Daniela Gabor and Sally Brooks
“Within the global development landscape, few funding areas are hotter right now than financial inclusion” (Inside Philanthropy, May 2016)
“The significant progress in moving away from cash that Bangladesh has made in such a short amount of time is due to the government’s strong leadership, the innovation of the private sector and citizens’ openness to a digital future” (The Better Than Cash Alliance)
On day one of this year’s World Economic Forum at Davos, OXFAM named US philanthropists Bill Gates and Mark Zuckerberg on the list of ‘just eight men own as much wealth as half of humanity’. Why, the question was then raised, are we bashing ‘philanthrocapitalists’ like Gates who had donated so much of their wealth to tackling global poverty?
Philanthropists, we argue in a new paper, are far more influential in international development than commonly understood. After the 2008 crisis, international development has embraced financial inclusion as the new development paradigm. With this, development interventions are increasingly organised through a new alliance of developing countries, international financial organisations, ‘philanthropic investment firms’ and fintech companies, what we term the fintech-philanthropy-development (FPD) complex. The FPD version of financial inclusion – know thy (irrational) customer – celebrates the power of technology to simultaneously achieve positive returns, philantrophy and human development.
‘Transform mobile behaviour into financial opportunity’
The premise is simple. Poverty can be tackled faster if the poor have better access to finance. And something unpredecented is happening with the world’s poor in Sub-Saharan Africa, Asia, Latin America and the Caribbean. Roughly 1.7 billion of the 2 billion without formal access to finance have a mobile phone. These generate ‘digital footprints’ that can be harnessed by big data and predictive algorithms to better understand, and thus include, the ‘unbankable’. Transforming mobile behaviour into financial opportunity.
The FPD origins can be traced back to the Alliance for Financial Inclusion. Created in 2011 with funding from the Bill and Melinda Gates Foundation (BMGF) and endorsement from G20 as key to achieving the sustainable development goals, AFI brought together policy makers from ninety developing countries united in their commitment to work with private actors and international development organisations (the World Bank) in order to ‘reach the world’s 2.5 billion unbanked’. By 2014, the Omidyar Network (backed by Ebay founder Pierre Omidyar) would become the second philanthropic investment organization officially partnered with AFI. That same year, AFI launched the Public Private Dialogue Platform (PPD), promising the private sector ‘an unprecedented opportunity’ to connect to policy makers who are regulating new and high growth markets. In 2015, Mastercard, Visa and the Spanish bank BBVA have become AFI members, with more partnerships to be formalized in the future. Meanwhile, the AFI acts an umbrella and incubator for a growing number of global and regional FI programmes such as the UNDP-Funded ‘Mobile Money for the Poor’ (MM4P) and ‘Shaping Inclusive Finance Transformations’ (SHIFT), among others.
Thus, the FPD complex sees the growing influence of a digital elite in development interventions. The public-private partnerships are predicated on the idea that technology and big data can play a critical role in advancing financial inclusion. For example, the Omidyar Network is investing in fintech companies whose strategic goal is to ‘disrupt traditional risk assessment’ by, for example, predicting customers ‘appetite for risk’ based on ‘patterns of calls and text messages’, or even inviting them to participate in online games and quizzes that generate behavioural data that can be fed into predictive algorithms. The promise is to connect lenders to upwardly mobile customers. Through these strategies of what Izabella Kaminska has called ‘financial intrusion’, consumers’ ‘digital footprints’ are being created, without their knowledge, and used or stored for future commercial use.
A cash-lite future
India’s recent demonetization initiative has received global attention. Widely judged as a misstep, the decision to withdraw 86% of all cash from circulation is typically explained as fight again shadow economy. But there is more to India’s initiative. It represents one (important) element of its adoption of the FPD approach to development.
Indeed, the state agreed to play an important role in the harvesting and commodification of digital footprints, by opening up its direct relationship with the poor to fintech. A spinoff from the AFI, the Better than Cash Alliance, encourages developing countries to digitalize social transfers, thus reaching the ‘unbankable’ at a stroke through the long arm of the state. Housed at the UN as implementing partner for the G20 Global Partnership for Financial Inclusion, the Better than Cash Alliance promises that a ‘cash lite’ Finance for Development agenda would put the UN’s Sustainable Development Goals within reach (Goodwin-Groen 2015).
The Better than Alliance has proved adept at illustrating the benefits of a cash-lite future. Digitizing payments from government to people can save the government of Bangladesh US 146 million per year across 6 social safety net programs. India, a member since 2015, saves USD 2billion by paying cooking gas subsidies digitally.
While such savings appeal immediately to governments worldwide, a Bankable Frontier Associates report made clear what is at stake in the ‘journey towards cash lite’. For financial service providers, the opportunities for FI via digital payments do not arise from increasing use of bank deposits by the previously unbanked, since bank accounts are not ‘daily relevant’. Rather, opportunities ‘come from financial service providers using the digital information generated by e-payments and receipts to form a profile for each individual customer’. This digital profiling then enables providers to offer more appropriate and relevant products.
Thus, data and algorithms become critical to pushing the risk frontier in low-income countries, as fintech companies create, collect and commodify behavioral data, within an ‘ecosystem’ fostered by networks of philanthropic investors, development finance institutions and donors and policy makers in participating countries.
Another, potentially more problematic issue arises in this process. Traditional microfinance lenders mobilised peer pressure in ‘solidarity groups’ to discipline borrowers to be ‘good financial citizens’. In the fintech era of international development, the mantra is ‘know thy irrational customer’ via algorithms. Cignifi for instance promises to continuously track changes in customers’ mobile behaviour, as mobile phones generate data that capture users moving from ‘one behavioural state to another’. This would allow lenders to create choice architectures that nudge customers in the direction of desired behaviours to preserve mobile-data-based credit score.
While the ethics of nudge are increasingly being debated, digital financial inclusion combines the inherent opacity of nudge techniques with that of predictive algorithm design, technically complex and subject to commercial confidentiality, in ways that have remained remarkably free from scrutiny.
While these programmes have adopted the language of inclusion and access, the question is who is actually accessing whom? Since the 2008 financial crisis a tendency to see its victims, rather than the system that created it as most in need of correction, has become entrenched. Meanwhile the possibilities of ‘fintech’ together with discovery of the ‘nudge’ toolbox has created new opportunities for financial capital to reach ever more remote consumers. As if the crisis never happened, this is the sub-prime ‘moment’ recast, perversely, as development policy, turning poverty in the developing world into a new frontier for profit making and accumulation.