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Now I have to talk about people because we already talked about so many other cool
things. So I'm an economist so I will talk about people and I am a social scientist but
I do work with people engaged in life scientist
in the college of agriculture and also people with
within the college of business. My area of interest is finance banking, agricultural
finance and also economic development and impact analysis
governance an efficiency of dual objective organizations. So instead of presenting
one line of research I will try to tell you Call some business with, collaborate that's
a good is an appointment by 11:25 and banking agricultural finance and also Economic Development
an impact analysis governance and efficiency effective organization so I will
talk to you about a lot of cool things that I think we
do. The first thing is you to have to love what you do if you love your research it is
going to turn out good and another thing I want to
tell you before I start is I have tried to maintain
focus on my research but I also like to take some risks along the line and they have paid
off more times than not. I have paid off more
times than not so is really micro financing for
those of you who may not have heard about microfinance this is provision of financial
services to marginalised climbs while covering cost and this is important. Why do we need
special services and why do we have marginalized clients? we have low-income
households beginning independence of farmers in developing countries one example is the
barbershop but we also have the poor all over the world which are excluded from services
of the formal Financial system these are the target population of the microfinance
institutions. who is the poor because this is a woman's oriented event more women than
men and women are poorer than men so the following going to get into some of the things
that uses social sciences although I never started with this attention. So what was most
interesting part of the research. How do you study efficiency when the question is about
cost? Which one is more cost effective to use? So efficiency is very important because
remember they have to serve the excluded but they also have to cover the cost; that is
the objective. That is the objective by that is
a dual objective Organization So how do you study
efficiency of this institution traditionally He talked to Economist and they see that they
see dollars.
How do we achieve maximum profit But when you have dual objective institutions let's
think of it as a university See Auburn University
with its 25000 students And Alabama state with
its 5000 So these institutions should they both exist? Are they both efficient So essentially
the questions that we answer is do you want one Institution To generate that many dollars
in loans and savings Or do you want to have two of them some serving a little bit and
some serving a little bit more?
See my contribution was to start looking at the Outreach Mission and incorporate that
Into efficiency studies. And the results are when
you find the optimal size it's not necessarily the
optimal size that you would predict if Look at volume of loans to volume of savings. You
would over shoot more often than not you would have to tell the companies you have to
reach common scale and commercialize and get bigger but that's not the case because
you measuring the wrong thing. remembered these institutions have to reach clients that's
the objective more so than generating loans. Within These efficiency analysis 2 words cost
efficient words are better to use Another question is do you want these institutions
to be loans only Where they will provide only loans
to those who need those financial services Or
do you want to encourage Savings and Loans and insurance and education all On the other
services in other words Other economies of scope because I studied that because everyone
said we needed to commercialize these institutions we needed to make them like Banks
more but when you look at the scope economies you need to make them You find out it is a
good idea but not for everywhere and not for every circumstance the final thing that affects
the efficiency of these institutions is that How they govern with in that area I looked
at the board size and diversity how board affect
these dual objective Institutions performance okay so the financial and institutions
and the environment Does other efficiencies not impact not only by looking
at the input and output When you look at these institutions operating in such a diverse environment
you have to look into how that environment might be affecting the efficiency
of the institution. So in that sense in that area
you look without regulations do you want to have the nonprofit or full profit do you have
them subject to banking regulations. Maintain focus when you get into these issues then
you start realizing the major event that happened while you were looking at your computer
was the financial crisis then you start exploring how the financial crisis affects the financial
institution that you study and also how it impact farmers which is another area of my
research of course while you start rolling out regulations you end up with having
consequences for small banks and I will talk about that later when I mention the role of
graduate students and my experience with them. Of course the market forces your typical
recommendation in economics the more competition among better however what happens
in these poor countries you can get into over indebtedness which means the borrowers get
the loan from one bank to pay the loan to another bank because they may not be able
to manage their money they may be in such a crunch
that that is the only way they can survive. So efficiency in theses institution
affects those on the level of competition in the
local market so many aspects then you also look in the paper at ratings and I see here
my faculty From the finance department so dr.
