The frequent contact clients have with staff and other clients has the potential to “get inside the tunnel” poor people often experience, thereby mitigating some of the resulting destructive actions and behaviors.
(Perhaps group methodologies should be re-thought through the behavioral lens to magnify this positive influence by refining how those contact points are used.) It may be that the need to pay off one’s loan in public on an agreed-upon schedule incentivizes people to focus more on the medium-term considerations and strategies than would normally be the case for people who are “tunneling.” For instance, family members of loan clients may be willing to work longer hours or more productively, and less willing to give in to temptations, such as smoking or consuming alcohol, in order to meet their loan payment obligations.
For microfinance managers, the potential negative impacts of pushing field staff to consistently reach aggressive goals on long-term productivity and even ethical behavior are made manifest.
And like many of the observed impacts in behavioral economics, it is not their existence but their which is most striking and unexpected.
Just as increasing use of a “gender lens” has transformed thinking about and the practice of international development in recent decades, so too can behavioral economics in the near future.
In some cases, this discipline explains and reaffirms current practice.
(The reduction in “sin expenses” in families taking a microloan has been confirmed in at least one randomized controlled trial.) also gives a new explanation for the importance of frequent loan payments, as the authors say that having “frequent interim deadlines” is a proven way of penetrating the tunnel that a single deadline months off in the future usually cannot.
It also raises questions about the wisdom of building in grace periods into loan contracts with low-income people. This analysis has some interesting implications for the use of technology in microfinance.
On the one hand, to the extent non-intrusive technology obviates the need in accessing financial products for human contact – contact that has the potential to pierce the tunnel and focus clients’ attention on so-called “important but not urgent” matters – it could be a negative influence.
On the other hand, SMS reminders to do things that pay long-terms dividends but would otherwise be neglected while tunneling – like saving small amounts of money or taking ones medication on time – have shown promise.