Can financial inclusion be synonymous with financial justice and equity?

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Stephen C. Rea, IMTFI Assistant Researcher

“In theory, every theory is great, but in practice, not every theory works.”
– Marcel Kitissou, University of Albany

From April 21st to the 22nd, Cornell University’s Institute for African Development and the Cornell International Institute for Food, Agriculture and Development sponsored a symposium titled “Mobile Money, Financial Inclusion, and Development in Africa.” IMTFI researcher Ndunge Kiiti was one of the event’s organizers, and IMTFI was a co-sponsor. The symposium presented an opportunity for academics and development experts to come together and discuss the current state of mobile money in Africa, its effects on the continent’s financial development thus far, and some of the obstacles and tensions that have arisen around financial inclusion. It also afforded a reunion of sorts for a number of IMTFI-affiliated researchers. In this blog post, I will focus on their presentations and the concluding discussion, both of which produced some sobering critiques of financial inclusion as an agenda for international development.

Sibel Kusimba, Rahel Diro, Belete Temesgen
Social and Economic Impact of Mobile Technology panel

Social networks and mobile money in Kenya

I arrived on the 22nd just in time to catch IMTFI researcher Sibel Kusimba’s presentation, titled “Digital Fundraising and Mobile Finance in Kenya,” on the Social and Economic Impact of Mobile Technology panel. Kusimba’s research has time and again reaffirmed an important lesson that often gets lost in the hype about subscription rates and transaction volumes: Mobile money services are most successful when they complement preexisting networks of social obligation. M-Pesa, which has become the “gold standard” for mobile money in its first decade of existence, has succeeded in large part because it operates through a densely intertwined social infrastructure that predates its deployment. However, as Kusimba pointed out,

Kenyan social networks are also variable, with some more persistent over the long term than others. Age, gender, and kinship are all contributing factors to the warp and woof of these networks, as money circulates through matrilineal sibling ties and women often act as arbiters of distribution. But personality and charisma are also crucial elements, especially for becoming a node or “hub” in a social network. Kusimba noted that maintaining one’s status as a hub requires considerable “relational work,” which in turn opens up additional opportunities for more relational work. Moreover, different network ties are useful for different sorts of transactions (e.g. emergency loans vs. money transfer), and so individual nodes in a network are vehicles not only for payments, but also can become small lenders themselves. Kusimba’s research demonstrates how M-Shwari and M-Changa— microcredit and fundraising apps, respectively, that ride on M-Pesa’s rails—afford new means of articulating relational work. M-Changa, which makes it possible for fundraisers to monitor each other’s activities, complements relationships built on trust in these social networks, acting like what IMTFI Director Bill Maurer calls a “distributed ledger” that works in a similar manner to the fact-checking functions in blockchain currencies. (Maurer kicked off IAD's symposium earlier in the week with his talk, “The Problems of Cash and the Perils of Cashlessness: Researching Mobile Money and Payment Infrastructure after M-Pesa" interview can be found here.)

Mobile money uptake in Ghana – one size doesn't fit all

After lunch, an unofficial “IMTFI panel,” titled Mobile Money and Remittances—Lessons in and Beyond Africa, featured IMTFI researchers Vivian Afi Dzokoto and Ishita Ghosh as well as former IMTFI postdoctoral scholar Ivan Small discussing mobile money research in global context. Dzokoto’s presentation, “Mobile Money in Ghana: Past, Present and Future,” raised an important contrast to Kusimba’s research, and in so doing reiterated the reality of “one size doesn’t fit all” that has confounded mobile money service providers. Ghana shares many similarities with Kenya when it comes to GDP PPP, share of the population who are unbanked, and widespread access to mobile phones. However, development experts and mobile network operators alike have lamented mobile money’s relatively slow adoption in Ghana when compared to its East African counterpart. In her talk, Dzokoto highlighted several key differences between Ghana and Kenya that help to explain why mobile money has failed to scale as quickly as some would have hoped. First, differences in immigration patterns: Whereas migration from rural villages to cities and the remittance corridors that followed helped to propel M-Pesa’s adoption in Kenya, these trends did not and do not exist in Ghana to the same degree. Second, the regulatory environment: the Central Bank of Kenya’s early embrace of mobile money and willingness to work with Safaricom and brick-and-mortar banks to create an enabling environment was a fundamental condition of M-Pesa's possibility. Ghana is a good counterexample of what happens when banks see mobile money as competition instead of as an opportunity for collaboration with telcos. The Ghanaian public also has very little trust in mobile network operators, in part because of network outages and infrastructural shortcomings.

