There has been much discussion recently about the ‘over-the-counter’ (OTC) practices that are subverting financial inclusion in many developing countries (see for example this recent talk between Graham Wright and Dr. Pawan Bakhshi and this 2013 blog on mobile money in Bangladesh by Greg Chen). Seen through the lens of oral culture and the needs of oral market segment however, this process appears like normal oral adaptation, not an unexpected market response.
Demand-side challenges profoundly limit financial inclusion, and they are why My Oral Village, Inc. has designed and continues to develop ‘oral information management’ solutions. The dean of transaction cost economics, Oliver Williamson, argued that market failure is not a product design challenge, but atransactional governance one. Products must lower transaction costs to market clearing levels not just on the supply side, but on the demand side, too. He neatly summarizes this view as follows: “A governance structure is usefully thought of … as an institutional framework in which the integrity of a transaction, or related set of transactions, is decided.” In other words, get transactional governance right for the oral mobile money segment, or expect that market to fail.
In Chen’s blog he tells the story of a Dhaka rickshaw driver, whose illiteracy debilitates his efforts to negotiate a digital wallet. Research at My Oral Village is clearly showing that illiteracy – and especially arithmetic illiteracy, or innumeracy – is in practice one of the largest transaction costs in finance. When unaddressed it can be just as debilitating to functioning markets as (for example) poor underwriting practices.
On the crest of our information revolution it should surprise no one that functioning financial markets require more than financial flows: they also require effective two-way information flows. If illiterate clients cannot encode information on their devices, or decode information received during a transaction, they cannot validate its accuracy, which chokes off the evolution of a trusting relationship. Their response may be wary product use — committing minimal resources — followed by abrupt exit. Or they may open an account but not use it. Or they may hand their device to an agent they trust — until a future date when they have reason to no longer trust him. This shallow and unstable engagement reflects a retail interface at which (in Williamson’s apt phrase), ‘transactional integrity’ is not ‘decided’.
Einstein famously remarked “we cannot solve our problems with the same level of thinking that created them.” To solve the greatest problem in financial inclusion, are we thinking on the right level?