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Mobile money and why we need to pay more attention to it

The poverty and gender impacts of mobile money

Information sourced from Robert Matherson of MIT News Office and Tavneet Suri's and William Jack's paper, "The long-run poverty and gender impacts of mobile money."

Economists Tavneet Suri and William Jack published an article in Science that conducted a study which estimates that, since 2008, access to mobile-money services increased daily per capita consumption levels of 194,000 — or 2 percent — of Kenyan households, lifting them out of extreme poverty (living on less than $1.25 per day). Below is a quote from their paper explaining the long-term poverty and gender impacts of mobile money.

Mobile money, a service that allows monetary value to be stored on a mobile phone and sent to other users via text messages, has been adopted by the vast majority of Kenyan households. We estimate 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. The impacts, which are more pronounced for female-headed households, appear to be driven by changes in financial behavior—in particular, increased financial resilience and saving—and labor market outcomes, such as occupational choice, especially for women, who moved out of agriculture and into business. Mobile money has therefore increased the efficiency of the allocation of consumption over time while allowing a more efficient allocation of labor, resulting in a meaningful reduction of poverty in Kenya.

Suri and Jack also highlight an interesting gender effect. As a result of M-Pesa, female-headed households saw far greater increases in consumption than male-headed households. Additionally, mobile money services have helped an estimated 185,000 women transition from farming to business occupations.

In 2010, Suri and Jack co-authored a study that showed M-Pesa enabled users to borrow, save, and pay for services more easily. A paper published two years after by the pair illustrated how M-Pesa assisted Kenyans in managing financial uncertainties caused by crop failures, droughts, or health issues. The idea is the M-PESA users can access a wider network of support, and receive payments more quickly, during dire financial times.

Their most recent paper continues their long-term examination of the impact of M-Pesa in Kenya. In conducting their study, they compiled surveys of 1,600 households across Kenya over the years, looking at, among various other things, average daily per capita consumption (total money spent by the individual and household) and occupational choices.

Instead of looking at the number of individuals using M-PESA, the researchers measured the rise in the number of service agents within 1 kilometer around each household, or “agent density,” during early rollout of the mobile-money services. They then compared the consumption and occupation, and other outcomes, of households that saw relatively large increases of agent density, with those that saw no increases or much smaller ones, over the years.

Unsurprisingly, households where agent density increased by five agents — the average in the sample — also saw a 6 percent increase in per capita consumption, enough to push 64 (or roughly 4 percent) of the sampled households above poverty levels. The World Bank defines spending less than $1.25 per day as “extreme poverty,” and spending less than $2 per day as “general poverty.” Mean daily per capita consumption among the sample was $2.50.

The impact was even more pronounced among female-headed households. When agent density rose, from zero to six agents over six years, these households saw a daily per capita consumption increase of about 18.5 percent. This level of agent density growth also reduced extreme poverty among female-headed households by 9.2 percent, and reduced households in general poverty by 8.6 percent.

Another surprising finding, Suri says, was that increases in agent density caused about 3 percent of women in both female- and male-headed households to take up business or retail occupations over farming. These occupations generally entailed single-person businesses based around producing and selling goods, which is made easier by mobile money, Suri says. “You used to grow vegetables, but now you take your vegetables to the market and sell them, or you open a little food cart or kiosk,” she says.

Exactly why M-PESA causes increases in per capita consumption and shifts in occupation remains unclear, Suri says. But Suri and Jack have a few ideas, one being that more secure storing of money leads to better financial management and savings, especially among women: The study found that female-headed households that saw greater agent density also saw around a 22 percent rise in savings.

The researchers also think mobile money could give women in male-headed households, who are also usually secondary income earners, more financial independence, which could help them start their own businesses. “As a woman, sometimes you’re not able to save on your own, because cash gets used by the whole house. [Mobile money] allows you to keep separate cash and … manage a source of income on your own,” Suri says.

The research was funded, in part, by Financial Sector Deepening Kenya and the Bill and Melinda Gates Foundation.

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