7 Considerations for Mobile Money Cash Grants to Change Development

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Let us start with the classic (borderline cliché) development proverb: if you give a man a fish, he eats for a day, but if he is taught how to fish, he will eat for a lifetime. It was this analogy that got conversation started at the latest Technology Salon, “Are Mobile Money Cash Transfers the Future of Development?

Development practitioners and researchers alike are becoming more attentive to the demands of the poor and how to best cater to their needs. This means thinking outside the box and arriving at novel strategies that tackle poverty. Cash transfers are one of these innovative approaches. The idea is this: cash provides the poor with direct, in many cases unconditional, injections of money, which gives them the missing finances they needed to jumpstart a business or meet basic needs.

But if we take this classic proverb to heart, we could easily conclude that it’s a bad idea to give the poor cash. Which makes all the recent hype over cash transfers puzzling – isn’t giving cash analogous to giving a single fish? Participants at the Tech Salon didn’t seem to think so. Poverty does not exist because individuals lack fish or because they lack the ability to fish. Rather, poverty comes from a shortage of funds to build fish farms.

Nagging questions:

Could cash transfers, an entirely voluntary, philanthropic and donor-driven approach, be the future of development? What is the evidence that cash transfers are working? How are they positively impacting the lives of the poor? Are there implications of flooding the poor with cash? How do we improve and scale up the idea? And if we can do so, are we at the edge of a paradigm shift in how we do development? These are just a taste of the questions participants tackled during the Tech Salon.

mobile-money-cash-grantsFact:

Cash transfers provide entrepreneurial individuals with the missing capital they need to start a business. Instead of being given a fish, they are given something better: a choice to spend an amount as cash as they (not we) best see fit. Many studies show that if you give the poor cash, they don’t in fact spend it on a single “fish”(one day’s needs), they use a portion of the grant to invest in building a “fish farm”(business).

Fiction:

The idea of cash transfers is young and the verdict on effectiveness is still out. In the meantime, we can use preliminary evidence to dismiss some myths:

  • People are not poor because they lack training or entrepreneurship; they are poor because they don’t have the funds needed to start a business.
    In developing countries, financial markets are often broken and individual bank accounts are small. Under these circumstances, it is hard to obtain employment, much less, run your own business. And without any sort of job, income flows will never materialize, regardless of how entrepreneurial the poor individual may be.The issue isn’t that individuals don’t know how to fish (as aid donors often seem to think); rather, it’s that they aren’t given a chance to apply what they know. Cash transfers overcome these hurdles. An unconditional direct transfer sets the business in motion and research shows that once this bump has been crossed, the poor are fully capable of keeping their business up and running.
  • There is no reason for us to expect the poor to waste their cash grants.
    In fact, it is a relief to discover that recipients put their cash grants into savings, investments or meeting of basic needs. Even unemployed, young males in Liberia are seen investing a large chunk of the cash they receive. It is this subtlety that makes cash transfers different from remittances. But so far, the benefits are exclusive to income levels – the effect of cash transfers on socio-economic indicators is unclear. In Uganda, for example, female recipients saw their income double but they reported no change in domestic violence or in the decision-making dynamics in their households.
  • Cash transfers are different from other forms of financial assistance, such as foreign aid.
    Government programs operate on the macro level, giving bilateral assistance or funding towards e.g. specific training programs for a select group of poor individuals. Cash transfers, on the other hand, gets down to the micro-economy, directly transferring money from the hands of the donor into the hands of the poor. The fiscal contract is between a private donor and a needy individual, government aid agencies (the notorious mis-manager of development funds) is left out of the equation. This change in power dynamics has positive effects on the outcome for the poor. For one, it results in greater transparency than foreign aid, as donors can know exactly where their money ends up.What’s more, cash transfers are improving microfinance. M-Pesa, a common form of mobile money used by GiveDirectly, is making microfinance more efficient, as mobile money lowers costs of fiscal transactions by up to 8%.

Challenges ahead:

Despite their allure, cash transfers do not come without serious challenges.

