By ideas42

ideas42 Joins with USAID and CGAP to Improve Financial Management for Microentrepreneurs in Developing Countries

Project will scale-up pilots applying behavioral economics to create more customer-centric financial services

Non-profit behavioral design firm ideas42 has been awarded over $1 million by USAID and CGAP to scale up an innovative new tool to help microentrepreneurs in developing countries manage their finances better. The mobile phone push notifications tool, which aims to build a better understanding of the financial needs and practices of informal entrepreneurs, will be piloted in India and the Philippines over the next 3 years. This project has the potential to lead to the creation of more effective client-centered financial products that could improve the lives of millions of the world’s poor.

Worldwide, there are approximately 400 million micro, small and medium enterprises, and the sector constitutes an important source of economic mobility for the poor (IFC, 2010). Microentrepreneurs in developing countries face complex financial decisions in many areas of life, whether in their personal finances in the form of savings decisions and retirement planning, or in a business context as small business owners or investors. Still, many lack the training or skills they need to manage the complex finances of a small enterprise. This often represents a stumbling block preventing microentrepreneurs from achieving financial success and lifting themselves and their families out of poverty.

The financial heuristics approach, which stems from research conducted by Drexler, Fischer and Schoar, uses simple rules of thumb to teach basic financial management concepts. In a study piloted in the Dominican Republic in collaboration with ideas42, the researchers showed that the rules-of-thumb training produced significant improvements in firms’ financial practices, objective reporting quality and revenues. Microentrepreneurs who were given a heuristics-based training were more likely—as much as 10 percentage points more, compared to the baseline—to keep accounting records, calculate monthly revenues, and separate their home and business books. In contrast, there were no significant changes for those in the standard accounting training.

“Insights from behavioral science can help us understand why people sometimes make financial decisions that appear counter to their own best interests,” said Marina Dimova, Vice President at ideas42 and head of the financial heuristics project. “Our common intuition is that complex situations require complex and very nuanced solutions. But knowledge alone is often not enough to ensure making the right choices. The benefits of financial heuristics are not only that they reduce complex information to a simple and manageable set of choices, but also that they help microentrepreneurs turn an intention for improved financial management of their businesses into a realized action.”

The pilot programs, run in partnership with leading microfinance institutions in India and the Philippines, will be launched in the field in Fall 2015 and will run through March 2017. Building on ideas42’s earlier work with classroom-based rules-of-thumb training, the scale-up pilots will explore how to deliver financial heuristics in an inexpensive, effective way via an SMS and voice-based platform to improve financial management decisions and outcomes for microentrepreneurs.

The award consists of $909,834 provided by the Development Innovation Ventures (DIV) program at the United States Agency for International Development (USAID), with an additional $100,000 from the Clients at the Center Financial Inclusion Research Fund at Consultative Group to Assist the Poor (CGAP), a financial inclusion think-tank housed at the World Bank.


ideas42 is a non-profit design lab and consulting firm that uses insights from behavioral science to create innovative solutions to complex social problems. We aim to achieve impact at scale by applying the latest research on human behavior to policy, program and product design. Our work involves educating decision makers and leaders about the power of behavioral science and how to apply it; improving existing products, policies, and programs; and inventing new products that draw on behavioral insights. We apply our expertise to a range of domains including consumer finance, education, economic opportunity, energy consumption and environmental conservation, health care, and criminal justice.

USAID’s Development Innovation Ventures (DIV) is an investment platform that finds, tests, and scales new solutions to development challenges around the world. Through a year-round open competition for ideas, DIV seeks ideas that demonstrate cost-effectiveness relative to traditional approaches, that gather rigorous evidence of their intervention’s impacts, and that have the potential to scale through the public or private sector without long-term DIV support. For further information about DIV, please visit

CGAP (the Consultative Group to Assist the Poor) is a global partnership of 34 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy-makers, and funders to enable approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives. More at