Dr. Vivian Dzokoto

Education and outreach have been lacking in Ghana, too, with very few of Dzokoto’s respondents reporting that they knew how to use mobile money or had any sense of why it might be useful for them to do so. Finally, there is the fact that Ghanaians love cash and see little reason to use mobile money when cash is an option. Building on research that she has been involved with for nearly a decade, Dzokoto explained that the cedi’s redenomination in 2007 ended up incentivizing the use of cash and disincentivizing adoption of mobile money; since Ghanaians no longer had to carry around large piles of cash for even basic transactions, one of mobile money’s potential advantages—i.e. a more secure, more convenient mode of value transfer—was essentially obviated. All of these factors have combined to make mobile money an “option of last resort” in Ghana, used primarily for emergencies and remittances rather than day-to-day transactions.


Remittance models in Southeast Asia

Ivan Small’s presentation, “Remittance Technology Models: African Innovations for Southeast Asia?”, considered how the lessons gained from mobile money services in Africa might inform their deployments in Southeast Asia, specifically in Laos and Vietnam. As noted above, remittances and remittance corridors have been instrumental in the adoption of mobile money in places like Kenya. Small argued that the focus on harnessing remittances for development illuminates a few interesting points. First, development discourses have shifted from seeing migration primarily as a negative (e.g. anxieties about “brain drain”) to seeing it as a positive. Moreover, development experts—especially those working in and around financial inclusion—have come to understand internal migration and domestic remittances as potentially more significant than international ones. At the same time, since the early 2000s, anti-money laundering and counter-financing of terrorism initiatives have brought greater regulatory and public attention to remittances, for better and for worse. If remittances are so important to the success or failure of mobile money, then it is imperative to understand the specific contours of remittance practices in a given environment. As Small pointed out, local cultural ecologies and monetary repertoires influence adoption of new services like mobile money and affect financial practices in often unexpected ways. Uptake depends not only on local savings and transfer behaviors, but also on trust in networks, both social and technical; for example, the relative instability and unavailability of electricity in Laos has proven to be a challenge for mobile money. Furthermore, material liquidity continues to be prevalent throughout Southeast Asia because of long histories of conflict and political instability.

Preference for in-person transactions by the urban poor in Uganda and India

In her talk, “Informal Loans and the Mobile Phone: Glimpses into the Coping Strategies of the Urban Poor in Uganda and India,” Ishita Ghosh compared research on lending practices and strategies in East Africa and on the Indian subcontinent. She raised a deceptively simple research question that has profound implications: when the option of using mobile money for securing loans exists, why aren’t people calling upon their distant social networks and instead are maintaining their proximate networks?

The answer, she argued, is because in both Uganda and India there are important symbolic significances entailed by in-person transactions that make them preferable alternatives. Social etiquette matters; asking for a loan through a mediating technology like a mobile phone is difficult for many people because it does not afford the same opportunities to perform self-effacement and gratitude as a face-to-face interaction. Thus, reducing transaction fees for mobile money transfers and making interest-free loans available ultimately do not matter if the underlying social norms that influence financial behavior go unaddressed.

Moving forward – Financial Inclusion or Financial Justice?

The symposium’s final panel, Perspectives, Potentials, and Promises—What Next?, was moderated by IMTFI researcher Ndunge Kiiti, and featured Willene Johnson, former U.S. Executive Director of the African Development Bank; Melita Sawyer from Tufts University’s Fletcher Leadership Program in Financial Inclusion; Lourdes Casanova, Director of the Emerging Markets Institute; and Edward Mabaya, Senior Research Associate in Cornell’s Charles H. Dyson School of Applied Economics and Management. In her opening remarks, Kiiti noted three potential threads to think about moving forward. First, research has made it clear that in order for mobile money to flourish, stakeholders such as telcos, banks, and regulators need to work together, and so figuring out how best to facilitate their alignment will be crucial. Second, when looking at new entrants into the mobile money space like Alibaba’s Alipay, are services like M-Pesa becoming "backwards" before they are even over? In other words, trying to replicate M-Pesa outside of Kenya and simply hoping for the best clearly isn’t working, so what best practices should mobile money providers adopt in order to remain innovative, not to mention effective? Third, we have learned over and over again just how important remittances are not only for mobile money, but more importantly to the financial practices of the unbanked, and so one practical step that must be taken is reducing the price of remitting money, both domestically and transnationally.

