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Is fin-tech the new panacea for poverty alleviation and local development? Contesting Suri and Jack’s M-Pesa findings published in Science



Financial technology, or simply ‘fin-tech’, is increasingly seen as one of the key tools to facilitate poverty reduction and local economic development. One article in particular by Tavneet Suri and William Jack published in the leading publication Science has played a hugely influential role in promoting the fin-tech model in the global South using the example of Kenya’s iconic M-Pesa money transfer platform. The authors’ central claim is that M-Pesa has been instrumental in facilitating a major episode of poverty reduction. Our analysis shows that their analysis and claims are extremely problematic.
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Review of African Political Economy
ISSN: 0305-6244 (Print) 1740-1720 (Online) Journal homepage:
Is fin-tech the new panacea for poverty alleviation
and local development? Contesting Suri and Jack’s
M-Pesa findings published in Science
Milford Bateman, Maren Duvendack & Nicholas Loubere
To cite this article: Milford Bateman, Maren Duvendack & Nicholas Loubere (2019): Is fin-
tech the new panacea for poverty alleviation and local development? Contesting Suri and
Jack’s M-Pesa findings published in Science, Review of African Political Economy, DOI:
To link to this article:
Published online: 04 Jun 2019.
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Is n-tech the new panacea for poverty alleviation and local
development? Contesting Suri and Jacks M-Pesa ndings
published in Science
Milford Bateman
, Maren Duvendack
and Nicholas Loubere
Department of Economics and Tourism, Juraj Dobrila University of Pula, Pula, Croatia;
Development Studies Program, St Marys University, Halifax, Nova Scotia, Canada;
Future Forum, Phnom
Penh, Cambodia;
Independent consultant;
School of International Development, University of East Anglia,
Norwich, UK;
Centre for East and South-East Asian Studies, Lund University, Lund, Sweden
Financial technology, or simply n-tech, is increasingly seen as one
of the key tools to facilitate poverty reduction and local economic
development. One article in particular by Tavneet Suri and William
Jack published in the leading publication Science has played a
hugely inuential role in promoting the n-tech model in the
global South using the example of Kenyas iconic M-Pesa money
transfer platform. The authorscentral claim is that M-Pesa has
been instrumental in facilitating a major episode of poverty
reduction. Our analysis shows that their analysis and claims are
extremely problematic.
In recent years nancial technology, or simply n-tech,
has come to be seen as one of the
key tools to facilitate poverty reduction and local economic development (McKinsey
Global Institute 2016). While there is a growing body of literature critiquing the push
for digital-nancial inclusion (see Gabor and Brooks 2017; Loubere 2017; Mader 2016),
pillars of the global development establishment and global nancial industry have whole-
heartedly embraced the new n-tech narrative. Leading the way are the World Bank, the
G20, USAID, the Bill & Melinda Gates Foundation, Citibank, Mastercard, and many
others, all of whom are aggressively pushing for the inclusion of n-tech in virtually all
development interventions (see Häring 2017). Some commentators go so far as to say
that n-tech will have a dramatic positive impact on society, perhaps as much as the indus-
trial revolution, suggesting its emergence as heralding a new golden age (Porteous 2017).
Importantly, it is in the global South, and particularly in Kenya (see Ndungu2018), where
the impact of n-tech is being most rigorously tested and it is claimed generating the
key lessons other African countries need to quickly learn in order to take advantage of its
By far the most internationally celebrated example of n-techs supposed developmen-
tal potential not just in Africa, but in the global South overall, is M-Pesa Kenyas
agent-assisted, mobile-phone-based, person-to-person payment and money transfer
© 2019 ROAPE Publications Ltd
CONTACT Milford Bateman
system. M-Pesa began as an experiment in helping smooth the ow of nance within and
across Kenyas poor communities. Its origin can be traced to a project funded in the year
2000 by the United Kingdoms Department for International Development (DFID) with
the aim to encourage the private sector to improve access to nancial services. With an
award of one million GBP to the UK multinational Vodafone, the contract was expected
to deliver a product that could use mobile phone technology as a platform upon which to
deliver nancial services in East Africa. M-Pesa was formally launched in March 2007. It
was originally expected to specialise in providing microcredit, but it was soon clear that
most clients were more interested in the transfer of money, which then became the
focus of M-Pesas activity. M-Pesa operates through a network of agents that allow
clients to deposit cash into their accounts and withdraw or transfer it whenever they
need to. Crucially, by changing cash into e-balances, it is possible to send cash to
another account via an SMS.
Much positive reporting since 2007 has greatly publicised and promoted the work of
M-Pesa. Apart from the mere fact that, by denition, it includesKenyas poor in the
local nancial system, one of the most important claims relating to M-Pesa is that it pos-
sesses the power to promote economic development. For example, Beck et al. (2015) have
argued that M-Pesa has helped enterprises in Kenya to scale up their operations and take
advantage of economies of scale. The conclusion reached from their model (Ibid., 1) is that
this enhanced access to trade credit generated as much as 0.5% of total factor productivity
(TFP) growth on an annualised basis (TFP is a measure of how eciently the basic inputs
of labour and capital are used in the production process). If correct, this is no mean
achievement given that, as the authors note, total factor productivity growth in Kenya
overall was 3.3% between 2006 and 2013.
Undoubtedly the most inuential assessments of the development impact of M-Pesa to
date have been authored by the US-based economists William Jack of Georgetown Uni-
versity and Tavneet Suri of MIT. Beginning in 2011, and based on a long-running
project rst funded by Financial Sector Deepening (FSD) Kenya and later by the Gates
Foundation, Jack and Suri have contributed a number of important outputs that have gal-
vanised enormous support for the M-Pesa model as a development intervention (Jack and
Suri 2011; Jack and Suri 2014). However, one of their publications has resonated with the
international development community above all others: a short summary article published
in 2016 in one of the worlds leading journals, Science. The article is entitled The long-run
poverty and gender impacts of mobile moneyand it was an attempt to assess the longer-
term impact of M-Pesa using the nal round of a panel survey undertaken in 2014. This
article is hugely important because it introduced an astonishing claim to a large body of
key stakeholders, such as practitioners, policymakers and academics: 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).
