveevolvedovertime,adaptingtotechnologicalinnovations.Inadditiontoprovidingthestudentswithaclearknowledgeofinstitutions,pricingrelationship,applicationsandanalytics,thecoursewillhelpthestudentstothinkthroughmajorissuesfacinginvestors,marketmakers,issuers,andregulators.

ASSIGNMENTS

• Attendanceismandatoryforeachclasssession.TheTAwillrecordstudentattendanceatthecommencementofclass;studentswhoarrive5minutesafterthescheduledcommencementtimewillnotberecordedashavingattendedthesession.Inaddition,informedclassparticipationisexpected.Together,theycarry15%ofthecoursegrade.Studentswhohaveamedicalorotheremergencyreasonfornotattendingclassshouldcontacttheprofessorinadvanceofthesession.

• Studentsmustbringtheirnamecardsandoccupythesameseatineachclass.

• Therewillbethreequizzes,whichwillbe(roughly)assignedasfollows:

o Attheendoffourthsession.o Attheendofeighthsession.o Atthebeginningofthelastsession.

Eachquizwilllastfor30minutes,andcarryquestionstestingyourunderstandingofthematerialcoveredintheprevioussessions.Quizzesareclosedbookandclosednotes.Youcanbringonepageofnotes.Eachquizwillcarry15%weight.

• Therewillbecaseassignments,whichwillrequirebothawrittenreportandclasspresentation.Studentswillbeassignedanumberofcases,asspecifiedinthecourseoutline.Eachcasegroupwillhavenomorethanthreestudents.Eachgroupwillsubmitawrittenanalysisofthefourcases.Groupswillbecalledupontomakepresentationsinclass.Eachcasewillcarryaweightof10%.

METHODOFEVALUATION

Attendance&Classparticipation

15%

Quiz1 15%Quiz2 15%Quiz3 15%Caseanalysis 40%

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CLASSROOMNORMSANDEXPECTATIONS

• Attendanceismandatoryforeachclasssession.TheTAwillrecordstudentattendanceatthecommencementofclass;studentswhoarrive5minutesafterthescheduledcommencementtimewillnotberecordedashavingattendedthesession.Inaddition,informedclassparticipationisexpected.Together,asmentionedearlier,theycarry15%ofthecoursegrade.

• Studentswhohaveamedicalorotheremergencyreasonfornotattendingclassshouldcontacttheprofessorinadvanceofthesession.Onceintheclassroom,studentsareexpectednottoleavetheroomuntilthesessioniscompleted.

• Therewillbeaseatingchart.Studentsmustbringtheirnamecardsandoccupythesameseatineachclass.

• IwouldexpectyouNOTtousemobilephonesorlaptopsordigitalaidsduringclasshours.