The failures of research on fin-tech and poverty alleviation
Last week, we considered how social and political standards can pressure climate scientists to under-report their findings, introducing an underestimation bias into published climate research. In a recent thread, Nicholas Loubere examines the development buzz around mobile money, showing how similar factors can serve to exaggerate the findings of academic studies.
In a new article quoted in the thread, MILFORD BATEMAN, MAREN DUVENDACK, and NICHOLAS LOUBERE contest a much cited study on the poverty alleviating effects of mobile money platforms like M-Pesa. The criticism rests largely on grounds of omission: the study, they argue, ignores the closure of nearly half of microenterprises opened with M-Pesa, the jobs and incomes lost with the introduction of new businesses into fragile markets, the burgeoning debt accrued through digital loans, the overwhelmingly foreign ownership of M-Pesa and its profits, and the wealthy networks composing its primary users. Methodologically, it had no control group, used a small sample size, and overlooked the potential for reverse causality.
Why was a potentially flawed study so well regarded? According to Bateman, Duvendack, and Loubre, it's in part because its results told researchers and policymakers what they wanted to hear. From the article:
"The rapid popularization of fin-tech as a developmental solution is premised on the continued prominence of microcredit and the broader concept of financial inclusion. The microcredit movement was established and validated in the 1980s on overblown and ultimately false claims that providing small loans to groups of poor women was a panacea for global poverty reduction—claims that were especially associated with Dr Muhammad Yunus. Empirical justification came from an impact evaluation undertaken in Bangladesh by then World Bank economists Mark Pitt and Shahidur Khandker, which claimed that microcredit programs had significant beneficial results for impoverished female clients. For many years, Muhammad Yunus used Pitt and Khandker’s findings to successfully ‘sell’ the microcredit model to the international development community, generating a consensus that the microcredit model was the most effective way to efficiently provide enormous benefits to the global poor."
- "Kenya’s new experience of debt reveals a novel, digitized form of slow violence that operates not so much through negotiated social relations, nor the threat of state enforcement, as through the accumulation of data, the commodification of reputation, and the instrumentalization of social ties." Kevin P. Donovan and Emma Park report on the consequences of mobile debt for poor borrowers. Link.
- In an article from 2017, Loubere "examines examples of exploitation, fraud, instability, and extraction related to expanded digital financial coverage in contemporary China." Link. At Bloomberg, David Malingha compares credit markets in Asia with those of sub-Saharan Africa. Link.
- "This article claims that to bring finance back to serve the real economy, it is fundamental to (a) de-financialize companies in the real economy, and (b) think clearly about how to structure finance so that it can provide the long-term committed patient capital required by innovation." Mariana Mazzucato on governments' role in ensuring that finance serves public ends. Link.