A general sense of dissatisfaction with the current direction of financial inclusion pervaded many of the audience’s questions for the panelists. Mabaya offered this pithy reminder for those excited by the promise of so-called “disruptive innovation”: “It’s easy to get carried away by the

technologies, but they’re only as useful as the problems they solve.” The main problems that the panelists and audience members identified were twofold. First, there is clearly a need to develop a framework that can facilitate strategic partnerships among businesses, governments, development agencies, and, of course, the financially excluded. But who is best equipped to take the lead? The consensus was that it depends upon the problem at the time, and that like mobile money, one solution will not work everywhere or for every situation. Everyone agreed, however, that governments need to be more involved in helping to bridge disputes among banks, mobile network operators, and fintech innovators. Government regulators in particular are in the unique position to demand that financial practices be unbundled from the big banks. But at the same time, none of these interest groups can try to dominate the others.

The second problem, which builds upon the first, was well articulated in a comment from the audience: What do banks, insurance companies, and mobile network operators all have in common? They have all been deemed “too big to fail,” and thus enjoy subsidization by governments and aid organizations that allow them access to the poor in the name of “inclusion.” What are the distributional consequences of this? If the point of financial inclusion is making financial services more available, accessible, and affordable for marginalized social groups, can we honestly say that this has been the outcome, or are we simply propping up old vulnerabilities and creating new ones in the process? As Kusimba raised in her talk and the panelists echoed in their remarks, what does finance mean for someone living on less than $2 per day? Can we assume that traditional ways of approaching finance informed by centuries of banking practices are appropriate or even desirable for the financially excluded?

A larger question that grows out of these critiques is whether or not financial inclusion, as presently articulated, can be synonymous with financial justice and equity. And if so, can mobile money contribute to improving financial justice, or will it only perpetuate the same inequalities that many hoped that it would help solve? Over the next few weeks, the IMTFI blog's PERSPECTIVES series will feature reports from a number of conferences where participants have grappled with these same questions.

Photo Credits: Ndunge Kiiti

Special PERSPECTIVES Series on Demonetization in India – Insights, Challenges, and Ways Forward

By Ursula Dalinghaus, Nima Lamu Yolmo, and Janaki Srinivasan

Demonetized  ₹500 and ₹1000 notes

Source: Frontera News

On November 8, 2016, India demonetized two major banknotes in circulation. According to the Reserve Bank of India (RBI) figures, the denominated notes accounted for 86% of the value of currency in circulation. Importantly, the 500 and 1000 demonetized notes have been replaced by new denominations of 500 and 2000. All of this took place before ATMs were even configured for the new notes! The most visible effects of demonetization were the long queues and cases of numerous casualties and deaths in front of ATMs and banks. With the issuance of the new notes of 500 and 2000, demonetization (“notebandi”) has largely taken the form of replacement, aimed at targeting counterfeiters.

While some see the demonetization move as part of the quest for transitioning to a more digitized payment system, the timing and procedures for the replacement did not take into account factors related to basic infrastructure, coverage, digital financial literacy, and knowledge about the ways in which payments function within formal and informal sectors, social networks and relationships, and barriers related to caste, gender, and literacy, among others.

What lessons does this exercise hold for research on digital financial inclusion in India going forward? 

In our Special PERSPECTIVES blog series on Demonetization in India, we asked IMTFI fellows to provide some preliminary reflections on these issues. In this post, we wrap up our series, highlighting key themes and questions raised by our contributors.

 

Series Overview

As Vivian Dzokoto (Before Money isn’t Money Anymore…) reminds us, India’s demonetization exercise is neither the first nor the last exercise in changing money’s material form. Monetary authorities guarantee what will count as money and its value, but they can also alter or even revoke it. Money objects are tied up with social relations, cultural repertoires of use, and a larger ecosystem of monetary practices. A change in money must take the user into account. Failure to do so results in loss of trust and social disruption. These outcomes can negatively impact the goal of financial inclusion and undermine the credibility and longevity of payment infrastructures.

