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Can Digital Technologies Reshape Rural Microfinance?

New AAEA member research released in AEPP

The COVID-19 pandemic has brought to the fore a number of ways that society can use digital technologies to go about day-to-day life, including to use banking services without entering physical banks. While the pandemic has accelerated interest in using contactless technologies, even before the pandemic, the last two decades have seen dramatic increases in the use of mobile phones as well as satellite remote sensing, with wide-ranging implications for small scale financial services across the globe. For example, cell phone subscriptions have more than doubled and the number of and satellite launches have expanded over 20 times. What opportunities and dangers have such digital data unlocked?

In the new article Can digital technologies reshape rural microfinance? Implications for savings, credit, & insurance" Michael Carter, the director of the Feed the Future Innovation Lab for Markets, Risk and Resilience and professor in the Agricultural and Resource Economics Department of the University of California, Davis, and Elinor Benami, an assistant professor of Agricultural and Applied Economics at Virginia Tech, take a step back and review the evidence on whether digital technologies like mobile phones and satellites are now and can ever fulfill the financial landscape for the better.  

Prior work has often focused on digitalization in the context of a specific type of microfinance, such as savings, credit, and insurance. This paper, however, seeks to consider how digitalization is and can affect each of these three financial services alone and together. Benami says, “There’s reason for enthusiasm for digital technologies, as some microsavings, credit and insurance programs that employ novel technologies have shown promise to address real constraints of poor transportation networks, small scales, or risk in developing countries.”

Mobile money systems, for example, have helped people manage shocks with remittances from family and friends as well as payments from crop and livestock insurance coverage. Satellite data has also enabled new ways to support rural families at risk of losing crops or livestock, through, for example, helping target emergency financing or insurance payments.

Despite the promise of these technologies, however, they also present novel consumer protection issues: transfer security for mobile money,  predatory  lending for digital credit and unobservable contract quality for remote sensing-based insurance. The authors close by highlighting several important oversight initiatives underfoot -- including private sector standard setting programs such as the GSMA mobile money certification as well as academic-government collaborations like the Quality Index Insurance Initiative and the Digital Credit Observatory.

Carter says, “Much of the pre-existing literature suffers from a sort of technophilia.  In contrast, we try to step back and think about the core constraints that undercut rural financial markets in low-income areas, and then ask whether new whiz bang digital technologies can really solve the underlying problem. Our hope with this work is to illustrate how the designers and implementers of these enhanced financial tools can move towards fair, transparent, and appropriate ways of managing increasingly “big data” environments for the benefit of many small-scale individuals and households across the globe.”

The paper, “Can Digital Technologies Reshape Rural Microfinance? Implications for Savings, Credit, & Insurance is available at this link:

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ABOUT AAEA: Established in 1910, the Agricultural & Applied Economics Association (AAEA) is the leading professional association for agricultural and applied economists, with 2,500 members in more than 60 countries. Members of the AAEA work in academic or government institutions as well as in industry and not-for-profit organizations, and engage in a variety of research, teaching, and outreach activities in the areas of agriculture, the environment, food, health, and international development. The AAEA publishes two journals, the American Journal of Agricultural Economics and Applied Economic Perspectives & Policy, as well as the online magazine Choices and the online open access publication series Applied Economics Teaching Resources. To learn more, visit

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