The impact of poverty on base of the pyramid operations: Evidence from mobile money in Africa

Abstract

AbstractBusiness models designed to serve those at the “base of the pyramid” are an effective means to create employment and improve quality of life. However, the effect that poverty has on the performance of such businesses 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, our results indicate that, where poverty is more pervasive, inventory costs increase in poverty while per agent demand and agent network density both decrease. In short, the business case for mobile money degenerates in regions where it, arguably, is needed the most. We conclude with thoughts on how to buttress mobile money's business case in these high poverty settings.