Smart phones are outwitting poverty

Alexander Graham Bell would be astonished at the power of today’s smart phones. Yes, the app that makes it possible to find a Starbucks along an unfamiliar highway can feel like a miracle, but the true revolutionary power of the telephone is felt most in developing countries. In Kenya, for example, the mobile phone has, to some extent, stabilized the economy for many citizens and transformed quality of life.

Nearly all Kenyan households own at least one mobile phone—not state-of-the-art smart phones, but phones “smart” enough to accommodate at least one M-Pesa account. Available to any customer of Safaricom, Kenya’s mobile network leader, M-Pesa is a money transfer service that allows a daughter at one corner of the country to send money safely and securely to her mother in a village seven hours away. Previously, she would have entrusted an envelope of cash to a bus driver heading to her mother’s village (at considerable risk) or relied on a money transfer that took days—and a daunting amount of red tape—to process.

Of course, to withdraw funds through an M-Pesa account you must have access to an agent who can disperse the cash. Happily, in response to the popularity of M-Pesa, the network across Kenya has mushroomed to 150,000 agents. Working with Innovations for Poverty Action, Associate Professor of Applied Economics Tavneet Suri, a native Kenyan, and her colleague William Jack have been tracking incomes in regions where new agents have opened for business. They compared the financial health of those regions with that of regions where agents are not as accessible.

A chain reaction of progress

“When bad stuff happens, people reach out to friends and family,” Suri said in a recent New York Times article about the research project. “Before, if a child needed medicine or a bike broke down, people could ask nearby relatives or friends for help. But often, it wasn’t enough. Household consumption dropped by 7 to 10 percent after such emergencies.” She and Jack discovered that M-Pesa expanded the average Kenyan’s support network, providing a broader safety net in emergencies.

In fact, they found that regions that increased the number of M-Pesa agents saw 22 percent fewer female-headed households living in extreme poverty. A full 194,000 households moved above the poverty line nationally. The M-Pesa has changed the entrepreneurial and retail climate as well. It’s now easier to buy merchandise and services, and women in areas where the numbers of M-Pesa agents grew were more likely to change occupations from farming to business. Suri and Jack estimate that 185,000 women switched occupations as M-Pesa accessibility expanded in their local area.

Mobile money is not just a Kenyan solution—100 countries now use it—and although the results may not be as dramatic as those in Kenya, mobile money is transforming lives worldwide.

Learn more about the Innovations for Poverty Action study.

Read The New York Times article about Suri and Jack’s research.