The Curious Case of M-Pesa’s Miraculous Poverty Reduction Powers

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M-PESA kiosk outside Kibera centre in Nairobi. Picture credit: Fiona Graham / WorldRemit

By Milford Bateman, Maren Duvendack and Nicholas Loubere

Over the past decade the expansion of digital-financial inclusion through innovations in financial technology (fin-tech) has been identified by the World Bank, the G20, USAID, the Bill & Melinda Gates Foundation, and other major international institutions, as a key way to promote development and alleviate poverty in the Global South (GPFI, 2016; Häring 2017; World Bank, 2014). Perhaps the most influential and widely reported publication pushing forward this narrative is an article examining M-Pesa written by US-based economists Tavneet Suri and William Jackand published in the prestigious journal Scienceentitled ‘The Long-run Poverty and Gender Impacts of Mobile Money’. M-Pesa is a mobile phone, agent-assisted platform for transferring money from one person to another. It was originally developed with funding from DFID and has quickly become a darling of the digital-financial inclusion movement. In this particular article, the authors make the far-reaching claim that ‘access to the Kenyan mobile money system M-PESA increased per capita consumption levels and lifted 194,000 households, or 2% of Kenyan households, out of poverty’ (Suri and Jack, 2016: 1288).

Suri and Jack’s article in Science has sent ripples through the global development community and has servedas perhaps was intendedto solidify support for upping the promotion of digital-financial inclusion initiatives across the Global South. Importantly, the article’s claims of unprecedented poverty reduction have been uncritically picked up by all of the international development agencies and microcredit advocacy organisations, as well as by many mainstream economists, so-called ‘social entrepreneurs’, tech investors, and media outlets. Much like microcredit in the 1980s, fin-tech and digital-financial inclusion is now very widely seen as a key—if not the keyto reducing global poverty and promoting local development.

In this post we summarise our recent article entitled ‘Is Fin-tech the New Panacea for Poverty Alleviation and Local Development?’ (Bateman, Duvendack, and Loubere, 2019), which challenges Suri and Jack’s findings, and urges the global development community to take a second, more critical look at their study. We argue that the article contains a worrying number of omissions, errors, inconsistencies, and that it also employs flawed methodologies. Unfortunately, their inevitably flawed conclusions have served to legitimise and strengthen a false narrative of the role that fin-tech can play in poverty alleviation and development, with potentially devastating consequences for the global poor.Read More »

Sudan’s national salvation

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Omar al Bashir has fallen in Khartoum. Beyond regime change–managed by the military– there’s a deeper economic crisis.

In April 11th after five days of sustained protests outside of the compound of the Military High Command in Central Khartoum, the Minister of Defense and First Vice President of Sudan,  Ahmed Awad Ibn Auf made a televised broadcast to the nation, announcing the arrest of President Omar El-Bashir and an unspecified number of other high ranking officials primarily associated with Islamist Movement. Ibn Auf declared the military’s intention to form a transitional government, the makeup of which would be announced later, and a three month state of emergency including a curfew. His demands have been rejected by the Sudanese Professional Association and other groups like Girfna, which have declared that only a civilian transitional government would be acceptable. The Sudanese Professional Association have published a Declaration of Freedom and Change which outlines a plan for a four year transitional government made up of civilian technocrats. Chants of tsgut bas (Just fall) changed overnight to sgut (fallen).

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Does one size fit all when it comes to financial inclusion? Scrutinising the effects of class, race, gender, and age

524195139_1c8a3ec97c_b.jpgIn recent decades, market-based solutions such as financial inclusion have become more popular in developed countries to reduce inequalities and boost wealth and incomes of the poor. There is no better example of this than the recent thrust of low-income families, women, ethnic minorities, and the young into the subprime mortgage lending expansion in the USA since the early 2000s. Higher access to formal loans for these households was argued to enable them to climb the magical ladder of homeownership and achieve their American Dream. But as we know, the picture didn’t turn out to be quite so rosy.

