The purpose of this course is to give students an in-depth discussion of academic and policy/practitioner research to be able to address and evaluate the following questions.
- What are the challenges in measuring poverty?
- How pervasive is poverty and what are the underlying drivers of poverty?
- Has economic growth in developing countries (such as Brazil, China and India) helped to alleviate poverty?
- How pervasive is poverty in the United States?
- What are informal credit markets? Who participates in them? What are the interest rates and default rates in these markets?
- What are the challenges to the flow of credit to the poor borrowers? How can they be surmounted?
- What is the role of microfinance in delivering financial services to the Poor? How successful has been this effort? What are the challenges?
- What are some of the recent capital market innovations in the markets for the Poor? Can they help to scale up and bring down interest rates?
- What are some of the innovations introduced by corporations and governments in this field?
With a view to addressing the questions above, the course will begin by examining how poverty is measured, and characterize (using different measures) how pervasive poverty is. In this context, we will pay special attention to simple (exogenous) measures of poverty rates, and multi-dimensional measures of poverty, which link poverty to some underlying deprivations (such as lack of access to education, healthcare, living standards, etc.). We will also examine how the poor organize their lives, budget their consumption expenditures, and survey their access to certain services. After this the course will present evidence on the extent to which poverty has been alleviated in different parts of the world, and how the results compare with the Millennium Development Goals (MDG) set by the United Nations in 2000. Newly established Sustainable Development Goals will be briefly presented. We will also explore the extent to which economic growth in countries has influenced poverty rates. In this context, we will examine the poverty alleviation process and major indicators of poverty in Brazil, China and India before and after these economies began to experience significant economic expansion: this discussion will shed some light on the relationship between economic growth and poverty rates.
After characterizing poverty, the course will turn to the role of markets (broadly defined to include private markets, corporate social initiatives, and government initiatives) that address the needs of the poor. The course will first introduce and examine “informal credit markets” such as Rotating Savings and Credit Associations (ROSCA), Payday loans, and more established markets in consumer credit. We will examine how these mechanisms work, what the prevailing interest rates in these markets are, and the motivations for poor borrowers to select these markets for their consumption/savings needs. These markets, outside the banking sector, play an important role in the provision of credit to a sector underserved in formal credit markets.
The discussion of informal credit markets will be followed by microfinance, broadly defined to include a) loans, b) savings, and c) insurance. After describing the extent of the microfinance market, we will drill down to some basic issues in microfinance: a) are micro-loan interest rates high? b) What are some of the factors that contribute to high interest rates? c) What is the role of peer-monitoring in loan enforcement? d) Issues such as joint-liability, group-lending, absence of collateral will be addressed. Potentially undesirable consequences of excessive community pressure as a mechanism to ensure low defaults will be examined. Results of carefully conducted poverty impact studies using randomized sampling methods will be summarized.
The course will then turn to different providers of microfinance: Non-Governmental Organizations (NGO), credit unions, non-bank microfinance institutions (MFI), banks, etc. We will show these institutions differ in terms of the borrowers they attract, and the form of lending they provide. The course will provide some insights on how access to capital markets by way of debt issues, initial public offers, and collateralized debt obligations have changed the landscape of microfinance: in effect the credit markets for the poor have both very old institutions such as NGOs as well as institutions such as SKS, which have successfully tapped equity finance. Securitized debt issuances have also been made in microfinance, and we will review this market. The advent of mobile phone technology has allowed some telecom companies to use this technology to deliver very small loans: this has the potential to improve the scalability of microfinance.
In addition, we will examine some corporate and government initiatives that have altered markets for healthcare, marketing and distribution of goods produced by the poor. The 30-Baht medical care program in Thailand and the e-Choupal initiative by the corporate citizen ITC in India are illustrative of how sometimes corporations and Governments can alter significantly the landscape of the markets for the poor.
Chase Manhattan Bank Foundation Professor of Financial Institutions
Suresh Sundaresan is the Chase Manhattan Bank Foundation Professor of Financial Institutions at Columbia University. He has published in the areas of Treasury auctions, bidding, default risk, habit formation, term structure of interest rates, asset pricing, investment theory, pension asset allocation, swaps, options, forwards, futures, fixed-income securities markets and risk management. His research papers have appeared in major journals such as the Journal of...