It is no exaggeration to say that this article and its specic poverty reduction claim have
electried the international development community. Indeed, one might say, the excite-
ment created was probably more than for any other innovation since the microcredit
movement took oin the 1980s (Dawson 2017). Almost every major publication from
the global development institutions focusing on the n-tech movement now opens with
a reference to, or a quote from, Suri and Jacks2016 signature article on M-Pesa
(for example, United Nations 2018, 81; UNSGSA et al. 2018). Fin-tech is now seen as
having a major role to play in achieving the UNs Sustainable Development Goals
(SDGs) (UNCDF 2018), and Suri and Jacks article has rapidly become a cornerstone of
the recent raft of uplifting articles on n-tech (for example, see Beck and Frame 2018;
Demirgüç-Kunt et al. 2015; Dupas et al. 2018). Moreover, the supposed good news
about M-Pesa has also been picked up by a wide range of mainstream news media
outlets, delivering the message to a broad popular audience that M-Pesa has miraculous
poverty-reducing powers (Aizenman 2016; Aleem 2016; Barnett 2017).
If Suri and Jacks claims are broadly veriable, then here we have one of the most
important anti-poverty interventions of recent history. Anyone concerned with addressing
global poverty, including the current authors, should be very happy indeed. However,
extreme caution is warranted. This is because the recent history of the international devel-
opment community is, unfortunately, littered with claims of miraculous poverty-reducing
policy interventions, a great many of which are then shown at a later date to be quite
ineective and only really promoted for ideological, political, or narrow proteering
From microcredit to n-tech as the key to poverty reduction in the global
The rapid popularisation of n-tech as a developmental solution is, in many respects, pre-
mised on the continued prominence of the quintessential local development intervention
associated with the neoliberal revolution: microcredit and the broader concept of nancial
inclusion (Bateman 2010; Mader 2015). The microcredit movement was established and
quickly validated in the 1980s on wildly overblown and ultimately false claims that provid-
ing small loans to groups of poor women was a panacea for global poverty reduction
claims that were especially associated with its leading light and 2006 Nobel Peace Prize
laureate, Dr Muhammad Yunus.
Even though the rigorous empirical evidence supporting
microcredit as an eective tool against poverty was almost entirely absent at the time
(Bateman 2019), the juggernaut that was microcredit continued forward.
For microcredit to gain legitimacy within the international development community,
however, empirical evidence provided by an unimpeachable source was required. This evi-
dence came in the form of an impact evaluation undertaken in Bangladesh by then World
Bank economists Mark Pitt and Shahidur Khandker (1998), which claimed that microcre-
dit programmes had signicant benecial results for impoverished female clients. Pitt and
Khandkers work quickly went on to become the most inuential output on the issue as it
was one of the rst studies to rigorously assess microcredit impacts drawing on a quasi-
experimental design alongside a sophisticated econometric strategy. It also helped that
for many years Muhammad Yunus used Pitt and Khandkersndings to successfully
sellthe microcredit model to the international development community.
Thanks to
such eorts, a general consensus emerged among a generation of academics, practitioners
and international development agencies that the microcredit model was the most eective
way to eciently and quickly provide enormous benets to the global poor. This under-
standing in turn catalysed into a massive global push to establish microcredit institutions
across the global South. Even though Pitt and Khandkers impact evaluation was largely
debunked many years later (Duvendack and Palmer-Jones 2012a,2012b; Roodman and
Morduch 2014), this hardly mattered because in the meantime the World Bank had
achieved its goal to ensure that the microcredit model became globally ubiquitous.
By the same token, then, if Suri and Jacks results are misleading, or even false, the
potential clearly exists for a major setback for the global poor, as scarce resources are com-
mitted in favour of an intervention that fails to help them, or potentially even further dis-
advantages them.
Assessing the claims made by Suri and Jack
Suri and Jack base their claims on a long-running household panel survey undertaken
between 2008 and 2014. The key estimate of long-run impact is calculated by comparing
households that experienced a large increase in access to M-Pesa agents during this time
period with households that did not. Suri and Jack claim that the hugely uplifting outcome
they describe is generated due to the integration of poor households into the formal
nancial system. In their own words: basic nancial services such as the ability to
safely store, send, and transact money taken for granted in most advanced economies,
and which in the form of mobile money have reached millions of Kenyans at unprece-
dented speed over the past decade appear to have the potential to directly boost econ-
omic well-being(Suri and Jack 2016, 1292). This formalisation of nancial activity
supposedly leads to changes in nancial behaviour mainly increased nancial resilience
and savings. Crucially, M-Pesa clients have greater opportunity to access nancial
resources from within their own network, which they can then use to leave unproductive
subsistence agriculture and move into a range of informal microenterprise and self-
employment ventures.
We have a number of problems with Suri and Jacks work, including key impact factors
omitted, false logic and faulty methodology, which we think need to be identied, exam-
ined and challenged before the n-tech narrative becomes (if it is not already) a runaway
vehicle that cannot be stopped.
(1) Impact of exit not discussed
Suri and Jack claim that M-Pesa has successfully addressed poverty in Kenya by providing
additional nancial resources that have enabled many female clients to move out of sub-
sistence agriculture and into microenterprises, particularly into tiny small-scale trading
operations (2016, 1291). The movement out of subsistence agriculture and into petty
trading operations generates the higher incomes and consumption found in their
survey. This process amounts, they claim, to an increasingly ecient allocation of labour.
