Call for Research Proposal- Household Finance Research Initiative

The Household Finance Research Initiative at Dvara Research is announcing a call for research proposals on key themes and issues pertaining to Household Finance in India in collaboration with Northern Arc Capital, Robert Bosch Centre for Data Science and Artificial Intelligence (RBCDSAI) at IIT-Madras and Omidyar Network. The initiative invites research institutions/think-tanks, institutional and independent academicians, and scholars to submit research proposals that thematically cut across various dimensions of financial inclusion and household finance research. The initiative aims to generate high-quality evidence-based research, fund projects under the themes of household finance and build a robust body of work that will educate, encourage and facilitate policymakers and practitioners to address the gaps in existing financial products and services targeted towards low-income households.

The Need for Research in Household Finance

Household finance is an emerging academic discipline at the intersection of economics, finance, development and behavioural economics which studies the nature and spectrum of financial strategies employed by households and their interactions with various informal and formal actors to satisfy their financial needs. While traditional research in understanding financial decision-making has focused on the ‘individual’ as the unit of inquiry (as in consumer finance research), there is a paucity of research when it comes to understanding household financial behaviour. Households present certain unique characteristics and when presented with low-access environments, as is the case in India, their financial decisions and strategies continue to be poorly understood and demand rigorous inquiry.

Indian financial inclusion policy has primarily focused on supply-side initiatives, employing either mandates, channel regulations or standardized product design to deliver incremental supply. The design of this approach to financial inclusion primarily targets the level of supply but does little to alter the characteristics, quality and suitability of supplied services. However, an emerging body of evidence rejects these assumptions, and calls for a more consumer-aware and consumer-centric system of policymaking. First, not only do households experience heterogeneous financial needs and institutional interactions, their heterogeneity is dynamic over time and unique to their own experiences. Second, there is evidence to show that particularly with respect to banking, economically or informationally vulnerable families report the unsuccessful purchase and negative experiences more frequently. Even when successful at purchase, vulnerable households are more likely to be aggressively mis-sold or experience distressing outcomes from use.

The Committee on Household Finance, set up by RBI highlights the need for formalisation of financial services for low-income households, towards optimal portfolio allocation and brings the focus on understanding the unique financial needs of Indian households.

The key objective of the research conducted under this initiative is to devote intellectual capital to solving critical challenges in the design and delivery of financial services that increase financial access, facilitates socio-economic mobility and ultimately improves the well-being of households in India. The research emerging out of this initiative will be disseminated at the Household Finance Conference hosted by Dvara Research, scheduled for April 2021.

Timeline

Activity or DeliverablesTimeline (Tentative)
Announcement of call for proposals4th May 2020
Deadline for proposal submission31st May 2020
Announcement of shortlisted proposals20th June 2020
Signing the grant agreement and Commencement of the study30th June 2020
Interim review15th Oct 2020
Final review15th Feb 2021
Submission of the working paper15th March 2021
Household Finance Conference29th & 30th April 2021

Researchers may apply for the research grant under either of the research themes, listed below. These themes are carefully curated to address the current challenges that exist in the field of household finance. We also present a list of research questions that can be explored under each of these themes. 

 

Please note that this is only an indicative list of issues and researchers can develop their own research questions pertinent to these themes.

Understanding financial decisions that households make and strategies they adopt to achieve their objectives

This theme seeks to generate a richer understanding of financial and non-financial strategies that households adopt in order to achieve their financial goals, without isolating them from the institutional context they operate in. A household’s financial life can be viewed as a combination of exposure to time and contingent states. The core role of financial services in the lives of households is to help them manage and increase their consumption smoothly by the movement of resources across time and manage risks by the movement of resources across contingent states and spaces. It is essential to observe, identify and rigorously study the interactions between household and financial decisions, given the complex nature of households’ financial needs and the deviation from optimal allocation of a household portfolio. Research under this theme is expected to provide insights into missing or inefficient markets that inhibit the effective achievement of public policy objectives. This could include, for instance, the development of deeper insights into the link between lack of access to financial savings and investment options and household ownership of physical assets.

 

Potential research question/topic under this theme includes (but is not limited to):

 

1. What does an Indian household portfolio look like in terms of participation and allocation across different categories of assets and liabilities?

 

2. Are there differences in household portfolios by household types, segregated based on occupation, wealth distribution, geography (rural vs. urban) and other demographic characteristics (such as age and education)? If so, why do these differences exist?

 

3. How do households plan for and deal with important life cycle events such as education and marriage of children, purchase of a house, taking care of parents and retirement? Why do they adopt the strategies they do and what inefficiencies, if any, are they forced into on account of being in a low access environment?

 

4. How do households, especially low-income households save and invest, given their volatile or seasonal incomes and what are the challenges they face in undertaking savings and investments sustainably?

 

5. How do households perceive different risks that they might encounter during their lifetime? (longevity, disability, health, loss of or damage to productive assets, price risk of agricultural produce, weather and rainfall risk, etc.) What mitigating strategies do they adopt to counter this risk? Is the mitigating strategy efficient for the household? If not, can financial products enable more efficient solutions and how?

