Is transport infrastructure the most important aspect of urban evolution?

The Treasury's courtship of the blogosphere.

Is China's changing worldview bad for business?

America's largest retailer: it's not Wal-Mart.

Why are some marathons more volatile than others?

The EU's role in reducing state fragility in Sub-Saharan Africa.

Thoughts on migration: Kosovo edition.

Unemployment

What America can learn from Europe about unemployment.

Other difficulties that arise from high unemployment.

Plus, unemployment charts galore from Calculated Risk.

A less pessimistic take on today's numbers (it's still ugly).

Why employment is down and GDP up? It's all about productivity.

While most of their argument is convincing, I think they may be overstating their case in one spot. The authors argue that "the belief that skilled emigrants must cause public losses in the amount of their training cost is based on a series of stereotypes." Their evidence against these stereotypes? A single survey of African-born members of the American Medical Association. This hardly amounts to a damning piece of evidence. The fact of the matter is that we don't really have any comprehensive source of information that would allow us to judge exactly how much of a public subsidy skilled emigrants take with them.

Clemens and McKenzie rightly point out, though, that countries that do provide massive public subsidies through free or near-free higher education may want to look at alternative ways of financing their system of higher education. One method would be providing student loans. While setting up such a system is not a simple task, IFC has been gaining experience with this in a number of countries.

Writing in this blog last July, Anushka Thewarapperuma penned a favorable review of a new book by Daryl Collins and Jonathan Morduch on how people living on less than $2/day manage their financial lives. The authors discovered that the world's poor are quite good at managing their finances:

The poorest people on earth engage in the sort of sophisticated money management that would make Chuck Schwab proud.

Thewarapperuma ended her post by noting that Collins "will be coming out soon with a pilot study using the same methodology of financial diaries, this time for small businesses."

Flash-forward to today, and Collins is back with her new study, commissioned by FinMark Trust, which gathers cash flow and qualitative information for small businesses in South Africa. The report, which surveyes 26 businesses in Langa and Nyanga townships across a range of industries, makes some initial conclusions about the financial services and training needs of these small enterprises, including:

• Businesses do not only need capital loans – in fact, very few in this sample would be candidates for a capital loan. However, they do need a short term line of credit to weather short periods (sometimes overnight) of cash flow bridging.

• Because small businesses usually work on a cash basis, money is on hand all the time, making it more difficult to create disciplined savings behaviors than those who receive regular income from a job or a grant. Yet because business income is so irregular and partners are so unreliable, the need for a savings buffer is even more acute for businesses owners than regular income receivers.

• Many small businesses generate substantial amounts of cash on a daily basis, and many owners simply keep that cash on hand in their homes for periods of time. However, because small business owners are in the public eye, they are particularly vulnerable to theft. A very convenient transaction account would be particularly important for small business owner.

• Small business owners have sought, and some have received, training, but most continue to be unsure of how best to manage their debtor’s book, price their goods and services and manage their employees.

Yesterday I noted how Pakistan's poor are primarily interested in accessing finance as a safe means of channeling their savings. Judging from Collins' initial conclusions, this may hold true for the world's poorer entrepreneurs as well.

Update: A new link to the study has been uploaded.

The recently published 2009 Microscope (now expanded to 55 countries around the world with the assistance of IFC) gives a mixed answer. Of the 13 countries in Latin America for which there are data in both the 2009 and 2008 Microscope, seven saw their microfinance premiums rise while six saw their microfinance premiums fall (see image below the jump for the most recent premiums).

It's not clear that the financial crisis had much responsbility for the increased premiums even in these six countries. Rather, the authors of Microscope 2009 suggest rising premiums can be attributed either to uncompetitive microfinance markets or small and inexperienced MFIs. 

Of course, the funding side of things is only part of the story. The crisis may have had an impact on the performance of microfinance portfolios. But somehow I suspect that subprime entrepreneurs are a better bet than subprime mortgage borrowers.  

