We are pleased to bring you this #ThrowbackThursday blog post, which was originally published in Vulnerability: The State of the Microcredit Summit Campaign Report, 2013, under the chapter “The Promise of Mobile Technology.” In the section excerpted below, Rodger Voorhies discusses the benefits of digital transactions, explaining how they make services affordable, in addition to the overall benefits for the poor. For an updated take, read the 2015 State of the Campaign Report’s chapter “Digital Finance.”
Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation in the United States, talked to Larry Reed, director of the Microcredit Summit Campaign, for the 2013 State of the Campaign Report.
Rodger Voorhies: Digital Transactions for Products the Poor Can Afford
Larry Reed (LR): What opportunities do you see for digital transactions making a difference in the lives of the very poor?
Rodger Voorhies (RV): Like most of us, poor people live their lives through a lot of different kinds of financial connections, and payments are really the connective tissue that hold those financial transactions together. Unless we can figure out ways to help poor people transact in a way that is profitable for them and profitable for providers, we’re really not going to see large-scale financial inclusion take place.
Now, one of the most exciting things that’s going on for us is the ability of mobile money to reach down into really poor households, and so right now in a country like Tanzania 47 percent of households have a mobile money user. An exciting bit of that is not so much, okay, there’s one person in the household sending money to friends, but it might open up all kinds of innovations that before were previously unavailable.
So, let’s think about savings, because we know savings have a big impact on poor people. Well, it’s really hard to save, and poor people have to take a lot of self-control and we expect a lot of self-discipline out of them if they’re going to be able to save. If I can actually begin to transact digitally and I had defaulted into commitments accounts and savings accounts for school fees or whatever the mental maps are that work for me, I think we can see large scale inclusion that actually has a big development impact. And we know that the empirical evidence around these pieces work, so we know commitment accounts work, but poor people just don’t have a way to get those commitment accounts.
We know that giving smallholder farmers a chance to save for next year’s harvest has an increase on both disposable income and investment. We know that paying for insurance actually helps in a risky situation, so it’s really the fact that payments both enable lots of financial services that previously take too much self-control but secondarily allows us to begin to transact in sachet-sized transactions which fits the way poor people live.
LR: Microfinance institutions have traditionally built relationships of trust in poor communities. Do you see a way to leverage those relationships to introduce these new technologies that would provide access to poor people for these new forms of transacting?
RV: I think in some ways poor people adopt technology that works for them. So of the 2.5 billion people that are left out of financial access, 1.7 billion of them have access to a mobile handset. That didn’t take a lot of communications education for them to adopt, so they adopt things that work for them.
I think there is a role for microfinance and a role for savings-like groups, and other kinds of mechanisms that reach the very poor poor because these relationships are still very important. I think anyone talking about becoming to have a nameless, faceless digital financial service transaction, that doesn’t have any connection to real people. So, I think microfinance has a real role to play in building those community-based relationships in helping to make sure infrastructure actually is inclusive. And thirdly, actually thinking about reaching some of the most vulnerable people in the world who otherwise wouldn’t be reached.
LR: Other tools like insurance are starting but still haven’t picked up in a big way. What is it going to take to make those as readily adopted as payments have been?
RV: The Gates Foundation along with McKinsey and others just did a big study of payments, and one of the things that showed out is how organizations and providers make money. And so with microfinance, it’s about credit. Traditional banks are about balances and intermediation, and [for] mobile phone companies, it’s about churn reduction and voice.
As we look at these adjacent revenue streams, it becomes clear that maybe real financial inclusion that’s going to bring another billion people into the system is going to be about partnerships. Where different kinds of providers come together and offer services across digital platforms that fit what they know how to do. And, so that may be payments in the mobile money space. That may be intermediation where banks are able to offer services across these kinds of platforms. It could that could be down to rural credit into savings groups. Microfinance organizations have a huge role to play in bringing in inclusive groups and other organizations into these platforms.
LR: You mentioned smallholder farmers. That’s a huge part of the non-included population. What sort of services do you see are needed there?
RV: I think, I probably don’t have my numbers right, but approximately 600 million of the 2.5 billion excluded are small holder farmers. And I just can’t think of a more transformative thing microfinance could do than to figure out how they offer financial services to those folks.
And, there have been a lot of things that have been tried. There have been government programs; there have been down-scaling of banks; there has been de-risking of players in the market through subsidized credit. None of those have really worked, and I think it’s time for microfinance to really innovate how they would reach this group. I think the impact of that would be really substantial at the household level.
LR: How do you decide what your organization’s role is in bringing benefit to the poor working through different types of players?
RV: The Foundation really runs on the idea that all lives have equal value, but all lives don’t have equal opportunity. In the overall development budget, we are a small piece, right? So all the governmental budgets — both at the bilateral, the multilateral, as well as the host country governments — are substantially larger larger than what we do.
So, we try to pick out places where we think we can be more catalytic, and some of that is the upstream innovation. How do we bring new business models, new technology into these communities? And, what can we do? Because maybe it’s money that other people aren’t able to spend or want to spend, but are there some upstream innovations that can take a long-term view? We do those things.
Our goal is to work with the public sector, to work with the private sector in deep partnerships where we get to play a unique role at the upstream level, at the data level, and at the crowding-in level that we hope can leverage some of the resources that other organizations and bilaterals and multilaterals can bring to it.