Techonomics - Cutting the Ribbon

This post contributed by Ben Lyon.

Welcome to TECHONOMICS, a new AshokaTECH Blog series devoted to shining a spotlight on the technologies that are fundamentally altering—and have indeed altered—the financial landscape in emerging markets.  From prepaid debit cards to mobile banking and payments, the pace with which information communication technologies (ICTs) are bringing financial services to the previously unbanked is staggering.  This and following posts will attempt to break down the market failures that gave rise to this trend, assess why some ICTs  are succeeding where others failed, and generate a list of best practices to facilitate future success.

Before jumping into a particular technology, though, it's important to step back and ask “Why do ICTs matter?”  Put simply, the operative word in the acronym is information.  Information allows us to know the market value of a good or service, avoid manipulation, determine whether or not a journey is worth our time, educate ourselves, and so on.  The more information we have, the better positioned we are to make the best decisions and receive the greatest benefits.

Some tangible examples from Sierra Leone: If a market lady on Jomo Kenyatta Road learns that tourists will pay her an additional Le2,000 (roughly US$0.50) per unit on Siaka Stevens Street, she has every incentive to relocate.  Similarly, if a cassava farmer in Bo learns that her middleman is re-selling her produce at a tremendous markup in Freetown, she will either cut the middleman out or demand a higher price per unit.  Just as buyers chase the highest quality product for the cheapest price, sellers chase the highest price consumers will bear, roughly establishing a balance economists term 'market equilibrium'.  The real task for all parties involved is to get enough information to approximate that equilibrium.

When one party in a transaction knows more than the other, an 'information asymmetry' occurs.  That is, the more knowledgeable party can—and has every incentive to—take advantage of the less knowledgeable party.  If the cassava farmer from our previous example doesn't know that her middleman is getting Le400 (roughly US$0.10) per unit from arbitrage, she has no reason to demand a higher price.  Conversely, if she does have that information, she can get more Leones per unit and benefit from a range of 'positive income effects,' which could include paying her child's school fees, saving for the future, investing in a micro-enterprise, or addressing any number of family needs.

Image source: kiwanja.net

 Whether CellBazaar in Bangladesh, eSoko in Ghana, Trade at Hand in Liberia, or Zain Info Services throughout Africa and The Middle East, ICT services are popping up at lightning speed to meet the demand for information outlined above.  By simply typing a text message command or thumbing through an interactive menu on a mobile phone, millions of people in emerging markets now have a range of  information at their fingertips.  Making that information universally accessible should be the paramount mission of ICT practitioners worldwide.

For those of us raised on School House Rock, the phrase “Knowledge is Power!” is deeply engrained in our psyche.  Knowledge disrupts hierarchies, fosters understanding, insulates us from abuse and generally levels the playing field.  Due in large part to an influx of accessible ICTs, an information revolution is sweeping the emerging world.  Where and to what extent this revolution promotes financial inclusion will be the subject of future posts. 

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Check out these previous AshokaTECH posts on ICT for economic and other benefit:

Mobile for development - reaching the unreached

Mobile Telephony and Financial Inclusion

The Next Wave of the Mobile Boom in Africa is not a Foregone Conclusion