The Impact of Poverty on Base of the Pyramid Operations: Evidence from Mobile Money in Africa

40 Pages Posted: 13 Jan 2015 Last revised: 24 Jun 2022

See all articles by Karthik Balasubramanian

Karthik Balasubramanian

Howard University School of Business

David Drake

University of Colorado at Boulder - Leeds School of Business

Gloria Urrea

University of Colorado at Boulder - Leeds School of Business

Date Written: May 31, 2022

Abstract

It has been demonstrated that innovative business models designed to serve the population at the "base of the pyramid" are an effective means to create employment and improve quality of life. However, the effect that various levels of poverty have on the viability of these business models is not well-understood. We address this gap through the context of "mobile money," an electronic currency ecosystem designed as a secure, reliable way for those at the base of the pyramid to store and transfer money. Using data from Kenya and Uganda, and instrumenting for potentially endogenous regressors, we examine the effect poverty has on operational decisions (inventory and price transparency) and market dimensions (network density and demand). Our results suggest that mobile money, as a base of the pyramid business model, is well-positioned to serve those in poverty up to a point, with demand increasing in poverty when the concentration of poverty is sufficiently low. However, as poverty becomes more pervasive, our results suggest that its business case becomes challenged with increasing inventory costs, decreasing density of its agent-based network, and decreasing demand per agent. We conclude with thoughts on how to buttress mobile money’s business case in these extreme poverty settings.

Keywords: poverty, operational decisions, mobile money, base of the pyramid

Suggested Citation

Balasubramanian, Karthik and Drake, David and Urrea, Gloria, The Impact of Poverty on Base of the Pyramid Operations: Evidence from Mobile Money in Africa (May 31, 2022). Available at SSRN: https://ssrn.com/abstract=2549171 or http://dx.doi.org/10.2139/ssrn.2549171

Karthik Balasubramanian

Howard University School of Business ( email )

2600 6th St NW
Washington, DC DC 20024
United States

David Drake (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Gloria Urrea

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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