Karlan to use Gates grant soon

Professor of economics Dean Karlan is ready to start using the $7.3 million grant that the Yale Economics Growth Center received to fund research on microfinance policies.

Starting next week, Karlan will begin to lay out his plans for the funding he received from the Bill and Melinda Gates Foundation last November. Karlan, whose work examines different policies used to lend small amounts to people below the poverty line, has been studying microfinance since 1999. His research will be implemented through Innovations for Poverty Action, a New Haven-based nonprofit organization that he founded in 2002.

Yale economics professor Dean Karlan received $7.3 million to research microfinance.
Dean Karlan
Yale economics professor Dean Karlan received $7.3 million to research microfinance.

“With our study, we hope to improve the way people fight poverty around the world,” said Karlan.

The money will be used to create the Microsavings & Payments Innovation Initiative, which will work to apply practical policies in microfinance, according to a November press release from the Yale Office of Public Affairs and Communications. Administered by the Economics Growth Center of the Yale Economics Department over the next four years, the initiative will organize 20 new studies in locations including sub-Saharan Africa and South Asia. Research affiliates at Innovations for Poverty Action, which will participate in the initiative, will team up with scholars and practitioners in the determined locations to conduct research aimed at providing practical knowledge on the effectiveness of the program, Karlan said.

“What [researchers think would best improve lives of the poor] may really want is the ability to make cheap deposits and expensive withdrawals,” Karlan says.

The initiative will concentrate on instigating commitment and mobile accounts, which would address both of these goals. Commitment accounts deny immediate access to deposits and discourage impulse spending, while mobile accounts increase the availability of money and lower cost. When the two programs are implemented together, clients will be better able to achieve long-term goals, he said.

“In rural areas in lots of developing countries, the idea of going to a bank is very daunting,” Karlan said, referring to the mobile accounts. “Not only might it be physically expensive, because there’s no branch nearby, but it actually may be emotionally expensive in that the formality of a bank is a little scary.”

Alexandra Kobishyn, the project development coordinator for Innovations for Poverty Action, said that the initiative will follow two tracks when funding projects: one will work in tandem with Yale, the nonprofit and the Gates Foundation; the other with external researchers who have connections in developing countries.

“When we have an idea for a project, we need to find one researcher who is willing to help, and then one institution,” said Henriette Hanicotte, a project associate at the nonprofit, pointing out that the grant will allow more researchers to receive formal training to carry out their projects. Hanicotte said that the grant will also aid in matching potential researchers and institutions.

Compared to some other Ivy League schools, Yale does not attract enough American or international graduate students interested in alleviating poverty in third world countries, Karlan said, adding that these students would be useful in the types of projects the grant funds.

This pledge is part of a six-grant package from the Bill and Melinda Gates Foundation that totaled $40 million.

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