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

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