Barth and I looked at the independent ratings agency of the u.s. bank That was before the
financial crisis and we wanted to see where the
rating agencies have independent impact in other words would they play the market
disciplining role on Bank and what we found is that we did not find that result that was
before anybody knew anything about rating agencies We looked it up it's in our results
we didn't explained it in detail but we found
it that's why I'm saying if you take risks it pays off if
I don't the size that part it might affect the citations of the papers and to tie in
a little bit into what we are talking about climate and life
sciences; another aspect of that that affects efficiency of banks; and that's how my interest
started U.s. Farm Credit system Institution a
small corporate system that serves the banks but served the farmers and also agricultural
banks so what we looked about is the variable and if the increase of variability is a result
of climate change will be reflected somehow into
the interaction between borrowers and lenders. So here is what we thought: So we
have the yields in all kinds of crops, but we
looked in the Southeast region, which as you saw from the previous slide, is very much
affected by the trees. That is the exact way you had your trees, that is the region we
studied. So yields are increasing because we have technological innovation right? But
as you see as you have drought or flood or any
other unusual climatic event..what you have is
that your yields drop. When your yields drop what happens? You don't have cash to repay
your loans so those farmers don't like loans so those who borrow, borrow a lot. So, they
are very leveraged, so if they cannot repay their loan you can find out through their
lenders by little blips of higher delinquency rates
right? Which is what we found. That's wonderful however banks are there to diversify risks
so you may say that is not a very interesting problem and that is true. Banks won't have
much to right off so the right offs are controllable in a good percentage or so. That's
not a big problem, however, what you can find is that both farmers and day lenders
can benefit if they use the El Nino Southern Salation and other climatic forecast. In other
words both farmers and their lenders would know what the following year will be prior
to planting so when the predictions are announced and that is sometimes late fall
and early spring you would already know roughly the expectations for the following year whether
you have droughts or weather you have floods so therefore you can better plan including
how much insurance to buy for farmers and for banks what kind of diversification
they will need should they ever need to work to
improve their risk management. So that was something very cool because very few people
have looked at climate and banks. The banks are there to diversify risks so you would
think that there is nothing that you can find there
but we did find. So what else does economist do? Well I started by looking at the impact
of financial education the questions I ask is
where the credit counseling lead to optimal loan termination. Let me take a step back
essentially there was a project for social scientist who don't get that much money from
independent agencies where we have a lot of freedom, but there was a project that asks
can we decrease the filtrates for borrowers if we provide credit counseling? and again
that was before the crisis way before, so the problem
was structured in such a way that you could do impact analysis without clearly establishing
cozality. So we were able to find that financial education the particular credit
counseling worked but here is the reason I encourage all graduate students to take it.