However, Suri and Jack appear not to have factored the issue of enterprise exit (failure)
into their discussion or estimation of downside impact. This is surprising since in emer-
ging economies, enterprise exit is a problem that greatly undermines all job-creation inter-
ventions, but especially microenterprise development interventions. The essential problem
is that while it is relatively easy to provide nancial and other stimuli to encourage certain
groups to move into petty entrepreneurship, if there is no commensurate increase in local
demand at the same time then the zero-sum end result is simply the redistribution of local
demand among a larger number of market participants (see Amsden 2010). As Galbraith
(1967) noted, and as is especially the case in the global South (Breman 2003; Davis 2006),
the tendency for market forces and new entry is to compete away prot down to zero and
wages down to subsistence levels. That this pureneoclassical form of market competition
exists in the world of microenterprises is why establishing a new microenterprise is
dicult indeed, and most often results in failure. This accounts for why exit rates tend
to be very high among newly started enterprises, which most often do not have the experi-
ence, knowledge and contacts to survive for very long, and many exit in their rst year
(McKenzie and Pahausen 2017). As there are few other opportunities to nd work
and an income, new entry is extremely high in Africa, but so also are exit rates (Nagler
and Naudé 2017; Page and Söderbom 2012).
With so many countries in the global South registering high levels of entry but also
equally high levels of exit, it would appear reasonable to assume that this potentially
important downside factor would have been examined by Suri and Jack. Instead, they
ignore entirely the issue of exit and appear to have assumed that the increased supply
of simple traded goods resulting from M-Pesa clients making the move into business
will always nd a market at a price that produces a positive return. If this was not the
case, and instead the M-Pesa-facilitated supply of petty trade and traders predictably
resulted in more aggressive competition and price falls in the local market, this would
have led to the quick exit of some, if not many, of the new microenterprises established
by the M-Pesa clients surveyed. This downside would naturally temper and call into
question the positive results presented in the paper.
The failure to consider this exit issue is particularly important in the case of Kenya
because we know for sure that the lack of demand in the country has led to very high
levels of microenterprise exit. This was most recently highlighted in a survey undertaken
by the Kenya Bureau of Statistics, which found that failure rates of microenterprises in
Kenya are extremely high, with almost 46% of micro/small and medium enterprises
(MSMEs) closing down less than one year after having been established (Omondi 2016).
It thus seems highly unlikely that all of the individuals surveyed by Suri and Jack estab-
lished a successful microenterprise that improved their lives. Instead, as suggested above,
one must surely assume that a good many of them ended up with a failed/failing business
venture and that this had spiralling negative outcomes for their lives, such as through a
plunge into over-indebtedness as more microloans are used in a vain attempt to keep
the microenterprise functioning (see below). Even though the important consequences
of exit are widely ignored in impact evaluations, as even leading World Bank economists
now acknowledge,
we nd it surprising that this basic issue was not addressed, even in
passing, in an article making such dramatic claims on the basis of microenterprise
success, and in one of the agship scientic publications with a notoriously stringent
peer review process.
(2) Impact of displacement ignored
Going further with regard to the point above about the limits of local demand, it is even
more important to point out that Suri and Jack did not factor into their evaluation the
negative displacement (or knock-on)eects of new entry on the wider community of
the poor in Kenya. It is inevitable that the new jobs and income ows created by M-
Pesa-assisted entrants will take local demand away from microenterprises operated by
those already in the market and not using M-Pesa. Jobs and incomes in incumbent
microenterprises will therefore be displaced, making the net job and income impact less
than the entry statistics alone would initially suggest. This fact has led Nightingale and
Coad (2014) to point out that displacement is a critical factor to account for in ultra-com-
petitive local economies in the global South, where jobs and incomes created by new
entrants are all too often cancelled out by the jobs and incomes lost in incumbent enter-
prises in the same neighbourhood. Indeed, high rates of displacement broadly dene the
situation in much of Africa (see Page and Söderbom 2012), and Kenya is very unlikely to
be an exception to this rule, as pointed out by Viswanath (2018).
Suri and Jack narrowly focus on comparing the outcomes of those households that experi-
enced a large increase in the presence of M-Pesa in the neighbourhood with those households
that saw less of an increase (2016, 1288). There is, however, no attempt to compare the out-
comes of those households managing to establish or expand a tiny retail business with the
help of M-Pesa, and those households in the same community that have no engagement
with M-Pesa but are already in possession of, and therefore survive because of, a tiny
retail business. This is a serious omission, as a potentially signicant number of the
185,000 women encouraged to move into petty trading businesses thanks to the services
oered by M-Pesa (2016, 1289) will have displaced (i.e. reduced) the incomes and jobs of
incumbent non-M-Pesa client microenterprises operating in the same business area in the
same neighbourhood. Therefore, the net income and jobs impact of new entry stimulated
by M-Pesa is likely to be quite low, if not near zero. By not attempting to estimate this down-
side to the operation of M-Pesa and, in fact, not even mentioning it anywhere Suri and
Jack signicantly overestimate the positive impact of M-Pesa.
Arguably, by choosing to ignore displacement altogether Suri and Jack commit the car-
dinal error, made by many working in the international development community (as
pointed out by Amsden 2010), which is to simply assume that a form of Says Law operates
in Kenya the fallacy that supply creates its own demand.This belief implicitly leads to
the conclusion that the average community in Kenya is suciently elastic to be able to
unproblematically absorb any increase in the supply of simple goods and services pro-
duced by women using M-Pesa to move into a new microenterprise. Unfortunately, this
is highly unlikely (perhaps impossible), not least as demonstrated by previous studies
on petty entrepreneurial activity induced by easier access to nance, which show severe
strain being placed on communities due to sudden increases in competition ultimately
reducing living standards across the board (the obvious example is post-apartheid
South Africa see Bateman 2015).
(3) Rising over-indebtedness in Kenya
Another key concern we have with Suri and Jacks work is that they choose to measure
specic household increases in incomes and savings attributable to M-Pesa, but fail to cal-
culate the impact of the wider (but gradual) increases in debt also attributable to M-Pesa.
Over-indebtedness has been rising to dangerous levels in almost all parts of the global
South where access to microcredit has been facilitated by the international development
community and others (Bateman 2010; Guérin, Labie, and Servet 2015; Guérin,
Morvant-Roux, and Villarreal 2013), and thus requires serious attention in any impact
evaluation. Yet, as has been specically noted by many researchers to date (for example,
Duvendack and Mader 2019, 14) almost no evaluations take the issue on board.