  1. Issue of measuring benefits to the poor
    A growth in an individual’s income is not the same as economic development. In the same vein, it can be tough to measure the overall success of cash transfer programs. Because cash transfers are improving incomes and employment levels of the poor, should the benchmark for success be set at a level of employment? Or a threshold of income? It’s hard to measure success when we are still unsure what the final goal of the cash transfers should be: are we trying to create wealth, foster community development or just improve the livelihood of a single household?
  2. A boost in income is not the same as a surge in wealth
    In development, we tend to focus our attention on methods that accomplish the latter. If our goal is wealth creation, the challenge becomes identifying the wealth creators in societies, the individuals who will give donors the greatest return on their investments. The looming question is sustainability. Even harder, is measuring the developmental impact of the transfer. As long as we lack an adequate benchmark to measure success from, it will be hard to scale up cash transfers. Giving directly may be beneficial for a household now but if the goal is development, we are looking to make a lasting impact, not just doing good for now. We owe it both to the poor and to the donors to assess if the benefits of the transfers exceed the costs of transaction.
  3. Need to understand the nature of the beast.
    Cash transfers come in many shapes and size; it is hard to pick which type of transfer should be the preferred default method and when one type should be used over another.  At the Tech Salon, we addressed conditionality. Unconditional transfers allow for greater flexibility as we place trust in the poor’s decision making. Conditional transfers, on the flipside, could give a sense of security to the investors. On that note, it’s unclear if a lump sum is more effective than a stream of payments. A one-time transfer of cash would give an immediate boost, enough money necessary to get a business up and running. On the other hand, a stream of payments allows more budgeting flexibility, as these expand the individual’s opportunity to save and invest.
  4. The context of the transfer matters:
    $200 in Haiti has different purchasing power than the same $200 grant in Ethiopia. We cannot expect Haitians and Ethiopians to spend $200 in similar ways. How do we tailor cash transfers accordingly? And how do we decide which recipients to target? Is it better to give to women, who have seen some of the greatest benefits from the grants? Or do we give to youth, who, with their entire lives ahead of them, could give the donor the biggest return on investment? How do we ensure we invest in the wealth creators if we do not know how to find them?

What’s next?:

Hype and challenges aside, are cash transfers *the* future of development? Not necessarily. At Tech Salon, we acknowledged that as long as countries face institutional problems, cash transfers would not do much to change the wealth of the nation. Developing countries face financial barriers that can’t be solved with an injection of cash. In Liberia and Haiti, no lump of cash will change the bureaucratic, messy business environment. Also, problems of poor management and corruption remain unaddressed. If we hope to improve cash transfer programs, we need to address these problems and specific goals that can be targeted.

Maria Andersen is a M.A. Candidate at Johns Hopkins University (SAIS)


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Innovation and Insurance: Protection Against the Costs of Natural Disaster

Natural disasters – such as tsunamis, earthquakes, cyclones and floods – are costly to society, in terms of both human destruction and financial losses. Governments ultimately bear the full cost of the havoc wreaked by natural disasters, which can create an enormous strain on limited government budgets, especially in developing countries. This is even before we begin to contemplate the development impact and how the poorest of the poor are disproportionately affected.

Just last week, the world saw the widespread damage that the St. Jude storm inflicted across Europe, and we witnessed its effect on hundreds of thousands of people. Most advanced economies, however, have sufficient capacity to be able to absorb the financial losses inlicted by natural disasters. Higher-income countries enjoy (relatively) efficient public revenue systems and developed domestic insurance markets.

By contrast, developing countries do not have the same degree of access to financial and insurance markets. They face limited revenue streams, limited fiscal flexibility, and limited access to immediate liquidity in the wake of an event. This is particularly so for Small Island Developing States (SIDS), such as the Pacific island nations.

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USAID Landscape Survey: Mobiles and Youth Workforce Development

mywd-report

Youth make up 17 percent of the world’s population and 40 percent of the world’s unemployed, according to the International Labor Organization. A number of factors combine to make sustainable, decent employment an enormous challenge for youth the world over, including low levels of education and technical skills, slow job growth, lack of information about available jobs, and difficulties accessing financial capital to start small enterprises. Decent jobs are especially difficult to find for rural youth, girls and women, and youth with disabilities.

In addition to the growth in youth unemployment, access to and use of mobile technologies (e.g., mobile phones, tablets, eReaders, radio, portable media players, SD cards) among youth worldwide is also expanding. This has created excitement about the potential of mobile devices to catalyze new approaches that address some of the constraints keeping youth from finding and sustaining decent livelihoods. Documentation and evidence of impact in the broad field of mobile technology and youth workforce development (mYWD) is lacking, however, meaning that it has been difficult to identify where mobile technology and youth workforce development initiatives overlap and where mobile may have the greatest added value.

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After a year of hard work, we’ve launched the mEducation Alliance’s Mobiles for Youth Workforce Development (mYWD) Landscape Review, an effort supported by The MasterCard Foundation and USAID. The review maps out who is doing what and where, and to the extent possible, discusses evidence of what is working. The body of the report answers questions such as:

  • What organizations and programs are using mobiles to help overcome the barriers to employment for youth?
  • What type of programming has been implemented and how?
  • Where do prime opportunities exist for integrating mobile devices into youth workforce development programs?
  • What are relevant considerations related to gender and disability in mYWD programming?
  • What factors facilitate or hinder mYWD in specific contexts?
  • Are there any research findings that show the impact of mobiles on youth workforce development?

