Research by Elon University senior Kate Smith-Lin finds that citizens of Indonesia don’t necessarily save more money after a bank opens in rural areas, but they do change the way they save, making it easier to protect their families in times of crisis.
By Sarah Mulnick ‘17
In many regions of the world, it’s difficult to save money or secure small loans when access to banks is limited, but that doesn’t keep farmers or village merchants from building wealth.
They buy more livestock, jewelry or invest in land.
Does having access to banks make a difference in not only the way people save, but in how much they save? Research by Elon University senior Kate Smith-Lin looks at the importance of banks opening local branches in impoverished regions of Indonesia – and her findings indicate that the benefits of microfinance are more subtle than generally believed.
For the past two years, the Honors Fellow has used the university’s top prize for undergraduate research and data from the Indonesian Family Life Survey to determine how microfinance shapes financial investments among the nation’s poorest communities. Her work is the latest to be featured in a series of E-net profiles on Lumen Scholars in the Class of 2015.
“If a household has access to a bank,” Smith-Lin said, “will their wealth be put in a bank or will it remain with their livestock or house? That’s what I’m asking.”
Thousands of Indonesian families without access to formal banking institutions save money informally. When the time comes to access that wealth, their options can be problematic.
Moneylenders, working outside of banks, promise small personal loans at high interest rates. Those who use the lenders typically lose more money than they save. At the same time, should someone choose to sell livestock or other real property, their wealth is dependent on how much someone pays.
In other words, it doesn’t matter if you spent $2 for a chicken when no one is willing to offer more than $1. You take a hit on accessing that money.
So far, Smith-Lin said, her research has found no increase in household wealth because of banks in rural areas. But the cost of accessing wealth has fallen. Families who suffer medical bills, or farmers that experience drought, can now bypass moneylenders – and not sell off their property – to address financial obligations.
Microfinance helps impoverished communities, she said, not by offering loans to start businesses, but to protect existing assets.
Smith-Lin’s interest in microfinance stems from the 2011-2012 Elon Common Reading selection, “Creating a World Without Poverty,” by Nobel Peace Prize winner Muhammad Yunus.
Yunus visited Elon in April 2012 to receive the Elon University Medal for Entrepreneurial Leadership and to speak at Spring Convocation. During his visit, he talked with students about his book and the impact that microfinance institutions can have on the impoverished population of the world. His remarks, especially the real world applications of microfinance, inspired Smith-Lin.
“I thought it was so fantastic that banking and economics can help bring people above the poverty line,” she said.
While conducting her research, Smith-Lin said that it surprised her more than she expected to look at numbers and see the people whose lives they represent.
“In economics you can be very disconnected from the people because you’re just looking at numbers,” she said. “It can be easy to forget that you’re looking at data about people with real problems in their lives. Remembering where I’m going with my research and what it’s going to do helped to keep me on track.”
The Lumen Prize, awarded for the first time in 2008, provides selected students with a $15,000 scholarship to support and celebrate their academic and creative achievements. Lumen Scholars work closely with faculty mentors to pursue and complete their projects.
Efforts include coursework, study abroad, research both on campus and abroad as well as during the regular academic year and summers, internships locally and abroad, program development and creative productions and performances.
Throughout her research, Smith-Lin has worked closely with faculty mentor Professor Stephen DeLoach in the Department of Economics.
“She’s impressive,” DeLoach said. “She’s an expert in her field, and that’s the neatest thing. It’s the kind of thing that you see in graduate students, but Kate’s already doing that.”
In addition to her research, she has interned at a start-up company, Luxury Real Estate Group and Boston Private Bank and Trust, where she will start work when she graduates in the spring.
Smith-Lin also is an active member of Sigma Sigma Sigma sorority, through which she volunteers regularly. She played for Club Soccer for two and a half years and is involved with the Isabella Canon Leadership Program.
In the future, Smith-Lin hopes to work in with international development in Indonesia, and is considering the possibility of going back to school to get her MBA.