Contesting Digital Finance for the Poor

Abstract

This article critically assess digital finance as a pro-poor intervention in the development finance space. It examines the turn from ‘microfinance for the poor’ to ‘digital finance for the poor’. It then considers three key issues and contest the argument that digital finance is pro-poor. Proponents argue that digital finance can improve development outcomes, but this is based on weak economic logic; secondly, proponents argue that digital finance for the poor is good business - this claim is very weak because evidence suggest that digital finance is good business only with government support. The article further argues that digital finance for the poor will expose the poorest to multiple risks in the financial sector. The implication is that the expectation that digital finance will serve as a major pro-poor private sector intervention lacks economic justification. Therefore, digital finance for the poor should be a contested enterprise.

Keywords: Digital Finance, Microfinance, Financial Inclusion, Financial Development, Financial Innovation, Poor People, Financial Technology, Blockchain, Fintech, Regtech, Sandbox, Access to Finance, Financial Services

JEL Classification: E5, G2, O16, G21, G28