Janaki Srinivasan (Demonetization and its Discontents) creates a roadmap for identifying gaps between user experiences on the ground and the categories and visions driving the demonetization experiment in India. Policy efforts to advance the project of greater digital inclusion are not necessarily helped by suggesting one is either for or against cash. Instead, the promise of digital platforms is their flexibility in providing choice among payment options. The user must be at the center of product design. For example, categorizing all unreported cash as “black money” risks putting into one policy basket the multiple (and legally valid) contexts that lead people to keep money hidden and store value in cash form. In particular, a large section of women, including many belonging to the middle class, have had good reasons to hide their small savings in rice bins and cosmetic jars, away from husbands and other family members. This cash is more than money – it is “women’s agency, built through years of under consumption and self-exploiting sacrifices” (Tara Nair, IMTFI financial inclusion workshop, 2016, Bangalore). Demonetization has suddenly compelled women to reveal to men their secret cash stashes, bringing women’s savings practices to the attention of their husbands - with potentially negative consequences for women’s autonomy.  Like Dzokoto, Srinivasan reminds us that one should be careful of “desirable solutions” that bypass the user.

Debashis Acharya (The Recent Indian Demonetisation and Cash Exclusion, Part one and two) gives a first-hand account of the demonetization move as it unfolded. He recognizes that this “policy-induced cash exclusion” has been experienced by particular segments of Indian society as a crisis. But he also suggests it is a positive shock - by being compelled to use digital alternatives, people may encounter positive dimensions of these tools. Success and sustainability will depend on the supporting infrastructure – technological and financial. In a follow-up post, Acharya and his colleagues Subbarao, and Venkatachalapathy test these propositions. They review data-supported trends in uptake and recount a visit to a village participating in a cashless village experiment near Hyderabad. Acharya and his team find that village bank representatives’ ("Mitras") role as intermediaries has become even more important. For grocers, new challenges have erupted with regard to PoS (Point of Sale) devices. How will cost-incentives be structured? Who will/should share the costs? How will the infrastructure be built out? User-centered answers to these questions will be essential to sustaining this digital drive, long-term.

Isabelle Guérin, Santosh Kumar, and G Venkatasubramanian (The Dangerous Liaisons between Demonetization and the Indian Informal Economy (Part one and two) also raise critical questions about the impact of digitization on informal economic practices. In North India and Coastal Tamil Nadu, these have provided a primary safety net for the poor. In part one, they discuss widespread distrust of banking and digital transactions. Demonetization has impacted financial circuits and strained social relationships in these communities. The move – as an instrument of formalization – raises new questions about who will benefit. Far from fighting the informal economy, demonetization is strengthening it. In part two, they outline some crucial questions: What measures can be taken to ensure social protections, fair pricing, and privacy for the poor? Like Srinivasan (and Nair, see above), Guérin and co-authors underscore how cash has been instrumental for women in creating "micro-spaces of freedom" in the household, but also for men, who have their own social networks. How will the move to digital payment forms take these existing strategies into account? Will it facilitate greater financial inclusion?

Disruption. Inclusion. Ways forward…

To conclude, we call attention to some productive dissonances in how contributors approach the implications of this demonetization policy move. Srinivasan is critical of the compulsory nature of this demonetization policy and emphasizes the importance of preserving choice in payment forms. Guérin and co-authors point to the significant technical barriers to implementation of digital finance, which, combined with widespread distrust of formal banking, have the potential for severely disrupting the informal, cash-based networks of social security and exchange upon which the poor greatly rely. In contrast, Acharya folds demonetization into a broader move toward cashlessness and streamlining of payment forms, to the possible exclusion of cash at some point in the future. Pre-paid card projects and other digital experiments are introducing people to the benefits (including security) of e-payment forms, while the need to establish trust in these new technologies remains an ongoing challenge.

These “different takes” on the demonetization move remind us of the politics of payment infrastructures, most visible at times of disruption and change (Rea et al, 2016). Dzokoto’s recent work on currency change in Zambia, where both currency redenomination and the introduction of mobile money were taking place at the same time, shows that a technical change in money always has political implications for policy makers, providers, and for users. For research going forward, it is therefore important - particularly in the wake of this major policy and technological shift - to attend to the interplay of specific payment forms in everyday social practices as a variety of social actors and institutions in India come to terms with these changes.

Insofar as demonetization, as a state policy, has been proclaimed as a move toward greater financial inclusion, there is a need to attend to the crucial question of what do we mean by “inclusion”? By definition, ‘inclusion’ means the involvement of more components and participants. What practices and networks of financial transactions are people being “included into” or “excluded from” by such policy shifts remains a vital question. Have we identified criteria that will help us understand whether a policy or technological intervention is financially ‘inclusive’ or ‘exclusive’? These are questions worth considering every time we encounter a disruptive innovation.