This glaring omission continues with the work of Suri and Jack. Kenya today is facing
dangerously high and growing levels of over-indebtedness a development that has arisen
as a result of the operations of M-Pesa and other microcredit and n-tech institutions
(Fick and Mohammed 2018). Informally, M-Pesa makes it possible for recipients of
cash transfers to end up in much higher debt to other members of their M-Pesa
network (see point (5) below). More importantly, M-Pesa has made it much easier for
individuals to rack up serious formal debt, such as through its partner lending application
within the Safaricom group, M-Shwari. There are now more than 15 million M-Shwari
accounts in a country of 50 million people, with M-Pesa allowing for instant loans
from M-Shwari at the touch of a button. As Gordon and Lyon (2017) point out, If you
have an M-PESA account, a phone and, in some cases, an active Facebook account,
youre only a few taps away from securing an instant loan ranging from $5 $500.
One of the most troubling ways of descending into over-indebtedness in Kenya today,
as in so many other countries in the global South scarred by deep poverty and hopelessness
(see Davis 2006, 183), involves gambling. It is very easy indeed to access funds via M-Pesa,
including microloans, and immediately redirect them to internet gambling platforms, or
else to top up accounts at regular bricks-and-mortarhigh street gambling institutions.
As of yet, very few checks and balances exist to restrain M-Pesa clients who might wish
to use funds acquired via M-Pesa for gambling purposes. This has resulted in an acceler-
ated expansion of gambling that has recently been described as an epidemic. Odundo
Owuor (2018) describes the devastating eect betting has on many of those who partici-
pate in it [in Kenya], more than half of whom are below the age of 35, and he notes that
low-earning young people often borrow money for bettingand are then placed in a cycle
of perpetual debtwith no obvious way out.
Whatever its fundamental cause, the individual over-indebtedness situation in Kenya is
now approaching near-crisis level. Leading nancial analysts and long-time promoters of
nancial inclusion, such as Graham Wright (2017), express real concern that over-indebt-
edness is now out of control and are petitioning the Kenyan government to implement
urgent measures to restrain and control the rapid growth of microcredit.
It is, therefore,
extremely dicult for us to see how the serious issue of unsustainable levels of debt one
that is very much linked to the operations of M-Pesa can be entirely excluded from an
analysis of the ongoing impact of M-Pesa.
(4) Accumulation by dispossession
Suri and Jacks analysis focuses on the benets that M-Pesa clients supposedly gain from
formalising their nancial arrangements and integrating into the formal nancial system:
i.e. the classic argument for expanding nancial inclusion. This narrow focus, however,
fails entirely to capture what nancial integration actually means within the wider political
economy of the extractive global nancial industry. Put simply, Suri and Jack do not con-
sider issues of corporate power and legacies of imperialism, and how these might both
shape markets in order to benet powerful interests at the expense of others.
In the nancialisedworld that emerged from the 1980s onwards, a completely new
way of exploiting the nancial transactions of the poor has arisen. In many respects,
this can be seen as a new form of resource extractivism in the global South (see
Shaxson 2018). We might call it digital mining. This new extractivist model recalls
previous eras of extractivism in Africa when natural resource mining and other related
activities allowed colonial elites to brutally extract signicant wealth from a countrys
many colonial possessions. This inevitably precluded local development using locally gen-
erated and recirculated wealth in favour of a model of wealth transfer out of the commu-
nity to the colonial power, thereby accelerating the development of the coloniser at the
expense of the colonised. Today, however, accumulating great wealth does not require
the mining of physical materials but the miningof the digital-nancial transactions of
the poor. The full extent of wealth generation that is possible through digital mining is
only now becoming apparent in the light of several high-prole cases, one of which is
M-Pesa itself.
Consider that, as of 2018, the ownership of M-Pesa resides with the Kenya-registered
company, Safaricom. After numerous changes in recent years, Safaricom is today 40%
owned by the UK multinational Vodafone plc, a further 35% of Safaricom is owned by
the government of Kenya, and the remaining 25% of shares are held in small tranches by
a range of mainly foreign investors. Safaricom is now also Kenyas largest company by
far and it alone accounts for a massive 40% of the total stock market valuation on the
Nairobi securities exchange. Prots in recent years have been spectacular in 2019 a
record US$620 million which has allowed for equally spectacular dividends to be paid
out to shareholders.
In addition, and not surprisingly, the share price has grown sixfold
in the last ve years (20132018), thus greatly beneting Safaricoms mainly foreign share-
holders. In short, Safaricom is a huge economic asset that is generating large dividend pay-
ments and capital appreciation from its operations in Kenya, of which M-Pesa is a key
component of its business model. However, this immense value has been largely repatriated
back to wealthy shareholders in the UK and in other global nancial centres.
With this clearly disadvantageous situation patently visible, it is strange that Suri and
Jack do not make any reference to the signicant amounts of digitally mined wealth
being generated in, and then extracted from, Kenya because this wealth is ultimately gen-
erated by M-Pesa clients through their tiny nancial transactions. When the ultimate
nancial proceeds of what is so far the emblematic global example of digital mining
are accruing not to Kenyas poor, but mainly to foreign business elites,
the implications
of this cannot be simply avoided in a development impact analysis. Instead, the entire
history of Africa (Rodney 1973), and not least of Kenya itself (Wol1970), point to the
potential for digital miningto (continue to) strip poor people and countries of material
wealth and development potential.
Moreover, this omission in Suri and Jacks paper occurs in spite of the fact that M-
Pesas facilitating role in stripping the very poorest communities of their wealth has
been alarming the Kenyan government itself for some time now. Anger at the huge
prots being generated from Kenyas poor nally peaked in 2018 when the Kenyan gov-
ernment moved to impose a 2% tax on the mobile cash transactions facilitated by M-Pesa.
According to the government of Kenya, this would raise as much as US$270 million,
revenue that it planned to earmark for the universal health care programme that is sup-
posed to cover all Kenyans by 2022. Predictably, Safaricom has vigorously opposed
such a tax. The company claims, without any real evidence, that any such tax will signi-
cantly reverse the gains it claims the poor have enjoyed thanks to accelerated nancial
inclusion, among other things by making it more expensive for Kenyas poor to transfer
cash (see Kazeem 2018).
