‘We have to find out where Development Aid does work and why’

Robert Lensink is Professor of Finance at the Faculty of Economics and Business. He has always been very interested in development economics, the question of why some people are poor and others are rich. Lensink focuses on the evaluation of financial interventions in developing countries.

‘There is no area in the world where so much evaluation is going on than in Development Aid, almost every penny spent is evaluated. However, evaluations that happened in the past were far from rigorous. We actually cannot learn that much from them. Still a lot of evidence is needed to improve the effectiveness of projects. The only thing I hope is that I can contribute a little bit to that process.’

What kind of research do you do?

‘The overall aim of financial interventions in developing countries is to reduce poverty and increase welfare, but depending on the type of project the aim is different. Some want to improve business practices, some want to improve schooling, some want to improve the health situation. I’m involved with a couple of projects where we try to evaluate the effect of business training or financial literacy training. We measure the extent to which this training improves the knowledge of people, and also the practices they use for their business. For example: are they setting up new small enterprises; are they changing the way they work? Ultimately, we measure whether this improves their income and their poverty level.’

‘Often we use randomised control trials, like in medicine. One group is randomly selected to get a treatment, another is a control group, and you compare them over time. That’s my preferred method of analysis because it guarantees the most rigorous results and it guarantees you can actually attribute the outcome to a certain intervention.’

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What do you like about your work?

‘In macroeconomics you have a question: does Development Aid work? It’s obviously a ridiculous question. It works sometimes. It works here and not there. What we have to find out is where does it work and why. Macro studies are important and I’m still doing them, but it’s very difficult to rigorously say that a change in income in a country is due to development aid. Over the last decade I’ve become more interested in microeconomics. If you research in an experimental way with randomized control trials there’s a much better opportunity to conclude if something works.’

Can you describe one successful project?

‘In a project in Vietnam, we selected 4,000 women and randomly divided them into three groups. One group got business training, another did not get the training, and the third group got the training and were allowed to bring their husbands. We found very big impacts from the training on business knowledge, changes in business practices, and small positive impacts on income and sales. What we learned from this exercise was that the training works. The organization, Tao Yeu May (TYM) is now scaling up the training in Vietnam. We also found that it is difficult to involve husbands. We did not find a big additional impact on the group that could bring their husbands. Not many husbands showed up, probably because the training was on a Saturday and they were working the fields.’

What result did you find especially interesting?

‘We did a project in Rwanda. AQUADEV, an NGO, provided financial literacy training for farmers. Many NGOs have the idea that that information travels freely between people. We tested if it was true that if one person was trained, after a year another person in their group would learn from them. We found that the training worked, but no evidence of a spillover effect. This idea that NGOs have, that information travels freely between people, doesn’t hold.’

What challenges do you face?

‘In Ethiopia we tried to see how to increase the uptake of weather insurance among farmers. We did this by tackling the main reasons why farmers didn’t use it. The two reasons are: firstly they simply can’t afford the premiums they have to pay; and secondly they don’t trust it. To deal with these two issues we invented a new kind of insurance where farmers are allowed to pay the premium after the harvest. Then we gave farmers the opportunity to buy the insurance in an Edir, a social group structure in Ethiopia, originally a funeral group, where people come together.’

‘The first results of this intervention were unbelievable. Uptake went up from 6 percent to 30 percent. It was enormously positive, so we are very excited about that. But a problem with this intervention that scares me a little bit is that there are a lot of protests going on in Ethiopia. People started protesting against the government, and quite a few people were killed. We don’t know what the implication of this will be for our project. If this continues to be problematic we may not be able to go there again and do the interviews. We may have to stop the project.’