We invite you to send comments to imtfi@uci.edu

Ceremonial Expenses as Relational Savings

By Isabelle Guérin, Santosh Kumar and G. Venkatasubramanian

"Bank saving is useless." Such is the claim of the men and women we have met over the past few months in various locations across rural Tamil Nadu (South India). This is despite the Indian government's strenuous efforts to inculcate a “culture of saving” into the rural poor through a series of financial inclusion schemes.

Are we to conclude that South Indian villagers are unwilling to save, incapable of planning for the future and attracted to wastefulness and extravagance, as various early 20th century British colonial reports pondered? In rural Tamil Nadu today, most rural households have their own bank accounts, and various mechanisms have been set up to facilitate saving deposits, including business correspondents to provide doorstep services and digital finance. But bank deposit accounts remain desperately empty,1 while spending on social and religious ceremonies continues to rise. It seems that even with the demonetization, 2 bank deposits remain low for the rural poor.

Although it might be tempting to jump to the same conclusions as the British colonisers and missionaries, this would miss the point. In-depth analysis of ceremonial transactions shows a different picture, and it suggests that ceremonial transactions should be considered as a specific form of saving: relational saving.  By this we mean saving transactions that are both shaped by and constitutive of social relations.

Savings are usually conceived of as money or wealth that is put aside to be used in the event of an emergency (including health crises, job losses, theft or floods) or to prepare for the future. But in Tamil villages, money and more broadly wealth are considered as something that must circulate. The two main purposes are material assistance - formal social protection is still the privilege of the few - and social status. People do save, sometimes even considerable amounts, but the very value of savings lies in constant circulation. If people find themselves with a cash surplus, it makes more sense to them to buy gold, as we have shown elsewhere, or even to inject that cash into their social network, for instance in the form of loans, or gifts that must be reciprocated later, most notably in the case of ceremonial gifts.

Ceremony organizers keep precise accounts of gifts (see the picture below).

Photograph 1. A puberty ceremony notebook 

Source: Venkatasubramanian, 2015

Counter-gifts are not strict equivalents, but are based in complicated logic that blends redistributive rules (the better-off or socially higher-up are expected to give more generously), reciprocity (among peers), and feelings and affection (notwithstanding rank, people often give more to persons in their close circle and those with whom they want to continue a relationship).

Ceremonies and their notebooks play a key role in family calculations, long-term planning and saving strategies for various reasons. As events, ceremonies are concrete opportunities to display and give visibility to family status (mariyatai). Insofar as ceremonies involve individuals' and their families' whole relationship sets, and are largely funded by this same set of relations, they are both an expression of mariyatai and a means of building it. A ceremony's clout is measured in terms of guest number and ‘quality’, the food served, and gifts received: this all aims to maintain, or possibly upgrade or at least not downgrade the mariyatai of the organisers (and their kin).

Ceremony costs can often seem puzzling, especially in comparison to incomes, but they are closely tied to the gifts expected (from invitees). This in turn depends on what gifts the organiser has previously given.  This makes the broad set of debts and obligations contracted through ceremonies crucial to households' financial positions. Households' life-cycle positions, social networks and particular circumstances determine them to be net debtors or net creditors. Some households “save up” (gradually accumulating through regular gifts before organising their own event, see fig. 1 below), while others “save down” (organising an event and then slowly paying back), while others “save through” (a mix of the two).

Fig. 1 below shows a household that regularly saved since marriage in 2005 through regular gift-giving in its social circle, getting this partly back for the daughter's puberty wedding.

Fig. 1. Ceremonies as 'saving up'

Source: Authors

Parents with unmarried daughters most often "save down".  Sivakumar is a typical example. He first organises the puberty ceremony of his daughter. This allows him to acquire 13 sovereigns 3 of gold to be set aside for her future wedding. He will regularly have to pledge them to cover various needs and hope he won’t lose them. He will “pay back" (this is the term used) in around ten years, roughly when his daughter gets married, which will put him back into debt for many years.