(5) Wealthy versus poor networks
Yet another problem with Suri and Jacks work relates to the logic behind the real source of
the M-Pesa client gains. Suri and Jack claim that M-Pesa quickly transfers cash within the
network to those most in need, rescuing vulnerable individuals and households from
certain problems or else allowing them to quickly take advantage of a specic business
opportunity. It is well known from the critical literature on social capital that, by
denition, having extensive links to wealthy individuals and institutions enables a poor
individual to parlay such links into a material gain (Fine 2001). In essence, having
richer friends and relatives means one has a better chance of escaping poverty, which is
hardly a novel concept. Unfortunately, this obvious reality is ignored in the papers
hypothesis. Rather, Suri and Jack (2016, 1291) make no denitive claim as to the cause
of the rise in consumption, pointing out that The higher consumption levels we observed
could be driven by increased labor or capital income, or simply by transfers between indi-
viduals with dierent propensities to consume(our italics). In other words, the increase in
consumption they observe could simply result from wealth being passed along n-tech-
enabled linkages to others in the same family or social circle or class. This is hardly a
ground-breaking nding, but simply underlines the value of links to wealthy individuals.
All of this points to the fact that M-Pesa will resolve poverty only to the extent that
those in your family and/or social group are wealthy enough and willing to provide
nancial support. The extent of pre-existing wealth in ones network is, therefore, the
crucial factor to discuss here, and surely far more important than the question of how
quickly one can obtain access to such funds. Suri and Jack all too conveniently forget
the importance of established extended family wealth to peoples success in life, especially
in places with high levels of inequality like Africa, and instead narrowly focus on how
wealth can be transferred within a family group as if ease of access was the key limiting
factor. One might also argue that, to the extent that it assists already wealthy family net-
works to assist their less successful members, M-Pesa is not so much helping the poor to
escape their poverty but assisting the already wealthy to deploy their wealth in order to
help only their narrow family circle. This will inevitably feed into rising inequality.
Suri and Jack do not consider the rather important fact that not all networks and social
circles are created equal. Those with an extended network of wealthy family and friends
connected to M-Pesa will nd it much easier to access nance when in trouble, or pre-
sented with a business opportunity to exploit. On the other hand, those individuals
without wealthy extended family and friends are not so fortunate. If you have wealthy con-
nections that are willing to quickly send money, M-Pesa can assist an individual. However,
if you are in a network with few wealthy individuals, then no matter how quickly you can
potentially access any funds, there might not actually be anything to access.
Moreover, some researchers accept the importance of social networks but go on to
argue that extending nancial support to ones network with the help of M-Pesa is ulti-
mately destructive. For example, Kusimba, Kunyu, and Gross (2018) acknowledge that
M-Pesa helps to mediate cash among a social group where some contribute to, and
some take out of, the common pool. But they go further and point to the fact that this
inevitably results in a social debt that needs repaying later possibly double when
cash is put into the pool, and that this social debt is ultimately damaging to the social
network in question. Suri and Jack thus fail to take into account the extent to which
rising debt and reciprocity is so often corrosive of social networks, and ultimately destroys
them if programmatically used by some as a way out of individual poverty. This is an inex-
cusable omission considering the existence of a substantial body of literature examining
the ways in which microcredit programmes particularly those utilising joint liability
loan groups serve to undermine local social and familial groups through the introduction
of formal debt relations, as well as to reinforce unequal and exploitative power relations at
the local level (see for instance, Bee 2011; Guérin, Kumar, and Agier 2013; Loubere 2018;
Maclean 2010; Rankin 2002).
(6) Flawed impact evaluation methodology
Attempting to measure long-term eects through a household panel survey is commend-
able. However, it is a serious omission for Suri and Jack not to construct a counterfactual
scenario: that is, there is no control group that would simulate what would have happened
in the absence of the intervention. Because of this we cannot conclude that the impacts
Suri and Jack claim to observe can be attributed to the intervention itself (i.e. to M-
Pesa) rather than to something else that may have occurred at the same time, such as
changes in the overall economic environment.
Related to this problem is the wider fact that, by the standards of impact evaluations
today, the analytical approach adopted by Suri and Jack lacks sophistication. A regression
analysis may be a valid approach to control for possible selection bias due to observable
characteristics that distinguish participants and non-participants, but Suri and Jack only
follow participants over time without knowing much about how they have selected them-
selves, or have been selected by others, into the intervention. Moreover, the sample size
appears to be small given the high levels of attrition, which Suri and Jack acknowledge to
be nontrivial(2016, 1288). Reporting of power calculations would have been useful (and
this is standard practice in the impact evaluation arena nowadays) to judge what the appro-
priate sample size should have been. Ultimately, these methodological oversights, and lack
of methodological sophistication, are surprising in a paper published in Science.
Suri and Jack also make the central claim that it is the easier access to M-Pesa agents in
the community that underpins the ability to constructively engage with the informal
sector, thereby causing wealth creation. However, this direction of causation is debatable.
This is because M-Pesa agents, just as with other nancial units seeking prot elsewhere in
are well known for proliferating in wealthier urban areas where there are more
opportunities to obtain large client numbers and wealthier clients, the combination of
which is more likely to generate higher nancial returns. This logical business decision
of M-Pesa agents to seek out and move into wealthier and more populated urban areas
might thus explain the supposed link found by Suri and Jack between the proliferation
of M-Pesa agents and the economic success of M-Pesa clients. In other words, it is not
access to M-Pesa agents that explains (causes) wealth creation but the presence of weal-
thier clients that explains (causes) the higher density of M-Pesa agents.
