There are now 60 million users of mobile financial services in 84 countries, all of them in the developing world. At the same time, there is a growing interest from governments, aid agencies, and NGOs in providing aid via direct transfer, whether in cash, vouchers, or mobile money. Jenny Aker, Assistant Professor of Economics at Tufts University, works at the convergence of these two trends, studying how poor households use cash and digital products as part of their overall financial management strategies. In an interview with FAI, Aker discussed the results of two randomized studies she conducted, one among refugees in the Democratic Republic of Congo, and another among women in drought-stricken rural Niger.
For the participants in Aker’s study in the DRC refugee camp, receiving aid via mobile payments isn’t yet a feasible option. Instead, Aker looked at the impact of cash transfer versus vouchers on the type and variety of goods people purchased. In the clip below, she describes some of the results.
While Aker notes the differences in spending habits between the two treatment groups, these differences did not affect food security or asset ownership. However, cash did have two big advantages compared to vouchers — it was cheaper for the implementing organization to administer and it gave more overall financial flexibility to households. Households not only had more choice of goods at the market when using cash but were also able to save, even with very little income.
In another RCT, Aker traveled to Niger to evaluate Concern Worldwide’s distribution of unconditional cash transfers to the rural poor during a period of severe drought. The program sought to mitigate the risk of malnutrition and depletion of assets during the “hunger season,” and Aker wanted to compare the short-term impact and cost efficiency of distributing cash versus using mobile money to make transfers. In the program Aker studied, women in 1,200 households in 96 villages received monthly payments of $45 for 5 months, with the method of delivery randomized. Those in the cash group picked up an envelope at a local distribution point, (one for every 4-5 villages) while those in the mobile money group received text messages when funds arrived in their accounts. In order to turn the mobile money into cash, users had to visit an agent located in their village or at a nearby market.
Household surveys taken about eight months after the start of the program showed distributing funds via mobile money led to lower administrative costs for Concern Worldwide and better outcomes for the women. In this audio clip, Aker describes the costs and benefits of the program.
At the time of the study, mobile money was still relatively new in Niger. Concern Worldwide incurred upfront fixed costs in setting up its infrastructure for mobile payments, and researchers had to provide handsets and training on how to use mobile money accounts. But over the longer term, average monthly costs work out in favor of mobile money: $16.43 per person for cash compared with $6.78 for mobile money.
Benefits for the recipients of transfers via mobile money include time savings, increased diversity of purchases, and more influence for women in household decision-making. In the Niger study, the cash group had to walk 2 to 3 km and wait in line for their disbursements, while the mobile group had no wait time and a shorter average walk (1 km) to visit their local mobile money agent to convert digital to cash. The study found the mobile money group bought greater quantities of food and a more diverse basket of foods (perhaps because the time savings made comparison shopping easier). Finally, Aker speculates that because recipients of the mobile transfers could be notified of their payments with a discreet beep while at home, rather than going out to pick up cash in public with husbands, friends and relatives watching, women were less vulnerable to the demands of these other parties, and better able to influence how the money was spent within the household.
While mobile payments have some clear advantages over cash, they are not without limitations. Existing research points to lack of trust, inadequate marketing efforts and inhospitable regulatory frameworks as key factors that limit the adoption of mobile financial services. Aker‘s research found additional barriers that limit take-up rates, especially for women.
Both of Aker’s studies offer valuable insights for providers. As the profile of cash transfers continues to rise, critics fret that the poor will spend unwisely on vice goods such as alcohol or tobacco. Aker’s work adds to the growing body of evidence that this isn’t the case: in her studies cash increases financial flexibility and spending choices, not spending on vices.
As the reach of digital payments continues to grow and become further integrated among older financial systems, the question of how customers use electronic products compared to cash becomes more relevant. This research responds to that demand for evidence on how households make financial decisions and how they interact with financial products, particularly electronic ones. For the world’s poor, who make complex financial decisions under conditions of extreme scarcity on a daily basis, we know that product design influences their household money management strategy but don’t yet know how, to what extent, and what role mobile money plays. Understanding financial decisions and the interaction of different products allows for the creation of financial tools that are better designed to meet the poor’s financial needs.