Is digital finance changing the lives of the “excluded” for the better?

Snapshot 4: “How do advances in digital finance interact with dynamics of exclusion?” addresses one of the key questions of FiDA’s Learning Themes. The FiDA Partnership synthesizes the digital finance community’s knowledge of these Learning Themes as “Snapshots” that cover topics at the client, institution, ecosystem, and impact levels to present “current insights” about the topic in question, highlight “what (the digital finance community) can do,” and call attention to “implications” for future research and investment.

Grace is 55 years old; she has a primary school education and a small business selling produce in her village. Her husband owns a mobile phone, but she does not. Benson is 30 years old; he has a secondary school education, and works in the city as a taxi driver. He owns a mobile phone. Grace and Benson learn  about a digital credit product that provides small loans through a mobile phone.

Do you think Grace and Benson will have the same experience accessing and using digital credit?

Why we wrote this Snapshot

When digital financial services are designed for broad populations, it’s easy to assume that different demographics within a population will use them in the same way and experience the same impacts. Yet, factors such as age, literacy, gender, geography, and language shape the nature of the adoption, use, and impact of digital finance. That is,  a digital credit product’s effect on an outcome like “growth of business” may be greater or less depending on the client’s age or education. A recent analysis by CGAP and FinMark Trust highlighted the distinct variables that can compound exclusion from financial services.

Snapshot 4, “How do advances in digital finance interact with dynamics of exclusion?” discusses persistent issues surrounding exclusion and how digital finance research measures exclusion. We offer these  observations to sensitize researchers and practitioners to the importance of these dynamics and encourage exploration of how distinct variables of exclusion determine how marginalized groups experience outcomes.

Don't assume effects are universal

The prevailing narrative around the impact of technologies on a given population is a variant of the idea that a rising tide lifts all boats. Yet, research rarely presents dis-aggregated insights. Instead, studies report the average effect which suggests that every individual in the study experienced the reported effects equally. A review of digital finance impact studies from FiDA’s Evidence Gap Map found that 78% of studies did not report even a  basic variable: gender dis-aggregated data. While, studies with just women result in useful insights, if we do not look at the way digital finance is used by women in comparison to men, it is impossible to argue that a digital finance product or service has been more or less helpful to those women than it would have been to other segments of the population.

Sometimes the marginalized benefit more

When the design of a digital financial service syncs with the needs of an excluded group, the benefits of using it accrue disproportionately to them. Snapshot 4 highlights digital finance studies that present instances in which being female, less educated, lower income, or from rural areas was associated with greater effects than being male, more educated, or from urban areas. For example, an impact study in Burkina Faso highlighted that while mobile money made no difference in the savings behavior of relatively advantaged groups (urban, male, and highly educated), it increased the probability of saving for disadvantaged groups (rural, female, and less educated).

Sometimes the marginalized benefit less

Unfortunately, there are many cases in which the benefits of a technology accrue mostly to high status, high skill individuals, rather than to the marginalized populations we often wish to serve. Snapshot 4 highlights a study that found, for higher income households, that an increase in savings services was associated with less reliance on asset depletion to cope with economic shocks. However, an opposite effect was observed for those with lower incomes.

These observations can provide the digital finance community with a more refined understanding of impact by determining the conditions under which impact applies or is stronger or weaker. They also underscore the need to examine how a digital finance product may interact with and affect various excluded groups.

Build and evaluate strong theories of change

What to do when faced with these dynamics of exclusion? We foreground that the first step is to develop theories of change that allow for impacts to accrue differently to different user groups. This is fundamental to understanding the potential impact heterogeneity and, ergo, to designing impact research. A heightened awareness of these challenges will help practitioners plan appropriate digital finance services that their underserved clients will want , and be able, to use regularly. 

Read Snapshot 4 for more details on our findings, implications, and a list of the top-10 reads in the space.