Our view on the rise of n-tech as the new development darlingis that all that glitters is
not gold, and our reading of Suri and Jacks signature article in Science is that it does not
stand up to scrutiny. In fact, Suri and Jacks work contains so many serious errors, omis-
sions, logical inconsistencies and awed methodologies that it is actually correct to say that
they have helped to catalyse into existence a largely false narrative surrounding the power
of the n-tech industry to advance the cause of poverty reduction and sustainable devel-
opment in Africa (and elsewhere). It is interesting that Suri and Jacksawed work has
been sponsored and widely promoted by two important institutions FSD Kenya and
the Gates Foundation that are not neutral observers with regard to the n-tech move-
ment, but are perhaps the most important advocates for it in Africa. It obviously
remains a matter of conjecture how much this generous sponsorship of Suri and Jacks
work aected the results of their evaluation of the worldsagship n-tech, M-Pesa. Refer-
ring to the previous issue of a awed evaluation by Pitt and Khandker that was aggressively
used by the World Bank and others (especially Muhammad Yunus) to sellthe microcre-
dit model to the world, it would appear that there are many similar logically and metho-
dologically unjustied aspects in the work of Suri and Jack.
It has been widely documented that self-censorship of impact results in order to
produce ndings that are comforting to elite donors is pervasive in much of the US aca-
demic economics and impact evaluation communities (see Duvendack and MacLean 2015;
Häring and Douglas 2012). There is also the furore surrounding the positive results
obtained by Pitt and Khandker, mentioned previously, which turned out not to describe
the real situation in Bangladesh (for a more realistic view of the situation there, see
Karim 2011; Maîtrot 2019; Paprocki 2016) any more than their conclusions as to the
power of microcredit per se represented the general global situation (Bateman, Blanken-
burg, and Kozul-Wright 2019). The global poor will therefore not be well served by allow-
ing yet another hyped-up intervention to succeed in gaining popularity and validation on
the basis of one extremely problematic impact evaluation. For this reason, we have deter-
mined that it is necessary to forcefully push back against the claims made in the study by
Suri and Jack, and to contest the dominant narrative depicting n-tech as the new panacea
for poverty reduction and local development.
There is little doubt that n-tech has the potential to liberate enormous value. The
digital nance sector has been expanding at a mind-boggling rate from China to Southeast
Asia, from Africa to Latin America. But the core problem as it stands as illustrated in
Kenya and other places around the world is that the bulk of this value does not go to
the poor. Rather, n-tech is very clearly designed to hoover up value and deposit it into
the hands of a narrow global digital-nancial elite that are the main forces behind the
n-tech revolution. Of course, this enormous wealth could be redirected towards
Kenyas poor population and reinvested locally, for example through community-
owned nancial institutions and nancial cooperatives, but there would appear to be
little time, sympathy, or political support for building such pro-poor institutions when
so much wealth can be appropriated by so few so quickly in another way. The 2008
global nancial crisis showed the world that an exciting new innovation said to be of
huge benet to Americas poor minority communities sub-prime mortgages was actu-
ally expressly designed to enrich a narrow Wall Street nancial elite. And when the bubble
burst, it was the poor who disproportionately suered the consequences. Worryingly, in
the rise of n-tech as a development strategy, we see many of the same precursors to pre-
vious nancial collapses that have wreaked havoc on local communities and the liveli-
hoods of their poor inhabitants. Suri and Jacks headline-grabbing study in one of the
worlds most prestigious scientic publications has served to generate huge levels of enthu-
siasm for n-tech solutionsto poverty. This is simply because their awed study failed to
depict M-Pesa and n-tech more generally for what it really is anancial innovation
that enriches elites at the expense of the poor, while also shifting risks to the poor them-
selves, ultimately ensuring that it is the poor that will be the ones most devastated by a
future nancial collapse.
1. Fin-tech is dened as: Computer programs and other technology used to support or enable
banking and nancial services. See
2. One obvious example would be structural adjustment programmes (SAPs), which were all the
rage in the 1980s and 1990s, but are now widely seen as misguided and as having undermined
development and poverty reduction in the global South (Chang and Grabel 2004;Weisbrot
2015). Another would be in agriculture. Many economists in the post-war world, especially
in the food-exporting USA, thought that substantial food aid was unequivocally a good
thing for the global South. This policy was later shown to be a decided negative because it
undermined the construction of successful domestic agricultural sectors, which was found to
be a critical factor in promoting development and growth from the bottom up, especially
through the building of backward and forward linkages between and within sectors.
3. Leading international development economist David Hulme (2008, 6) has written that,
[Yunus] energetically promoted microenterprise credit as a panacea for poverty reduction
(something that intensely annoyed me, as it was so wrong).
4. Based on the data produced by Pitt and Khandker, Yunus skilfully deployed a killer quoteto
the eect that some 5 per cent of borrowers may lift themselves out of poverty each year by
borrowing from a micronance program(see Khandker 2005, 266). For many in the inter-
national development community, this was a momentous claim that simply could not be
5. World Bank economists David McKenzie and Anna Luisa Pahausen (2017, 2) argue that a
form of intentional ignoranceexists when evaluating the impact of microenterprise devel-
opment interventions, because the issue of exit is simply ignored. Pointedly, they see this bias
even in work by those celebrating and utilising the supposedly more accurate randomised
controlled trial (RCT) methodology, noting the biased results produced by the fact that
Almost two-thirds of published randomized experiments testing policy interventions for
small rms in developing countries ignore rm death completely, neither reporting the
death rate nor examining it as an outcome.
6. See An Open Letter to Central Bank of Kenya Governor Patrick Njoroge, LinkedIn, August 6,
2018. Accessed at
7. Safaricoms full year results ending 31 March 2019 showed that it generated KSh250 billion
revenue (of which M-Pesa accounts for just over 31%) and made a net prot of KSh63.4
billion (around US$620 million). This represents a nearly 15% increase on 2018s protof
KSh55.4 billion and the seventh straight year of rising prots. The prot of the year to
end March 2019 was mainly paid out as dividends, with the total dividend payout rising
from KSh44.07 billion in 2018 to KSh50.08 billion in 2019 (KSh1.25 per share). In addition,
Safaricoms board of directors agreed to pay out in 2019 an additional special dividendto
shareholders of KSh24.84 billion (KSh0.62 per share) in order to reect the record-breaking
year (Muhatia 2019).
