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Ideas & Debate

Why criticism of fintechs’ role in war on poverty is totally misplaced

 fintechs
M-Pesa and other fintechs have grown because of their utility value. FILE PHOTO | NMG 

Don’t hold your breath, Fintech isn’t the answer to world poverty’’ was the title of an article that Prof Milford Bateman wrote in the Business Daily of July 9, 2018.

Unfortunately, the article had a lot of uninformed and rather fallacious arguments and conclusions that cannot go unchallenged.

First, it suggests that financial technology (fintech), and particularly M-Pesa-facilitated microcredit has driven millions into indebtedness and poverty.

Prof Bateman seems to suggest that fintechs are deleterious to Kenyans and the country given their apparent “…huge downsides that are only becoming apparent in Kenya now that it has become fully embedded within the community”.

This latest article follows from another piece he wrote for The Guardian on November 19, 2013 claiming that ‘Microcredit has been a disaster for the poorest in South Africa’.

In that article, Prof Bateman argued that “the microcredit medicine applied to post-apartheid South Africa has turned out to be a deadly one. It is now increasingly clear that the much-lauded market-driven microcredit model has inflicted untold damage on the South African economy and society. … the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest”. It is thus clear that he has some axe to grind with the international development community, and the fintechs that he considers an enemy of the people and human development and wellbeing.

Otherwise, how would one interpret the assertion that “… largely thanks to M-Pesa, the international development community now argues that a new digital utopia has arrived in Africa, with Kenya showing the way towards meaningful poverty reduction, job creation and sustainable local economic development?

Unfortunately, Prof Bateman claims, ‘the debate over the real value of fintech and M-Pesa is hopelessly one-sided because it is led by the fintech lobby itself, notably the World Bank and USAid”. How can he conclude that “with the for-profit fintechs exploiting the vulnerability and dreams of the poor by selling way too much microcredit to them, many inevitably spiral into irretrievable indebtedness and poverty”? On what data does he arrive at such generalisations or conclusions?

Perhaps Prof Bateman would be wiser to conduct a meaningful and rigorous research to provide evidence that fintechs have been harmful to Kenyans. If he were to care, he would discover that M-Pesa has actually had huge impact on the lives of Kenyans, not only because it allows for easier and faster money transfers, but also because it facilitates and makes easier and simpler business transactions.

How can one argue that fintechs and M-Pesa have destroyed social relations without looking at evidence of how relations are strengthened because of regular disbursements using the faster and effective mobile money transfer instruments?

It maybe that a few people have fallen into debt but that cannot be generalised without serious research and empirical evidence particularly from the formerly marginalised and disenfranchised communities now enjoying some financial fruits delivered by fintechs. Prof Bateman blinkers his argument by choosing to focus on and railing against what he considers the apparent ‘deleterious’ effects of microcredits provided by fintechs.

His position is certainly one that amounts to throwing out the baby with the bathwater. One cannot have a clear view, and good understanding and appreciation of the consequences of M-Pesa, for example, without the benefit of lived experience. Even though Prof Bateman calls the claim that 194,000 households have escaped “poverty thanks to their use of M-Pesa”, nonsense, he needs to know that this is a significant number given the fact that some Kenyans live in abject poverty and thus any instrument that delivers them from their wretchedness is welcome.

Moreover, there is nothing wrong with Tavneet Suri and William Jack’s work, especially because it was based on rigorous research that was peer reviewed and considered worthy of publication. Without any other serious study to counter the arguments and perhaps disprove their findings and conclusions are undoubtedly still valid and reliable.

Things may have changed since their paper – The long-run poverty and gender impacts of mobile money – was published in December 2016. Whatever the case, there is little doubt that since the paper was published, M-Pesa and other fintechs have grown and been appropriated by millions of Kenyans because of their utility value.

One needs to travel across the length and breadth of Kenya to discover the impact M-Pesa and other fintechs have had on ordinary Kenyans, particularly those living on the periphery of the established but sometimes exploitative and inaccessible financial institutions and instruments.

George Nyabuga teaches at the University of Nairobi.

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