In addition, the annexes provide information on 80 initiatives and over 275 publicly available documents describing efforts that use mobile technology to support youth workforce development programming in five key areas:

  • Workforce education and training, including basic education, technical and vocational education and training (TVET), job skills training, apprenticeships, and life skills training (in and out of the classroom).
  • Employment services, including on-going job referral services that bring employers and workers together through job postings, job fairs, job shadowing, job placement, resume preparation, and coaching.
  • Entrepreneurship and enterprise development, including support programs for self-employment and business development, such as entrepreneurship training, mentoring, and financial services for loans and capital.
  • Demand-side policies and programs, including broad-based economic growth programs like national youth employment policies, value chain development, public works programs, wage subsidies, minimum wages, and tax breaks for employers (JBS International, 2013).
  • Addressing social norms, including programs that support effective participation of excluded groups, non-traditional skills training, safe training and employment spaces for excluded youth, and broader awareness campaigns.

There is an enormous amount of activity in mYWD, from small-scale, market-based start-up applications to mobile innovation hubs for youth entrepreneurs. The landscape review offers a summary of how mobile devices are used in the above five areas, draws out relevant lessons from the available literature and existing evidence base, offers advice from practitioners working in the field of mYWD, discusses the issue of scale and sustainability of mYWD programs, and offers a number of recommendations for furthering the field, including:

  • Creating a mYWD framework to aid in advancing the field
  • Further developing the evidence base for mYWD
  • Improving our understanding of what scale means
  • Focusing on gender and youth with disability
  • Improving knowledge sharing and collaboration
  • Building the mYWD evidence base through research and impact evaluation

Download the mYWD landscape review at this link or join the webinar to discuss it here


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Sparking Innovation in Post-Conflict Nations

Conflict and post-conflict countries traumatized by years of instability are not commonly thought of as a source for entrepreneurial talent. Nonetheless, even under the most difficult circumstances, incredible entrepreneurial and innovative talent can and does surface.

According to the World Bank’s Fragile and Conflict Situations unit, one in four people in the world – more than 1.5 billion – live in fragile and conflict-affected situations. These are countries that are often rife with socio-political instability and large-scale organized crime, resulting in precarious security situations. Although there are consistent efforts from international organizations and NGOs to aid in their transition, as the 2011 World Development Report states, insecurity is one of the biggest developmental challenges of our time. It severely affects a country’s overall economic growth.

Yet even under these circumstances, grassroots entrepreneurship can be a way for people to impact their communities while also promoting economic growth. Still, many in the development community question why entrepreneurship thrives in some places rather than others.

At infoDev, we believe that great ideas can be born anywhere. That philosophy is supported by our recent feasibility study that aimed to gauge the mobile applications sector in Afghanistan and provide recommendations for growth.

Cases like these begin to answer the question posed earlier: why entrepreneurship thrives in some environments versus others. In the future, however, perhaps we should strive to better understand the conditions that foster entrepreneurship and its growth in fragile, less secure environments.

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THE AFRICAN ENTREPRENEUR

Francis Stevens George. Written in 1993. Has not been updated

The question of economic motivation is fundamental to economic development. This has become more so when we the vibrant, almost succeed or die attitude of the Hong Kong Chinese, Taiwanese, South Koreans for example. Although the factors are complex, few would argue that this relentless zeal for individual economic prosperity has created the very high living standards enjoyed by these peoples.

Therefore in the context of Africa’s economic development, some have pointed to this so called lack economic motivation as a source of much of the continent’s problem. The charge is often that Africans are lazy and they point to amount of leisure compared to the amount of work. These charges are unfounded. There is absolutely no truth in it. If only one considers the often hard and heavily manual work that Africans do in Europe, then you see why I argue that these charges are wholly untrue. As with any other economic man, the African economic man needs incentives. There is no good working hard only to have crippling inflation eat into your wages. There is no point been creative when there is no reward system or when foreign ideas and products are excelled over local products. There is no point being entrepreneurial when you are discriminated against-all the more in your own society. This is particularly the case in countries where you have Lebanese  merchants.

It is therefore not the absence of economic person that has put Africa so far behind. He has lived there for millennia and will be ready to open the road the economic prosperity when he is recognised as so. Nevertheless the decades of neglect has affected this person.

One damaging side of this neglect is that today that economic person has simply become an opportunist. He or she does not plan beyond six months and is only interested in quick, short term profits. They do not make or enter into long term commitments. All too often they do not see beyond the present-anything that does not present an immediate opportunity is not done. This has therefore created an attitude of “eat today for tomorrow you may die”. In other words go for the quick deals.

There is thus lacking in Africa today, a culture of goal setting; systematic planning, and commitment. If Africa is to succeed, then its people must learn these rules.

What we need therefore is training in this area. Aid could be given by the developing countries to train budding and aspiring Africans in Business Management. At the end of the day the only path to economic development will rests in our own hands. The progress been made by former Communist countries in Eastern has largely been propelled by its entrepreneurs.