I said okay what about below market loan? it is
not only about default banks are also interested in termination in terms of early prepayment
we have forgotten that but along time ago if you prepay a loan earlier you have to pay
penalty and that is because the banks were expecting to continuously pay to have steady
income. So what they found was that this education not only helps borrowers manage cash
flow and decrease defaults but it also helps them exercise optimal loan termination in
other words terminate the loan or refinance or sell
the house whenever it makes financial sense to do that and that was very cool. We used
optiontiger and we have in this room an expert in optiontiger and so I am going to say only
that. Okay so that is impact analysis what applications we make so financial education
works for all of us that is a rewarding result obtained. We also looked at microfinance
and what the impact microfinance can have in the economy. So the question that
I asked was where did the alleviate the financing constraints of firms? In other words Microfinance
is a tricky subject to study because people want to use money to impwer women or to increase
income or improve education well maybe or maybe not-this is still to be studied,
but what i want to ask is does it do what financing generally is supposed to do alleviate
financing constraints? So I was able to come up with a model to study the impact on a country
level previously people just study one program another third fourth but on the country
level in Bosnia we found out that indeed there is impact it helps alleviate financial
constraints and the rewarding part of research that
is what you do it because there are a lot of rewards that you obtain... Not in terms
of money but in terms of satisfactions. So what we
found and once we get published then other people start applying it and I am sure that
my colleagues have experienced the same thing when you have your method applied by another
scientist it's really wonderful so people started applying it to other countries and
were able to say something about the impact. This
is the interesting slide. I started studying microfinance so I was bound to this topic
more or less. So what we have here is you probably
recognize this Janet Yellen who is chair woman of the federal reserve. She is the most powerful
position after the president of the US. It is
an independent institution that is in charge of our monetary policies. So it happened a
few years ago she was confirmed in 14 so I asked
a question.. How women better bankers to the poor in because I saw what was going on
in the real world while I was doing my research again in front of the computer and
in the real world I was surprised to find that
many central bankers and this is not very small in an known country malaysia argentina
israel russia ecuador you have a lot of countries with central bankers are women so women
are not worse than men proportionally probably still not enough and what attracted my
attention there is some strange things that i found as i was studying my clients of
microfinance institutions they way women manage their money they way they take risks
they way they do diligence on the boards. So all these characteristics of course were
attractive interesting to see if they will result in efficiency programs. so of course
we have the first economist who won the nobel prize
in economics. That's Eleanor Ostrom and we have of course Christine Londer the managing
director international monetary fund . So so
this is it. So there's some women in banking and they will to do as well as the men in
banking is the question that I asked. Of course I wrote it in the provocative way but that's
what we ask and we did find in the ruling particular rural areas and microfinance institutions
that are led by women are 12% higher efficiency. they operate a little bit more efficient that
might be because they know the clients better. We aren't asking of these questions they
aren't making anything out of them. It is probably important to encourage the development
of food as the business people call it women in the pipeline right? And that is what we
are doing here in my opinion. Trying to encourage
the young people here to come and women to do scientific career because science is
so cool.. Especially the one not about people. Okay what else has worked for me is to seek
collaboration with industry partners with our
researchers and to support the ideas of graduate students. I imagine there are quite a few
grad students here. I have to tell you that this has been very rewarding as this is social
science you don't exactly have grad students working on abcd you allow them a little bit
of freedom so they can explore an area and can
come up with an study that is satisfactory to
them and you also help them develop. Within this I am I just want to say this one my
student she typically you use that for risk management purposes right? So she said that's
fine but i want to see the effects performance of banks in other words profitability and
what she wanted to study how small banks in particular
agricultural banks and also small community banks with less than one billion...
I don't know what your definition of small now
they changed it to two billion she was able to find out that because of the dog frank
proposition that limited severely credited views of small banks that small banks are
going to suffer because it is very expensive for them
to engage in alternative risk management. Alternative risk management methods
they are losing one important one and if they want to use it they have to pay a
lot to increase their cost. So that was very rewarding because I would not have looked
at this topic with out her. So that is of course the
climate change and maybe for this audience there is now a student that is really into
women interested in property right and how that
affects microfinance outreach. Okay collaboration is very important in research it has been
to me at least. I tried to approach various researchers from all over the country. for
those of the world as you heard my education is
from different countries but my experience, my field work, and collaboration come from
different set of countries and they all overlap. So it doesn't matter who you are where you
come from to me at least it means. If you do your best and you do good research you
are going to end up with opportunities all over
the world. So the limit is really the world in terms
of where you find the scientist that are within your areas. In conclusion I really think
research is exciting if you find research exciting you should be a scientist and when
you do your science take some risks, collaborate,
find the people you need for your research to
succeed. I was the beneficiary of my support for crazy ideas of my graduate students and
finally of course you get occasional lemon but make lemonade and go back to one.
Research is exciting so I guess that reminder for lemonade might be a nice way to
conclude.