Cash: The Unsung Hero of Digital Finance
Cash has often been derided as an obstacle to digital finance: a hang-over of more primitive days, evocative of the legacy systems that keep poor people poor. This argument is based on a misunderstanding of how poor people adapt and learn. Far from being a fossilized legacy, cash is arguably a potent tool that can help bring poor people into digital financial inclusion.
Photo Credit: Mahfuzul Hasan Bhuiyan, 2015 CGAP Photo Contest
Based on research by My Oral Village conducted last year, I reported in an earlier blog that many illiterate individuals around the world face difficulties reading large numbers—those that are 3, 4 or more digits long. Most people with little or no formal schooling can correctly recognize a one-digit number, but do not know “place value”—the set of arithmetic rules that determine how many digits are in a number like 6,030 or 325,000, how many zeros it has, and where those zeros are placed. This makes understanding larger numbers—especially in the context of entering them into a payment app—difficult if not impossible.
In societies where money is the norm but literacy is not, cash seems to be functioning as an intermediate counting and calculating tool that builds on spoken number, and does not rely on written arithmetic notation. As cash enables more people to be fluent in bigger numbers, it may be a key cognitive gateway to financial inclusion.
For instance, My Oral Village found from interviews and focus groups in 2015 that in village markets in Tanzania, vendors—often illiterate women—generally had mobile phones with calculators. But when transacting the vendors used neither written records nor calculators. Instead, they sold their vegetables in heaps based on standard prices, such as Tsh 500 or 1,000. If the price went up, the heap would shrink, but the price would not change. Most vendors had only a few types of heaps, and most transactions involved only a few items. Only regular numbers were used, and all transactions were done in cash. As a result, buyers and sellers had all the cognitive tools they needed to complete a transaction—without using a pen, paper or calculator.
Just as it is hard for sighted people to see the strengths of the blind, it can be hard for literates to see the strengths of orality. Yet illiterate people have shown remarkable adaptation to counting and calculating, without knowing arithmetic notation. In the world of large numbers, the illiterate analogue to a blind person’s sense of touch is cash.
Critics of cash have one aspect very right: oral individuals don’t trust it as a store of value. It is susceptible to all kinds of calamities—theft, loss, destruction by natural disasters—that lead poor people to quickly convert it into cows or building materials or favors to friends.
Can a safer, digital version of cash be designed for the oral market? Here are some ideas:
- Visual representations of local cash denominations can be integrated into any mobile transaction. Any phone with the capacity to generate simple images can generate recognizable cues for the various denominations. The “smarter” the phone, the more intuitive the process can be.
- Agents can display posters in their facilities that link cash quantities to arithmetic notation.
- Agents can also provide spaces where their customers can use “play money” to support their calculations. Oral users need to feel confident that they will be able to complete their work correctly and unrushed.
- Financial numeracy games that support acquisition of skills like place value and percent can be run on tablets (accessible offline) and deployed through savings groups, solidarity groups and informal financial groups.
- Cash/image-based ledgers and passbook apps can be developed for savings groups and other informal financial groups.
- A two-minute financial numeracy test, using cash, can be developed for integration into financial inclusion data sets.
It is useful and important to replace cash with digital payments in the formal sector. But it is also important to ease the integration of nearly a billion oral adults into the formal sector—and even to “digitize” the informal financial sector. To achieve these goals, we must grasp the role paper money plays in the oral world. It is a very effective learning and adaptation tool for illiterate and semi-literate individuals striving to enter the modern economy and financial system—and a critical predecessor to any type of payment, mobile or otherwise.