We are not looking to idealise these practices. They both reflect and strengthen pre-existing inequalities on various lines. This is particularly true for gender inequalities, since the dowry counts as a significant share of wedding expenses and obviously contributes to women’s lower standing. This is also true for caste and caste inequalities, insofar as the style of upper castes and upper classes’ ceremonies tends to be the norm. Our point is that these dynamics and forms of logic cannot be ignored if we truly wish to design appropriate, fair financial services. For the moment, in the context of our study, the rural poor don’t use bank saving accounts because it goes against a vision of wealth as something that constantly circulates socially. Mobile money transfers, while still underdeveloped in rural South India, may have a more promising future.

The key question is whether the technology of digital finance could be used to fight specific forms of inequalities. Whether we like it or not, digital finance is most probably going to pervade our daily lives, even in the remotest of areas. Further research is needed to ensure that, rather than being outstripped by such developments, we can think about a variety of ways of using them to support democracy and equality.


Notes
  1 In our field area, bank account take-up was already widespread in 2010, with 91.2% households having a bank account. By 2016, take-up had risen to an even higher 97.5%. Much less had been achieved in terms of saving deposits however. The median amount remained unchanged (around 600 INR) and the average amount had even decreased (from 4470 INR to 2043 INR). Most bank accounts are in fact ‘dormant’ and mostly used as a channel for social benefits.
 2  On the 8th of November 2016, the Indian prime minister has announced that 500 and 1000 INR banknotes would be invalid after midnight of that day. Citizens have until 30 December 2016 to tender their old banknotes at any office of the RBI or any bank branch and credit the value into their respective bank accounts. The objective is to combat counterfeiting, corruption and terrorism financing.
  3 One sovereign is equal to around 8 grams of gold. It is the most common unit of measurement of gold in the region.

Read their final report here

Mobile Money Uptake, Savings and Social Networks in Tanzania: A Lesson in Methods

by Alfredo Burlando, Cynthia Kinnan, Silvia Prina

When we decided to work on mobile savings in Tanzania, we had an initial understanding of the value of formal savings from the economics literature. We knew that savings accounts — from banks or mobile money operators — were becoming increasingly common in many unbanked areas of the world, and that adopters derived some important benefits from their accounts (Dupas and Robinson 2013; Prina 2015). What was less clear, and became the focus of our work, was the extent to which savings accounts generate social benefits (or costs). In particular, we became interested in measuring the extent to which savings accounts generate “network spillovers”— that is, impose benefits or costs on the adopters’ social network. The questions we posed to ourselves were: Do savings spillovers exist? Are they positive? Negative? Or both? Who gains and who loses? Finally, does savings generated through mobile money accounts lead to such spillovers? 

EZYPesa stand in Zanzibar Town

We have several reasons to believe that spillovers from savings exist and have important policy implications. Conceptually, positive spillovers may arise because savings access appears to raise the incomes of adopters, and a long line of economic research indicates that income gains may be shared among social networks. Mobile money facilitates transfers, and therefore could also facilitate this type of spillover. The case for negative spillovers is more nuanced, but also plausible. Existing economic theory indicates that savings could encourage “shielding” cash from social networks. In practice, we have evidence from sub-Saharan Africa that households appear to attempt to avoid “kin taxes,” (see Baland et al. 2011; Dupas and Robinson 2013; Jakiela and Ozier 2012) and savings accounts may play a role in this avoidance. Given this premise, we hypothesize that different members of a social network may experience different effects. “Altruistic” ties (those characterized by “I want to share”) may experience positive benefits while “obligatory” ties (characterized by “I have to share” may experience negative effects). If obligatory ties tend to be poorer to start with, inequality may widen and, in turn, inequality may aggravate negative effects through a vicious cycle. 

Once we decided on the hypothesis, we set on creating a randomized control trial that would allow us to generate, measure and ultimately study these spillover effects. At the time of writing this blog, we have completed all aspects of the trial and are working on the analysis. 

Our intervention: Zantel’s EZY-Pesa in Tanzania

In our research, we distributed mobile savings accounts to approximately 1,500 participants in 33 rural and peri-urban areas of Zanzibar (Tanzania), and then studied the effects of adoption of these accounts on the adopters’ social networks through follow-up interviews. This work was done in partnership with Zantel, Zanzibar’s leading mobile phone operator whose mobile money product, called EZY-Pesa, allows deposits and withdrawals through local retailers. At the start of our study, this product was not widespread outside Zanzibar Town, and Zantel agreed to implement a marketing campaign tied to the study.

