Wednesday, June 05, 2013

Mobile money update...  

I thought I had written before about the non-bank financial system springing up in Africa using mobile phones, but I guess it was just a passing reference to the mechanism for giving to the poor directly.

The good news there is more evidence is coming in that this is an extremely efficient and effective way to raise standards of living.
It’s easy to see that a nice injection of cash would make people better off. But in principle, the long-term impact could be ambiguous. Give money to a person whose only job prospects are low-paying and unpleasant, and perhaps he’ll simply respond by working less. That kind of income support would increase human welfare, but not really create any economic growth. That’s not what happened in Uganda. The government selected 535 groups—a total of about 12,000 people—for the experiment. Of the 535 groups, about one-half were randomly selected to actually get the money, and the rest were denied. Blattman, Fiala, and Martinez then surveyed 2,675 youths from both the treatment and the control group before dispersal of money, two years after dispersal of money, and four years after dispersal of money. The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash. As promised, the people who received the cash “invest[ed] most of the grant in skills and business assets,” ending up “65 percent more likely to practice a skilled trade, mainly small-scale industry and services such as carpentry, metalworking, tailoring, or hairstyling.” Consequently, recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group, the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.
Those strikingly high returns are reminiscent of one of the oldest and simplest accounts of economic growth there is. According to this theory, poverty is caused by a lack of capital. Because the absence of capital is so immiserating, the return on investment in poor places is extremely high. Thus capital ought to rapidly flow from rich places to poor ones, rapidly boosting incomes and inducing economic convergence. In practice, though, we don’t really see this happening. That’s inspired a lot of complicated thinking about the roles played by institutions, public policy, culture, epidemic disease, and just about everything else under the sun.
The Ugandan experiment suggests a simpler answer. Maybe there’s just no feasible way for subsistence farmers and casual laborers in rural Africa to get loans at reasonable interest rates. When young people get money for free, they’re able to put it to such good use that it’d be well worth their while to pay interest in order to get their hands on it. But there’s no Ugandan equivalent of federally subsidized student loans for youth to jump-start their tailoring careers. [More]
The study was long enough and large enough to warrant serious consideration, and I think it provides an alternative to schemes we love but we know don't work. It also lessens the tendency to blame outcomes on the poor themselves, as it appears under this better arrangement, the poor respond the way western-style capitalists think they should.

However, Africans are finding out the baggage that comes with success, however small. The new form of mobile money has triggered some interesting social and cultural consequences.
The “Sambaza” paper explains that mobile money is both helpful and disruptive. Men, who in the past had been dismissive of the social gatherings around mutual savings clubs, are now forming mutual savings clubs themselves over mobile phones, assessing credit through shared bonds such as trade—among bus drivers, for example. But mobile money strengthens traditionally weak bonds among what anthropologists call “uterine kinship.” A wife can stay attached to her own birth family by helping with school fees, for example.
“When I commented to one lady that she did not name her husband as an e-money contact,” one author writes, “she clucked in annoyance—and pointed out her farm and chickens, entrusted to her by her mother-in-law.” Property, real value, passes from father to son. Mobile money may not be the hoped-for story of empowerment for women in Western Kenya, the authors point out, but rather a coping strategy for maintaining ties to the home she was born to.
And some mobile money account holders report avoiding their phone altogether. From some people, no call comes without a request for money. “Nowhere to hide,” the authors heard, and “it is a curse more than a blessing.” This is a familiar problem to any parent with a child in college; every society has some level of ritual and social expectation around cash. But actual experience with mobile money in Kenya, where the service is most widespread, leaves hopeful development economists with a problem. There can be no mobile economy until cash loses some of its ritual social meaning. This happens with economic opportunity—the economic opportunity that mobile money is supposed to help provide. [More]
This type of technology work-around must be giving the banking industry heartburn, and it should. Reducing the chances for fees to be charged is not a good business plan for an industry that has grown fat extracting income from those least able to afford it.

But if you read the whole article above, you can get a hint of how having money will change how Africans relate to each other socially, and within families. Everybody has one of those brothers-in-law.

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