To Fee or Not to Fee (II)

August 27, 2009

An early post, To Fee or Not to Fee, asked what we are supposed to make of advocates who assail “user fees” in health and education (which charge the poor for the services they receive) while celebrating microcredit, which is characterized by passing most of its costs on to borrowers. It does feel healthy to me that microcredit largely covers its own costs: the history of subsidized credit is sordid—cartoon version: the rich capture the cheap loans, then don’t pay them back—and with cost recovery come both an ability to scale up and a degree of accountability to the customer. Still, it is an interesting tension.

Through the Financial Times‘s Tim Harford, I just learned about a World Bank study called “Money for Nothing” about how often poor people choose private, self-financed schools and clinics over supposedly free public ones. Harford writes:

Imagine that your daily earnings were less than the price of this newspaper. Would you consider buying private education and private healthcare?

Before you make up your mind, here are a few considerations: government healthcare and primary education are free; the private-sector doctors are ignorant quacks and the teachers are poorly qualified; the private schools are cramped and often illegal. It doesn’t sound like a tough decision. Yet millions of very poor people around the world are taking the private-sector option. And, when you look a little closer at the choice, it’s not so hard to see why.

The study seems worth a look, especially because the son of Jeffrey Hammer, one of the authors, is a co-worker(!). The study finds that doctors in public clinics in Delhi provided worse care than those in private practice. (Actually, in Vietnam my wife conducted a similar study, of doctors who worked in both public hospitals and private offices. She found that their decisions were equally contradictory of national treatment guidelines in the two settings!)

It seems important to think through when to charge the poor and when to donate to them, in order to come to terms with the seemingly high interest rates in microcredit. Ancient religious texts view charging of interest to the poor as the opposite of charity. When should the poor be asked to pay and when not?

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1. Asif Dowla Says:
   August 27th, 2009 at 11:54 am

   David:

   You should check out James Tooley’s work on private education in India. Also a NYT report “India’s Poor Bet Precious Sums on Private Schools” November 15, 2003 by AMY WALDMAN.

   I would say the poor should be asked to pay affordable users fee for services. Having said that, research shows that charging for bednets was counter productive. The emerging consensus is one should give away bednets for free (I do not think this is popular at CGDEV). Vivian Hoffman at Maryland found that when family has to pay for the bednets, the man sleeps under the net leaving eveyone out, whereas when nets are free the mother sleeps under the net along with her children. I believe WHO suggested giving out bednets for free.

2. Thabo Monare Says:
   August 28th, 2009 at 4:43 am

   I think it is about the prevailing narratives in the society about public vs private. In South Africa, a lot of money is spent by parents on awful private institutions, because the prevailing story is private is better. The truth is some are, some are not.

   Charging the poor in order to come to terms with prevailing high interest rates in microcredit, is to think about things in reverse.

   Improving public services and getting the story out there, would be the more appropriate response.