Scheme of Intervention

Our work began in September of 2013. Our research partners in Tanzania advertised a community meeting where a study tied to savings accounts was carried out. We then surveyed those individuals who showed up to the meeting and had expressed interest in opening a mobile money account. We collected baseline data on their income, occupation, and other socioeconomic markers. In addition, we collected information about their “key network partners”: financial partners, friends, advice-givers, etc. The key partners were ranked by respondent on the basis of questions such as “Imagine you got a surprise payment of Tsh 100,000 (~$65). Who would you most want to keep this secret from? Who least?” This way, we were able to identify other people in the community who were likely to be either an “altruistic” tie, or an “obligatory” tie.

Following the interviews, we coordinated a mass marketing campaign with Zantel in October through December 2013. We randomly assigned some of our baseline respondents (“focal respondents”) to receive help signing up for EZY-Pesa. The marketing visit included a one-on-one explanation on how to operate EZY-Pesa to accumulate savings. Importantly, marketers were not allowed to talk about the transfer features of EZY-Pesa. Finally, to encourage usage, we also made a Tsh 2000 (~$1.25) initial deposit in their new EZY-Pesa accounts. The remaining households were randomly assigned to receive Tsh 2000 in cash, no marketing visit, and no sign-up assistance. 

In summer 2014, we identified baseline respondents (“focal households”) plus one tie we deemed to be “altruistic” and one tie we deemed to be “obligatory”. Ultimately, we were able to gather information from a large number of participants—over 1,500 focal individuals and 2,500 of their social ties. In this endline survey we collected information on demographics, informal transfers, and demand for savings. Respondents were also asked whether they received a marketing visit in October through November from Zantel, and whether they opened a mobile account. We used the answers to these two questions to determine how well the marketing intervention went. 

Stumbling blocks on the road to analysis  

Marketers were instructed to enroll in EZY-Pesa only those focal individuals who were randomly assigned to the treatment. Unfortunately, the marketing visits were not targeted as agreed, complicating our efforts to study their causal impacts. We found that only one quarter of treatment individuals reported being visited by Zantel representatives; moreover, one fifth of focal individuals assigned to the control reported receiving a visit. (A much smaller fraction, 13%, of ties reported a visit from marketers). Since there is not much difference in the likelihood that a focal person received a marketing visit, we could not use standard methods of analysis for experiments. 

Despite this setback, we find that the marketing visits were effective at signing up new users: 40% of visited treatment individuals opened an account. This is higher than take-up rates of microfinance (e.g. Banerjee et al. 2015). Of those who signed up, 52% used the account “actively” (two or more times), a figure similar to findings for traditional savings accounts in Kenya (Dupas and Robinson 2013).

Fraction of respondents who opened a mobile savings account    

Fortunately, a much smaller proportion of visited control individuals (24%) and of visited ties (19%) opened a savings account. We interpret this to mean that many Zantel marketers indeed declined to sign up those not formally assigned to the treatment. Because of this, we do observe a statistically significant (albeit small—only 5%) difference between the fraction of all treatment individuals opening an account and the rest of our respondents. 

The road ahead

Just because marketers did not follow the instructions provided does not mean we cannot uncover the spillover effects. By pairing each focal individual who received a marketing visit with another focal individual who was skipped by the marketers but has very similar characteristics, we can use “matching” techniques to study both positive and negative spillovers on the paired ties. 

While we now working through this analysis having derived certain lessons from our intervention. First, (mobile) savings are not for everyone: of a group that expressed interest in EZY-Pesa, 40% of those who received a marketing visit signed up for an account and among these only half of those who signed up used the account actively. While there is an active discussion on the importance of reducing fees and entry costs, our study suggests that reducing those costs to zero is not enough. Costs are not the only (or perhaps even the main!) barrier to adoption.

Second, we think that our partnership with Zantel had an important benefit: having done almost 700 marketing visits was certainly a big accomplishment, and it increased “external validity” (and hence the scalability of the intervention). On the other hand, the scale did come at a cost: there was noncompliance in the way marketers approached local communities, and this reduces the study’s “internal validity” (i.e. ability to estimate causal impacts without additional assumptions). It will be interesting to see if future studies will emerge that can address the latter. 

Works Cited

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Banerjee, A. V., E. Duflo, R. Glennerster, and C. Kinnan (2015). The miracle of microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics 7(1): 22-53.
 
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Jakiela, P. and Ozier, O. (2015) Does Africa Need a Rotten Kin Theorem?  Experimental Evidence from Village Economies. Review of Economic Studies.

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