Topic 3: Digitalization

Question 1

Developing countries often lack private insurance and there are few public sector safety nets.

Instead: social ties create an insurance network: but large transaction costs exist making it inefficient. Why?

Answer 1

Ideal network is to have as different risk profiles, to diversify risk. Transactions often have to cross geographical space which is costly, limiting networks to a small space with often correlated shocks the network shares

Question 2

What can remove the problem of transaction costs due to geography/distance

Answer 2

Mobile money (digital payments system)

Question 3

Adoption of M-PESA trend

Answer 3

Started in 2007, slow adoption among poor, but really fast adoption overall.

Question 4

M-PESA accessibility overtime

Answer 4

Accessibility improved a lot - from 2007-2015

% of households within 1KM distance of mobile money agents increased from 46% to 68%

Question 5

M-Pesa transaction costs relative to other methods of payment

Answer 5

Cheapest par hand delivery!