What key insights have emerged from development economics in the past decade, and how should they impact the work of the World Bank? A new working paper Toward Successful Development Policies: Insights from Research in Development Economics from the Bank’s research department captures 13 of the most significant insights in the world of development economics.
Here’s insight #12 – on how the widespread access to digital financial transactions have improved outcomes for users reducing poverty. See all previous insights here: Thirteen insights for successful development policies
But these services must be delivered sustainability and responsibly. This research has direct implications for World Bank work on safety nets, service delivery, and poverty reduction.
Digital transactions improve service delivery
Using cash creates enormous costs. For example, governments must spend money bringing truckloads of paper currency to remote areas; these trucks also need to be insured and protected by armed guards. Digital transfers improve efficiency and remove corruption opportunities—a relevant finding for the World Bank's efforts to promote safety net coverage and improve service delivery.
- When Andhra Pradesh used biometric smart cards instead of cash to distribute social security payments, the government saved nearly $40 million annually, which was nine times greater than the cost of implementing the program. Theft of funds went down, people spent less time collecting payments, and recipients got more money because less was being stolen.ref1
- In Niger, using mobile phones rather than cash to distribute payments for an anti-hunger program reduced administrative costs by a fifth, lowered costs for recipients, and allowed households to feed their children more and purchase more protein-rich food.ref2
Digital transactions help prevent people from falling into poverty
Every year millions of people fall into poverty due to unexpected shocks such as natural disasters, high medical bills, or sudden unemployment. In poor countries, safety nets are often absent, so people rely on their social networks for emergency funds. As a result, they are less likely to become poor during an economic emergency. These findings are relevant to the World Bank's work on resilience and poverty reduction.
- When hit with an agricultural shock, Kenyan households with no mobile money access suffered a 7 percent drop in use of goods and services, while those who did have mobile money experienced no such drop on average.ref3
- In Tanzania, rainfall shocks resulted in 6 percent lower consumption on average, but mobile money users were able to maintain consumption due to improved risk sharing. ref4
Digital transactions help people build savings
This money can be invested in educational and business opportunities and has implications for the World Bank's work on employment and poverty reduction.
- In Afghanistan, workers who automatically deposited part of their salary into a mobile savings account had higher savings and financial security than workers who received a mobile savings account but did not sign up for automatic deposits.ref5
- In India, weekly payments resulted in significantly higher savings for a group that received the payments into accounts, but not for a group that received them in cash.ref6
- In Malawi, farmers who had their earnings deposited into a savings account had higher savings before the next planting season, spent more on agricultural equipment, and increased crop sales.ref7
Digital transactions require comprehensive consumer protections
Digitalization in India will take time, this is my opening, I want to ask one question only is digitalization is safe and secure for the future.
Founder & CEO