Already, there is what I believe is the future of Africa. Today across Europe, there are large numbers of young Africans, with business and economics degrees and successful at their jobs or enterprise. These young men are now realising that it is then that can solve the problems, by bringing with them their skills and contacts. They are trusted and respected by their Europeans counterparts unlike their forefathers who are largely discredited for excessive corruption. It is time to admit that apart from a handful, most of Africa’s leaders since independence have been semi-illiterate, half baked men with no idea of political and economic configurations. They were simply there for personal aggrandisement. They lacked little in the way of policies for development except-”my family, my home town and tribe comes first”.

However, today Europeans see this new African as his peer. He has lived in Europe and knows as much about the continents history as his European counterpart. He shares his culture and even participates in it in the form of marriage, work, education and activity. This new African now realises that his life could never be fulfilled, until he sees a different image of his home. We all feel awfully guilty when the images we get of our land is one of starvation, disease, war, corruption and human slaughter. This burden is even heavier on those of us who are well educated, living in Europe and making a contribution to that society in which we live in. There is the growing sense of guilt that we are making what is already made and neglecting our own land. At a more psychological level, there is the matter of race; you will always be seen as Black first and that more often than not means been seen as an African. Thus no matter how much you are integrated into European society,those images that are portrayed of your people is what you will be seen as. Thus with your education and multi cultural background and in some cases your proven track record in Finance, Management and Accounting- you begin to feel the need to make a change in your land. Above all, there are far many more opportunities that exist in Africa than there are in Europe in terms of Joint ventures, manufacturing and investment management.

Africa is still the richest continent in terms of mineral resources. It is still one of the most attractive markets in terms of size and penetration. However, because of the weak leadership and the absence of the entrepreneur, many ventures and opportunities are missed. It is a fact that most European firms would welcome the prospect of investing in this emerging and resourceful market. However, because of perceived “we” and “them” and the lack of trusts which stems from this attitude, Europeans shy away from the continent. Those you are there are very strongly tied to the political system. Their presence is ensued by the close relationship with political establishment. This is a situation that most business would not desire.

It is therefore to this New African that the future of the continent lie. He knows the  conditions that will attract the kinds of investment that are needed for long term growth. He knows the rules and regulations of the game. His European counterparts are in  Industries and in key positions where they have enormous influence with regard to trade and investment policies. Some of them are his friends, others are associates. Nevertheless, they see the New African as an equal; he understands their ways; he or she can be relied upon to manage their funds; they can negotiate with.

It is this new African with access to International finance, modern methods of communication that will be the key to the development of that continent. What this man needs more than anything is the incentive to move. This individual accepts the African society with all its ills. That in the least deters him or her. What this individual wants is the freedom and equal opportunity. Freedom to pursue his economic activity without hindrances or obstacles in the forms of bribes, family alliances, political intrigues etc. etc. Equal opportunity is a major source of worry. In some countries, tribal kinship usually determines your share of the national pie. If you do not belong to the right clan your access to information and funds will be severely hampered. Another aspect of the equal opportunities problem is that you find large numbers of Indians and Lebanese communities in some of these countries. These groups are discriminated in favour of the locals. Import Licenses for vital commodities in Sierra Leone for example are in hands of Lebanese and Indian businessmen. Why? Because they bribe heavily. Your African will try the prescribe way or will use his family connections. Often the prescribe way is not the right way! Moreover, even if the relevant authority is a family member, he would prefer the Lebanese or Indian because the sight of cash is more appealing than family ties. This again illustrates the point about the economic person has simply become an opportunist, who can no longer see beyond the present.

It is this system that has got to stop. It is the knowledge that you will have to come up against these kinds of frustrating encounters that is deterring a lot of otherwise able and capable individuals.

To stop these sort of practices will take bold initiatives. Indeed some kind of revolutionary rethink which might entail some sort of authoritarian rule will be necessary. If it sounds like I am advocating authoritarian rule, yes I am. The kind of authoritarian to enact free market policies; the kind that would understand the needs and importance of the New African in achieving economic prosperity; the kind of authoritarian to let free market ideology reign over sectional or party ideology or tribal for that matter; the kind of authoritarian that would allow the individual to pursue his or her economic activity(within the law) without harassment, corrupt practices from relevant authorities; and the kind of authoritarian that would not hesitate to favour economic sound management over political sound manipulation or at least be able to achieve some balance between the two.

Ghana, with its military rule(call it whatever you want) made that country something to be proud of. And it was not by interfering and distorting prices. That country already has budding New Africans educated at the London School of Economics; Harvard- running a stock market and creating new and exciting business opportunities! For example, Michael Oppong Appiah runs Micap Computer Services Ltd., which has developed Africa’s first locally produced Uninterrupted Power Supply(UPS) unit. That is the road to prosperity.

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