8. However, a small share of these vast gains has been corruptly channelled to Kenyas elites
through an o-shore tax haven shell company, Mobitelea Ventures, which for a long time
was one of the minority shareholders in Safaricom. Thanks to a very complicated ownership
structure, going through Guernsey and then on into various oshore tax havens in the
Caribbean, the nal beneciaries of Mobitelea Ventures have never been formally identied.
Vodafone plc has always pointedly refused to identify the real owners of Mobitelea, claiming
commercial condentiality. However, most analysis concludes that members of the Kenyan
ruling elite stood behind the company, using it as a vehicle with which to pressure Vodafone
plc into allowing them to privately take advantage of Safaricoms economic potential. This
goal was achieved when Mobiteleas ownership stake in Safaricom was later sold back to
Vodafone in two tranches, in 2003 and in 2009, making very signicant prots for those
hidden Mobitelea investors (Rice 2007).
9. In neighbouring South Africa, for instance, the leading microcredit agencies have crowded
into the mining areas precisely because large volumes of expensive microcredit could be
more easily sold to comparatively higher-earning (but often nancially illiterate) miners: it
was the not the presence of more microcredit agencies in the mining areas that created
the higher incomes (Bateman 2015).
Disclosure statement
No potential conict of interest was reported by the authors.
Notes on contributors
Milford Bateman is a Visiting Professor of Economics in the Department of Economics and
Tourism, Juraj Dobrila University at Pula, Croatia, an Adjunct Professor in Development Studies
at St Marys University, Halifax, Canada and an Aliated Researcher at the Future Forum in
Phnom Penh, Cambodia. He is the author of Why doesnt micronance work? The destructive
rise of local neoliberalism, published by Zed Books in 2010, with a second updated edition due
for publication in 2020.
Maren Duvendack is a Senior Lecturer (Associate Professor) in Development Economics at the
School of International Development, University of East Anglia, Norwich, United Kingdom. Her
key research areas cover applied micro-econometrics, impact evaluation, systematic reviews and
meta-analysis, micronance, replication and reproduction of quantitative analyses as well as
research ethics. Her main teaching is on the MSc Impact Evaluation for International Development.
Nicholas Loubere is an Associate Senior Lecturer in the Study of Modern China at the Centre for East
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... Even if individuals adopt fintech, their adverse social conditions could impede its effective usage. Thus, the view that fintech can replace banks to encourage savings in LMI countries warrants systematic research (Bateman et al., 2019). ...
... As previously discussed, other impediments beyond transaction costs and cognitive barriers can discourage saving behaviors. Mobile money does not resolve social barriers that deter people from saving (Bateman et al., 2019). Moreover, mobile money is not designed as a savings product. ...
... its limits (Bateman et al., 2019). In particular, management and entrepreneurship research often highlights that the impact of innovations is shaped by institutions, but the research on the impact of fintech for the poor has mostly underemphasized the role of existing financial institutions. ...
This article studies fintech targeted to the base of the pyramid and its role in encouraging savings for microenterprises. We argue that the impact of fintech adoption on savings for microenterprises by the poor and by women is moderated by their access to banks—specifically, that fintech is more impactful with bank accounts, and this complementarity between fintech and banks is amplified for poor women. We develop hypotheses in the context of mobile money, a popular fintech across the developing world. Our arguments are supported by a sample of 81,345 individuals across 74 low- and middle-income countries. Overall, the paper suggests that, although fintech can be a promising tool for the poor, it is equally important to improve inclusivity in formal banking institutions.
... Claims of M-Pesa's contribution to poverty reduction, however, have not gone unchallenged. Questioning the assumption that financial inclusion is instrumental to social transformation, Bateman et al. (2019) argue that FinTech firms concentrate the bulk of their value in the hands of a global digital financial elite, with little redirected to the poor communities that they serve. ...
... A study by Suri and Jack (2016) claims that M-PESA had a positive impact on poverty reduction by lifting 2% of Kenyan households out of poverty. However, these claims have been debunked by Bateman et al (2019) concluding that Suri and Jack's work "does not stand up to scrutiny" (p. 489-490). ...
For decades, India has led the drive for financial inclusion of poor rural women to facilitate attainment of development objectives like poverty alleviation and women’s empowerment. More recently, it has promoted digital financial inclusion to further its fight against poverty and gender inequality and support the attainment of UN’s Sustainable Development Goals (SDGs). In this paper we take stock of how India’s digital financial revolution has affected financial transactions and services with a focus on gender inclusivity for the attainment of the SDGs. We propose a framework to understand the gender inclusivity of digital financial inclusion initiatives that connects the macro developments in the sector with the micro-level experiences of improving women’s access and use of these services. We draw on India’s nationwide developments and present a case study of an initiative that specifically promotes gender inclusive finance. Our findings suggest that India has made great advances in promoting digital financial inclusion but at the same time, the country has struggled to achieve gender parity even within specific finance-focused programmes designed to improve gender inclusivity. We reflect on policy implications of these findings.
Financial inclusion has become a prominent development policy objective. Its promotion rests on the understanding that poverty and underdevelopment mainly result from financial constraints that individuals face. Better access to financial services, in particular via the use of mobile money services, is supposed to lift these constraints and allow for growth and development. After outlining this dominant approach and detailing its theory of change, this article challenges it on the basis of the mesoeconomic study (at territorial level) of areas particularly targeted by financial inclusion policies: Kenyan informal settlements. The study of their geography of money shows how the socio‐spatial flows of money shape people's economic constraints and opportunities. Based on this empirical account, it is argued that the poor are, first and foremost, in a situation of monetary exclusion, rather than being primarily financially constrained. The article conceptualizes monetary exclusion and highlights the theory and policy implications of this situation.
