Does Mobile Money Harm the Poor?

[The following piece originally appeared at Mobile Active]

The unprecedented diffusion of mobile connectivity around the globe has caused much excitement from development practitioners, especially those seeking to advance financial inclusion. And as with any excitement, there is bound to be detractors. Jamie M. Zimmerman and Sascha Meinrath of the New America Foundation have put a forceful stake down in that camp with regard to mobile money. They have sparked undoubtedly a useful debate but their cautionary piece on why mobile money “is hurting huge swaths of the developing world” ultimately missteps.

Zimmerman and Meinrath argue that despite having significant benefits to users, mobile money is out of reach for broad swaths of the world’s poor because (a) connectivity is not universal and (b) mobile money has “remarkably high fees”. Taking Kenya as one of the countries on the avant garde of mobile money availability and adoption, they fear that mobile money “may, in fact, be driving a new wealth divide… leaving [Kenya’s] poor in even more dire straits.”

However, their well-intentioned but dour speculation misses key features of the financial landscape in developing countries and misinterprets fundamental characteristics of mobile money.

There is a measure of truth to their argument. It is true that mobile connectivity is not universal.  The most recent data available (PDF) from the Kenyan regulator, for instance, puts mobile coverage at only 86% of the population, and this doesn’t account for the frequent complaints of “dead zones” in the country. Additionally, mobile phones are not ubiquitous and lack of device ownership is the largest reason for not adopting M-PESA.  However, as mobile phones are becoming cheaper all the time and given the widespread practice of sharing phones, access is less of an issue over time. And, yes, it is true that M-PESA is offered as a for-profit service, with users incurring fees.

But in rushing to defend the poor from sluggish regulators and extractive mobile operators, Zimmerman and Meinrath miss the big question: is mobile money better for the poor relative to the available alternatives?

In the half-dozen or so markets where it has reached scale, the answer is almost certainly yes. Mobile money has grown because it is by-and-large demand-driven, filling a role desired by citizens in countries as diverse as the Philippines, Pakistan and Kenya. And instead of “remarkably high fees”, mobile money services like M-PESA are profoundly cheaper than alternatives.

More than just a lack of money, poverty involves a lack of access to the instruments and means through which the poor could improve their lives. The real promise of M-PESA is not that it will “combat global poverty” or “save the poorest of the poor” (as strawmen headlines put it), but rather that it creates a generalized platform on which a wellspring of new start-ups, services and opportunities (see a recent survey of that proliferation in Kenya). The new mobile infrastructure is being used to deliver reliable, secure and efficient services – financial and otherwise – that were fundamentally out of reach for most Kenyans ten years ago. No one realistically believes mobile services are the solution, but it is clear that they will increasingly be used as a component of many solutions.

But what about the “poorest of the poor” that Zimmerman and Meinrath laudably emphasize? Is it true that M-PESA’s fees are “prohibitive to those living below the poverty line – currently about 50 percent of the Kenyan population”? Prima facie, of course not, since the service has been adopted by more than fifty percent of Kenyan households. Certainly, a proportion of Kenyans are unable to adopt M-PESA for the reasons suggested, and in a forthcoming piece I argue that we mustn’t lose sight of universal access and service goals. But non-adoption of M-PESA does not leave “a substantial portion of the nation’s poor in even more dire straits.”  Indeed, because you do not have to register and it is free to receive money, many rural Kenyans who make up its poorest citizens are actually able to benefit from it. Further without focusing on the systemic efficiency and productivity gains (PDF) that mobile money entails, critics miss the forest for the trees.

Of course we should “fight the tough regulatory battles necessary” to attain universal service, but Zimmerman and Meinrath do not suggest anything specific. In fact, their example country Kenya is widely considered to have one of the more enlightened and forward-thinking regulatory regimes. Innovative policy from the Central Bank and Communications Commission of Kenya are a big reason mobile money took off. Referring to Kenya specifically, two close observers of Africa’s ICT development – Professors Jenny Aker and Isaac Mbiti – note that “The right national policy can therefore benefit poor consumers.”

E.J. Hobsbawn once wrote that the poor work “the system to their minimum disadvantage.” Mobile money is helping them to do so. While it could be less proprietary, more accessible and, yes, cheaper, impatient ambition is more likely to neuter a beneficial service than lead to positive changes.




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