As leaders of countries and corporations from around the world gather in a tony ski resort for this week’s World Economic Forum annual meeting, they will pass by posters showing the faces of people whose daily income is less than the price of a Swiss cup of coffee. The distance between those leaders and the people on the posters may be immense, but it is shrinking rapidly thanks to new digital technologies. Armed with a digital ID, a mobile phone, and a bank account, the landless laborer in rural Bangladesh is becoming an integral part of the new digital economy that will shape the politics and profits of the future. The top of the pyramid (Davos invitees) can no longer ignore the bottom (like the women in the Indian village described in a recent CGD blog post).
As the WEF notes, digitization is transforming business models, the policy landscape, and social norms. But what does it mean on the ground? Over the past few months, we’ve been analyzing a dataset from the Indian state of Rajasthan to better understand the use and impact of digital technology on people. Among other things, the data show how digital technology can be used to improve the delivery of subsidies and pensions and to achieve financial inclusion; nearly 100 percent of household survey respondents now have a bank account. That’s an impressive accomplishment, but it is not the whole story. We’re concurrently finding gaps in how much people actually use those accounts. Likewise, even though women do transact on the accounts, it is still men who use the household mobile phone (and by extension control the family finances), often because women lack the requisite mobile literacy. Digitization can be inclusive but it opens the risk of a gender-based digital divide.
For the policymaker looking to improve services and the delivery of benefits, or for the financial institution trying to expand its customer base, the gap between technical solutions and the situation of the average technology user represents fertile ground for the many new opportunities that the digital economy provides.
Governments can use technology to reduce exclusion…
Governments are investing significant resources to create digital infrastructure, but these investments will only realize their full potential if the private sector takes advantage of digital public goods. For example, last week CGD learned how Malawi has just achieved near-universal electronic ID coverage for its adult population in less than six months. The government and institutional donors together invested $52 million to register all adults at a cost of around $5.50 per head. This is a significant outlay for Malawi, but the government anticipates many benefits, ranging from extending the right to identification to their citizenry to increasing tax revenues and expunging payroll ghosts. Also important are the opportunities for the private sector, such as increased financial inclusion and enhanced ability to travel.
Malawi isn’t alone. Governments—from municipalities up to the national level—are using digital technologies to accomplish a variety of goals as several recent CGD publications have pointed out. Specifically:
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Digital biometric ID systems enable people to assert their existence and rights.
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Digital technologies improve service delivery to the poor by reducing corruption in supply chains and delivery channels.
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Targeting the poor with transfer subsidies directly into their bank accounts generates fiscal savings, allows governments to eliminate market distortions, and fosters competitive markets (see CGD case study of India’s targeted liquid petroleum gas subsidy).
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Financial inclusion supported by electronic Know Your Customer (e-KYC) based on digital ID opens up opportunities for formal participation in financial markets, especially for women.
…and there’s a huge role for the private sector as well
In and of themselves, improvements in public programs can yield substantial economic and social benefits. But the greatest benefits will come if the private sector builds on top of the digital infrastructure to expand opportunities. One might think of the private sector as the multiplier effect on top of a digital government stimulus package. Take the opportunities that India’s Unified Payments Interface opened to the mushrooming number of private providers of digital financial services, or the dramatically lowered cost to onboard a banking client through its e-KYC service. India is not alone; the identification infrastructure built in Kenya underpins its remarkable expansion of mobile financial services. The ID system reports responding to over a million identity checks a day through its automated system, mostly from financial institutions.
This is not just the public sector trumpeting about possibilities either: Mastercard, the Secure Identity Alliance, and the GSMA (a worldwide trade organization of mobile network operators) have all endorsed the Principles on Identification for Sustainable Development, which CGD facilitated in 2017 with the World Bank Group.
As policymakers and private actors gather at Davos, enthusiasm over technological innovation will undoubtedly run high. But that technology is most effective when everyday users—not just early adopters—can easily take advantage of it. How can we extend human-centered design to focus on the millions who are entering the digital economy every day? Finding ways to ensure that all groups on the margin are included is not only a political and social imperative, but an opportunity for the private sector to serve new markets in the digital economy. The leaders in Davos are just a WhatsApp message away.
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