Purpose This paper explores how financial technology (FinTech) organisations address poverty-related challenges when providing digital financial services. Employing the conceptual foundation of the liability of poorness (i.e. literacy gaps, a scarcity mindset, intense non-business pressures and a lack of financial slack), this paper explores the innovative strategies that FinTechs use to address these liabilities and promote entrepreneurship. Design/methodology/approach The paper uses detailed case data collected from three FinTech organisations operating in one South Asian country. Findings FinTech organisations' innovative strategies reflect a combination of “high touch” (human) vs “low touch” (digital) solutions. All the organisations simplified internal systems or procedures to accommodate customers. The degree to which the three organisations adopted each of the identified strategies shows an emerging typology of FinTechs; that is, innovators with high digital interactions, a mix of digital-human interactions and high human interactions. Research limitations/implications The paper develops a typology which categorises FinTech innovative strategies. The typology highlights strategies pro-poor FinTechs use and explains the types of entrepreneurial support innovative organisations provide for their customers. Both the typology and the innovative strategies contribute to enhanced financial inclusion and entrepreneurial promotion amongst the poor. Originality/value The originality of the paper comes from its focus on FinTechs' innovative pro-poor strategies. Existing studies typically address the technology-side of innovations. In contrast, this paper combines innovative strategies with the liability of poorness to identify issues associated with financial inclusion.
Public banks are banks located within the public sphere of a state. They are pervasive, with more than 900 institutions worldwide, and powerful, will tens of trillions in assets. Public banks are neither essentially good nor bad. Rather, they are dynamic institutions, made and remade by contentious social forces. As the first single-authored book on public banks, this timely intervention examines how these institutions can confront the crisis of climate finance and catalyse a green and just transition. The author explores six case studies across the globe, demonstrating that public banks have acquired the representative structures, financial capacity, institutional knowledge, collaborative networks, and geographical reach to tackle decarbonisation, definancialisation, and democratisation. These institutions are not without contradictions, torn as they are between contending public and private interests in class-divided society. Ultimately, social forces and struggles shape how and if public banks serve the public good.
The public debate is rife with polarized views of how to deliver essential services such as education, health, and security. While some tout privatization as a way to supplant bad governments, others warn that private firms maximize profits at the expense of socially oriented service attributes. In reality, all forms of service delivery—public, private and hybrid public private-collaborations—have merits and flaws. This book scrutinizes the menu of delivery forms in public services and the conditions that should make them work. It argues that privatization benefits from capable government units committing to well-defined policy objectives, mobilizing critical resources, and incentivizing effective and inclusive delivery. Societies counting on capable governments can also reject single solutions and experiment with plural paths of improvement, where public and private organizations co-exist and learn from each other. This book will appeal to students, academics, managers and policy makers interested in examining the public-private boundary and the many ramifications of this focal issue.
A central claim of many financial technology firms is that they provide new ways in which to address ‘the unbanked’, that is, groups that are currently unable (or unwilling) to access traditional financial services.
Full-text available
A wide range of financial inclusion programmes seek to increase poor people’s access to financial services to enhance the welfare of poor and low-income households in low- and middle-income countries. The impacts of financial inclusion interventions are small and variable. Although some services have some positive effects for some people, overall financial inclusion may be no better than comparable alternatives, such as graduation or livelihoods interventions. Impacts are more likely to be positive than negative, but the effects vary, are often mixed, and appear not to be transformative in scope or scale, as they largely occur in the early stages of the causal chain of effects. Overall, the effects of financial services on core economic poverty indicators such as incomes, assets or spending, and on health status and other social outcomes, are small and inconsistent. Moreover, there is no evidence for meaningful behaviour-change outcomes leading to further positive effects. The effects of financial services on women’s empowerment appear to be generally positive, but they depend upon programme features which are often only peripheral or unrelated to the financial service itself (such as education about rights), cultural and geographical context, and what aspects of empowerment are considered. Accessing savings opportunities appears to have small but much more consistently positive effects for poor people, and bears fewer downside risks for clients than credit. The weak effects found warn against unrealistic hype for financial inclusion, as previously happened for microcredit. There are substantial evidence gaps, notably studies of sufficient duration to measure higher-level impacts which take time to materialize, and for specific outcomes such as debt levels or indebtedness patterns and the link to macroeconomic development.
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Formal launch of our new book including discussion with the three editors and Q&A.
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The aim of this chapter is to briefly reflect upon the significant divergence that now exists between the theories of microcredit first promoted by Muhammad Yunus, the universally acknowledged ‘father of microcredit’, and the actual reality encountered on a daily-lived basis by the vast majority of the global poor. In particular, Yunus' misunderstanding of the importance of local demand is highlighted.
In 2006 the Grameen Bank of Bangladesh won the Nobel Peace Prize for its innovative microfinancing operations. This study of gender, grassroots globalization, and neoliberalism in Bangladesh looks critically at the Grameen Bank and three of the leading NGOs in the country. This book offers a new perspective on the practical, and possibly detrimental, realities for poor women inducted into microfinance operations. In a series of ethnographic cases, this book shows how NGOs use social codes of honor and shame to shape the conduct of women and to further an agenda of capitalist expansion. These unwritten policies subordinate poor women to multiple levels of debt that often lead to increased violence at the household and community levels, thereby weakening women’s ability to resist the onslaught of market forces. A compelling critique of the relationship between powerful NGOs and the financially strapped women beholden to them for capital, this book cautions us to be vigilant about the social realities within which women and loans circulate—realities that often have adverse effects on the lives of the very women these operations are meant to help.
We collate sixteen panel surveys from twelve developing countries to develop stylized facts from over 14,000 firms on how much firm death there is, which types of these firms are most likely to die, and why they die. Small firms die at an average rate of 8.2% per year. Death rates are higher in richer countries, for younger firms and less profitable firms, and for firms run by youth. We also find that firm death need not mean permanent exit from self-employment for the firm owner.
We experimentally test the impact of expanding access to basic bank accounts in Uganda, Malawi, and Chile. Over two years, 17, 10, and 3 percent of treatment individuals made five or more deposits, respectively. Average monthly deposits in treatment accounts were sizable among users, corresponding to the seventy-ninth, ninety-first, and ninety-sixth percentiles of baseline savings. Survey data show no discernible intention-to-treat effects on savings or any downstream outcomes, though we cannot reject large effect sizes for active users. Results suggest that policies merely focused on expanding access to basic accounts are unlikely to improve welfare noticeably on average.