10 years since the Great Recession, many families are not seeing recovery as the impact of the crisis was substantially harsher for the subprime borrowers (Young 2010; Henry, Reese, and Torres 2013). Financial inclusion in the subprime period turned out to be predatory. In this post, I explore how things went wrong when policy makers failed to account for the institutional conditions in the US economy, which led to dramatically different experiences of financial inclusion across social classes, gender, race, and generations.Read More »

To be Poor in Times of the Current Financial Architecture

Late developers are nowadays confronted with the problem of having to earn foreign currency to finance structural transformation under extremely unfavourable conditions. The dependency on forex is rooted in the international financial architecture and represents a major pitfall for countries trying to catch up. However, this structural impediment to transformation is not paid much attention to by the dominant development economics.Read More »

BLOG SERIES: Inclusive or Exclusive Global Development? Scrutinizing Financial Inclusion

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“Financial inclusion is a key enabler to reducing poverty and boosting prosperity.”

The World Bank (2018)

“[Policies of financial inclusion] serve to legitimize, normalize, and consolidate the claims of powerful, transnational capital interests that benefit from finance-led capitalism.”

–  Susanne Soederberg (2013).

Financial inclusion has been high on the agenda for policy-makers over the past decade, including the G20, international financial institutions, national governments and philanthropic foundations. According to Bateman and Chang (2013), it’s the international development community’s most generously funded poverty reduction policy. But what lies behind the buzzword? How can the two quotes above portray such starkly opposing views?Read More »

Inclusive Finance, Shadow Banking and the Need for Financial Citizenship

banks-229440_1280Why are poor people offered financial inclusion products? One answer to this question is that the poor have unique financial needs and require financial institutions and instruments tailored for their particular conditions. This explanation sees poverty as the driver of demand for inclusive finance, but engages only superficially with the question of why mainstream financial institutions are unable to accommodate the poor.

The alternative explanation, which I examine in my research, is that the demand for inclusive finance is driven by practices known as ‘financial infrastructure withdrawal’: this is the very same process behind the rise of predatory lending in the Anglosphere (Leyshon and Thrift, 1995) and reveals that financial systems have inbuilt tendencies to be exclusionary (Dymski and Veitch, 1992).  Given these tendencies, scholars of financial exclusion in advanced capitalist countries, have argued for a concept of financial citizenship which notes that like countries, financial systems have an inside and an outside (Leyshon and Thrift, 1995).  Those who can access finance only in the form of, for instance, high-cost loans and not through mainstream banking institutions are relegated to the outside and are hence not financial citizens. The processes that underlie this relegation include the tendency of mainstream banks to cross-sell products within groups, privileging ‘blue-chip’ clients by offering them subsidies in exchange for brand-loyalty. Less wealthy clients, as a result, inevitably pay more for the same products and services than their more affluent counterparts.

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Do not take peace for granted: Adam Smith’s warning on the relation between commerce and war

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By Maria Pia Paganelli and Reinhard Schumacher

Is trade a promoter of peace? Adam Smith, one of the earliest defenders of trade, worries that commerce may instigate some perverse incentives, encouraging wars. The wealth that commerce generates decreases the relative cost of wars, increases the ability to finance wars through debts, which decreases their perceived cost, and increases the willingness of commercial interests to use wars to extend their markets, increasing the number and prolonging the length of wars. Smith, therefore, cannot assume that trade would yield a peaceful world. While defending and promoting trade, Smith warns us not to take peace for granted. We unpack Smith’s ideas and their relevance for contemporary times in our recent article in the Cambridge Journal of Economics.Read More »

Currency crisis in Argentina or the IMF’s tango

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By Roberto Lampa and Nicolás Hernán Zeolla

The Argentinian government has requested financial assistance from the IMF to tackle the consequences of a serious currency crisis. Last Wednesday, the government emphatically announced the new terms of such an agreement. However, unpacking the terms of those agreements and the current situation reveals serious concerns about the country’s future .

A few months back (see here), we provided an analysis of the current Argentinian crisis, highlighting the excessive vulnerability of the economy produced by the abrupt financial deregulation carried out by Macri’s administration. Three aspects in particular threatened the country’s future prospects: the deregulation of foreign exchange that failed to stop capital flight, a boom in foreign debt (at a record level among emerging market economies) and the promotion of speculative capital inflows to carry trade (buying financial instruments issued by the Central Bank called LEBAC in order to pursue carry trade operations).

When international conditions worsened and the carry trade circuit came to an end, the “LEBAC bubble” exploded and produced a tremendous foreign exchange crisis that shook the Argentine economy, causing a sharp rise in inflation and a severe recession from which the country has not yet managed to escape. Read More »