The recently-released enterprise surveys country note on Running a Business in Armenia shows that these reforms have indeed resulted in improved access to credit, which in turn is making it easier for Armenian firms to operate efficiently.

Both prepaid sales and sales on credit nearly doubled in recent years, from 15 to 16 percent in 2005 to 30 percent in 2009. Furthermore, the figure below shows that the value of collateral (expressed as a percentage of the loan amount) necessary to secure a loan has decreased substantially across all sectors of the economy.

The Armenian business climate, however, is still hampered by several serious problems. The Enterprise note goes on to say:

Corruption remains a problem, and Armenia ranks at the bottom in firms having their financial statements reviewed by an external auditor. Armenian firms also face challenges in making use of all of their potential capital, both human and physical. Female participation in management and in the labor force as well as capacity utilization are below regional averages.

Highlighting the accomplishments of a country is important so that other countries with similar problems can find successful models of reform. Highlighting the remaining problems is important because it sets the stage for future reforms. This country note does both.

Yesterday I attended the World Bank's book launch of Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved. The authors, Tatiana Nenova and Ceclie Thioro Niang, interviewed 10,000 households from across Pakistan's geographic and socio-economic landscape, including both men and women.

In general, Pakistanis are underserved by both formal and informal channels of finance. Only 14 percent of the total population has formal access, while just over 59 percent have access to either formal or informal finance. As the chart above illustrates, this is quite low compared to Bangladesh (32% formal access), India (48%) and Sri Lanka (59%). Small and medium enterprises, which account for 30% of GDP and 78% of jobs, only account for 16% of the country's overall credit.

What explains this gap? The authors argue:

Major constraints to financial access, in spite of policy reforms, arise from the high levels of poverty, combined with low awareness of and information about available financial services, as well as gender bias.

Three things in particular stick out to me: Women, savings and microfinance.

First, 80 percent of Pakistani women have no access to finance. However, this gender bias is eliminated at the formal level.

Second, the microfinance sector is very small, reaching only 2 percent of the poor. As a comparison, there are 82m cell phones users versus 3m microfinance clients. The authors point out that Pakistani microfinance institutions are not yet commercially viable, but have huge growth potential (10-20m estimated borrowers). Unlike most other countries, Pakistan's small microfinance industry is male-dominated, reaching few women.

Third, the survey finds that most Pakistanis have a strong aversion to debt, and are seeking financial channels to store their savings, rather than for borrowing. This is largely due to low levels of financial literacy, but also because formal borrowing has very high interest rates (19%), especially when compared to informal borrowing (23%).

This report is a pioneering survey, and the authors have been scrupulous in their methodology. It will serve well in closing Pakistan's financial information gap.

Newly available data show that officially recorded remittance flows to developing countries reached $338 billion in 2008, higher than our previous estimate of $328 billion. Based on monthly and quarterly data released by some central banks and in line with the World Bank’s global economic outlook we estimate that remittance flows to developing countries will fall to $317 billion in 2009. This 6.1 percent decline is smaller than our earlier expectation of a 7.3 percent fall.

These higher remittance flows have come at a cost, however. Fewer migrants are returning home, and the overall migrant flow out of countries is slowing (though remains positive):

By now it is clear that existing migrants are not returning even though the job market has been weak in many destination countries; instead they are staying on longer and trying to send money home by cutting living costs. New migration flows are lower due to the economic crisis, but they are still positive. We maintain our expectation of a recovery in migration and remittance flows in 2010 and 2011, but the recovery is likely to be shallow.

Ratha highlights three main risks to remittance flows: a jobless economic recovery, tighter immigration controls, and unpredictable exchange rate movements.

The former and latter risks are likely to remain for some time (see here, here and here). Thus, much depends on the degree to which host countries direct the blame for their economic malaise (particularly joblessness) towards migrants. Fortunately, this hasn't been common thus far.

The authors conclude: 

The world is not yet out of the woods, but for now at least, it seems that policy was much better this time around than it was in the early years of the Depression. And as a result, a great deal of human suffering has been avoided. 

Let's hope this growth is sustainable.