 

6. What are the risk preferences of Indian households and how do these determine the financial choices that they make? Does the level of risk preference vary with households’ income, education and employment? Does a household’s risk preference evolve over time?

Understanding household financial behaviour and its impact in shaping household outcomes

This theme seeks to capture key facts regarding households’ financial behaviour and attempts to understand its links to households’ financial decisions and ultimately household outcomes. Given the extensive literature on households’ choices that are inconsistent with the standard classical economic model, we try to understand the various behavioural interventions pertaining to their financial choices that could improve their financial well-being. This theme is of great importance in the Indian context, since the usage of financial products beyond bank account ownership (such as insurance, pensions, savings, among others) is particularly low and behavioural interventions to address this problem could have a significant positive impact on the well-being of Indian households.

 

Potential research question/topic under this theme includes (but is not limited to):

 

1. What are the different behavioural factors that contribute to the financial strategies chosen by households? Do these chosen strategies lead to sub-optimal allocation across a household portfolio?

 

2. What is the impact/welfare implications of behavioural interventions (education and information, peer effects, social influence product design, advice and disclosure, choice architecture and interventions that directly target prices and quantities) on households’ financial outcomes? What behavioural interventions are best suited in order to increase take-up and usage of different financial products and services available to households?

Understanding the interaction of financial products with portfolios of household

The financial strategies adopted by low-income households in order to meet their objectives often result in sub-optimal portfolio allocations or what is commonly known as ‘financial mistakes’. These outcomes result from poorly designed or unsuitably delivered market-prevalent financial products and services. This theme aims to unpack the complex interaction of demand and supply factors pertaining to financial services for low-income households. This research will be critical to providing insights into the nature of product appropriateness for different types of households which can be of value in informing policy about globally unsuitable products as well as unsuitable products for households with specific characteristics. This can minimize the incidence of financial mistakes as well as mitigate harmful consequences for vulnerable households. Revealing the complex nature of interactions between products and portfolios can also be of value in injecting a more nuanced understanding of the debate on the issue of ‘simple’ and ‘complex’ products.

 

Potential research question/topic under this theme includes (but is not limited to):

 

1. What are the drivers of suitability/unsuitability for different financial products such as microcredit, insurance and other investment products? Are there certain characteristics of households that make certain products fundamentally suitable/unsuitable and lead to welfare gains/losses for the household?

 

2. How can the knowledge of households’ financial situation, risk preferences, goals and needs be translated into the development of a household portfolio of ‘suitable’ financial products? Is it possible to develop household typologies with ‘suitable’ portfolios of financial instruments?

 

3. What are the real impacts of finance on low-income households in terms of risk management capacity, consumption smoothing and overall socio-economic well-being?

 

4. What is the role of financial advice in managing household portfolio across assets and liabilities? What are the models of financial advice that have worked versus those that haven’t?

 

5. How has technology enabled the adoption and use of various financial products and services, especially low-income households? What are the gaps that innovation in technology has not been able to overcome in serving the financial needs of low-income households?

 

6. How do improvements in product design and delivery (across various financial products- savings, investments, insurance, credit) improve the financial well-being of consumers?

Submissions may be made to either of the research tracks (detailed below) based on the theme of household finance laid out in the previous section. The themes are broadly defined, and the framing of specific questions will remain contingent on the scope of datasets and the questions that are most relevant from a practitioner’s perspective.

Applied Data Science in Household Finance

The purpose of track 1 is to stimulate academic research using novel analytical methods to questions of household financial behaviour and potential impact of different interventions on their well-being. In collaboration with the Robert Bosch Centre for Data Science and Artificial Intelligence (RBCDSAI) at Indian Institute for Technology, Madras, this track calls for papers on the topic of “Applied Data Science in Household Finance”. Under this track, researchers are required to submit research papers that use big data analytic techniques to study the research themes relevant to household finance. Researchers can source publicly available data (such as NSSO, IHDS, Global Findex data, etc.) relevant to the themes of household finance to conduct their research or could use data shared by Dvara Research.

 

Five research grants with a maximum of Rs. 4 lacs per grant will be awarded under this track.

Primary Research in Household Finance

Track 2 aims to provide grant funding for selected proposals for primary research in household finance in India. The objective of this track is to generate new evidence on the said research themes from across India. Primary research can be in the form of qualitative, quantitative or mixed-methods research.  Selected proposals would look to complete the research project in a maximum of 9 months and present at the conference the findings and contributions towards research.

 

Five research grants with a maximum of Rs. 15 lacs per grant will be awarded under this track.

Selected research papers under both track 1 and track 2 will be published in the Journal of Emerging Market Finance (published by Sage Publishers, and IFMR/KREA Graduate School of Business). In addition to the publication of research in an indexed- journal, the researchers will be required to write a blog series and fact sheet for the Dvara Research website summarizing the key findings from their research.

Key Dates

How to Apply

Interested research teams/individuals should send in their research proposal and estimated budget for their respective projects by 11 pm, 31st May 2020. Kindly fill in the details of the proposed research, research budget and the profile of the research team in the form below and submit it to householdfinance@dvara.com



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