Using digital technologies to help end poverty

In this case study we examine the relationship between ICT and poverty alleviation and examine how M-Pesa has made such a positive impact whilst a financial management system had such a negative impact.

SDG 1: No poverty

Between 1990 and 2015 there was a drastic reduction in the percentage of people in the world who were living in extreme poverty from 36% to 10%. As good as this reduction is that still leaves 700 million or 10% of the world’s people living in extreme poverty which is defined as living on less than $1.90 per day. There is also the concern that Covid’s impact over three years may have changed the poverty reduction trend. Around the world people, organisations and economies have looked to ICT to increase productivity, reduce costs and transform how work is done. In most cases, research shows that ICT has delivered at the big picture level. However, when we look more closely, we can see unanswered questions, issues that need to be addressed and criminals at work.

A great deal of research on different countries has found that there is a strong correlation between the use of ICT and the wealth generated by a country. The amount of ICT is gauged often with the use of simple data points such as the percentage of people with an Internet connection and the percentage of people with a mobile phone. If you think this is an over-simplification of a country’s ICT use, you’re probably right. Having access to a technology and ensuring that its use is effective are two different things. Relying on internet access and mobile use is not perfect but simply a convenient way to measure ICT. Countries that make more effective use of ICT are more efficient with significant cost reductions improving the bottom line.

The jobs that are created in ICT are usually better paying jobs and have a better future than jobs vulnerable to automation. Researchers in this area have also suggested that investment in leading edge technology can provide a nation with an economic boost. Some call this leapfrogging. Whether this is possible in practice is debatable unless there is significant investment in developing IT skills and knowledge to take advantage of those technologies.

How M-Pesa reduced poverty

A Kenyan firm named Safari.com developed a mobile application called M-Pesa that has had a massive impact across Africa. This application is now Africa’s largest banking and financial application for both business and individual users. The application makes a significant contribution to Kenya’s GDP and has also over the past fifteen years lifted many individuals and families out of poverty.

The problem the digital technology is implemented to address Across the African continent there is a scarcity of bank branches and fixed-line telecommunications but mobile phone adoption is high. This situation led to the development and widespread adoption of mobile money. Using M-Pesa, money can be deposited to an account linked to a mobile, transferred to other users via a text message, and converted into cash by the recipient.

Benefits of M-Pesa

The increased access to mobile money has had a beneficial impact on many and has lifted 2% of Kenyan households out of poverty. This is due to a greater number of people having access to banking and this in turn led to changes in behaviour that included greater saving. Women have used the application to save money, and this reduces the likelihood of falling back into poverty. They have also set up businesses using M-Pesa as the payment platform and this has resulted in many leaving the agricultural work they were doing.

How ICT can aggravate poverty

Another perspective on the role of ICT in developing countries is that prevailing contextual factors such as corruption, fraud and a lack of strong institutions provide opportunities for groups of individuals to profit at the expense of society, thereby derailing development. In other words, ICT does not automatically lead to positive benefits as it depends on what it is used for.

Kanjo (2020) illustrates this view with a case study of the misappropriation of large sums of money that became known as cashgate in Malawi. Weak governance systems allowed this scandal to take place and failed to fully apprehend the criminals as the fraudulent practices became institutionalised. Ironically, the integrated financial management information system (IFMIS) was a tool that supported the practices as money was paid to bogus firms for products and services that were never delivered. Weak password protection prevailed, transaction records deleted with no audit trail, and large sums of money could be spent without authorisation. However, the IFMIS allowed auditors to trace many of the fraudulent practices.

Scope for improvement

High-level data presented at the country level may hide details regarding the impact of ICT. For example, ICT benefits may not flow evenly through society, with those at the bottom of society benefiting the least. This relates to the amplifier concept, where ICT is used by those with better skills and knowledge to greater effect than those without such skills. It may be therefore that the poorest, the ones we may wish to target, only see marginal improvements in income.

Lazovic et al. (2022) in their study of investment in the digital economy in middle and high-income countries found that that the returns were greater in the high-income countries, thereby increasing inequality. They suggest that middle income countries would obtain better results from investing in education.

Although many research studies have found a link between ICT and a nation’s growing wealth, its causality is not always clear, especially in understanding which systems produce the most gains.

Lessons for other organisations wanting to replicate this type of program?

1. Although many studies find a link between ICT and GDP, benefits may not flow evenly through society. The poorest in society often lack ICT skills. Providing training in how to use digital tools can dramatically improve their opportunities.
2. A simple software application such as M-Pesa can make a big difference financially to an individual. Many of the poorest in society lack access to banking services, for example the poor in Africa and indigenous Australians, making it difficult to save or participate in commercial activities.
3. The design of a new financial app should be thoroughly tested with local communities to ensure that it addresses concerns and has functions that customers want. They need to be highly trusted by users.
4. The app should be tested on phones that have low functionality, as smart phones are less common in poor communities.
5. ICT systems require as a minimum strong institutions and governance procedures to avoid a situation like ‘cashgate’ in Malawi. Organisations can provide support and training on ICT governance.