December 21, 2012
Photo: Eirik Newth
For mobile phones to be economically beneficial, microenterprise owners need to have the right mindset about using the devices for business-related communication. In a study of Indian female microentrepreneurs, a UNU-IIST researcher and colleagues found business growth was strongest when owners were highly motivated to grow and actively used mobile phones to support their business activities.
• • •
From its earliest days, the mobile phone has been considered as a tool for greater business productivity and poverty reduction. But even as mobile phones near universal diffusion, there appears to be a “productivity paradox” in that widespread ownership of mobile phones does not seem to be accompanied by significant poverty reduction.
According to the latest projections, there are more than 6 billion mobile phone subscriptions worldwide, with roughly three-quarters of those in the developing world. In urban Chennai, India, for example, there are three mobile phones for every two urban residents. Nevertheless, the World Bank reports that 32.7 percent of the Indian population subsists on less than $1.25 per day, while 69 percent makes only $2 a day. In urban India, 28.93 percent of the population still lives in extreme poverty.
Researchers have suggested two reasons why mobile phones have played a limited role in reducing poverty. First, the poor do not make full use of their mobiles to conduct their businesses. Second, they are more likely to use their phones to call friends and family than business partners.
Indeed, economists like Abhijit Banerjee and Esther Duflo have noted that the poor struggle with making the “best” choices for themselves. For instance, they would pass up free life-saving immunization and pay for unnecessary drugs because the latter can better ease the vicissitudes of their daily lives.
Social psychologists such as Sendhil Mullainathan and Dean Spears explain that this may be because willpower is a scarce resource. The poor must make difficult trade-off decisions every day, such as whether to pay rent or buy medicine; whether to buy food or send their children to school. Making these choices depletes their willpower to engage in other activities that might actually better their condition. Perhaps this is why mobile phone calls to swap stories about what is happening in the neighbourhood are much more common than calls to check on market prices.
Microenterprises in the developing world have long attracted the interest of researchers and policymakers for their role in sustaining the livelihoods of many people. In sheer number, microenterprises are the most common type of business in the developing world, and various estimates suggest that women own upward of half of all microenterprises in developing countries.
If small-scale enterprises are making significant contributions to GDP growth, we should see a bustling landscape of businesses creating jobs and alleviating poverty in the developing countries. But we don’t. The reality is that the vast majority of microenterprises are subsistence enterprises, and their owners are often reluctant entrepreneurs who lack the skills and opportunities to find stable jobs and hence start businesses only to supplement family income, often temporarily. Not every man or woman who owns a very small business should be given the rather romantic label of entrepreneur.
We built our study on what is already known about mobile phone use and the potential of microenterprises. We hold no grand notions that either technology or entrepreneurship would reduce poverty for everyone. Nevertheless, our previous research did indicate that when microentrepreneurs make increased business use of their mobiles, there appears to be a significant link between mobile use and enterprise growth.
For our study, the focus on women microentrepreneurs as subjects of research came from a sense that increasingly available communication technologies might have a powerful effect in altering the marginalized position of women in business and society. By studying women microentrepreneurs, we aimed to provide some insights into the efficacy of mobile phones for poverty reduction.
The over-arching “problems” that our research addresses are clearly referenced in the following United Nations Millennium Development Goals: MDG1, reduce poverty; MDG3, promote gender equality and empower women; and MDG8, Target 8F, make available the benefits of new technologies, especially information and communications. As such, we see our research as participating in a modest, but significant, way in the conversation about those global concerns.
We also recognized that in attempting to understand the impact of mobile phones on poverty reduction, it is no longer adequate to investigate only physical or material access. The poor have voted with their wallets and chose the mobile phone as their technology of the times. Besides physical access, other factors such as social and psychological variables must also be examined.
To achieve this, we looked at whether entrepreneurial expectations affected microenterprise success by first creating an index of entrepreneurial expectations. We asked the women to indicate how much they agreed with statements such as “I won’t think of myself as a successful businessperson unless I can hire some new workers every year” and “One year from now, I expect to be making more money in my business”. (See the full set of questions below under “Related information”.)
Sixteen percent of the women microentrepreneurs in our study scored above average on the index, suggesting that at least one out of six female microentrepreneurs was motivated to grow her businesses.
The impact of motivation in the form of entrepreneurial expectations is a novel finding in the field of information communication technology for development (ICT4D). Insofar as the women entrepreneurs had a strong desire to garner greater profits, hire more workers or expand their operations in the future, their businesses also tended to do better economically. This is one of the two equally significant findings in our study.
The existing literature suggested that microenterprises generally do not grow. However, our finding suggests that microentrepreneurs who were highly motivated to grow their businesses did experience higher business growth, demonstrating a fairly strong link between attitudes and desired outcomes.
The second of the two most important findings in the study was the amplification effect between entrepreneurial expectations and the business use of mobile phones. What the figure below shows is that business-related use of mobile phones had the greatest impact on enterprise growth when it was coupled with a strong entrepreneurial mindset. For women entrepreneurs with high expectations of entrepreneurial growth, the use of mobile phones had a relatively stronger positive effect on their business growth. On the other hand, for women entrepreneurs who, for whatever the reasons, did not or could not grow their businesses, the use of mobile phones did not have a strong effect on their business growth.
Mobile use and entrepreneurial expectations
In short, our study found that two boundary conditions need to be present for mobile phones to have a substantial effect on business growth: women who own microenterprises must both possess an entrepreneurial mindset for growth and they must be using the mobile phones for business purposes. Specifically, the use of mobiles for business communication appears to have the greatest positive impact on the business growth of female-owned businesses when their owners score high on the index of entrepreneurial expectation.
Mobile phones thus appear to amplify entrepreneurial will. This conclusion lends perspective to the failures of earlier ICT4D interventions, which operated on the assumption that access and use of technology in and of itself would alleviate poverty. In the absence of a strong motivation to better one’s life, and aided by the appropriate use of communication technology, developmental outcomes would not be achieved.
Our study also challenges the academic consensus regarding the growth potential of most microenterprises. It offers evidence that it is possible to identify microenterprises with growth potential and to demonstrate the role of a communication technology (mobile phones) in achieving economic development goals. At least one in six female microentrepreneurs studied had the “will” (entrepreneurial expectations) and the “way” (mobile phones) to significantly improve their businesses.
In the broadest sense, our study demonstrates that human agency is a critical consideration in programmes for poverty reduction and that a communication technology (the mobile phone) can facilitate the active pursuit of goals or values held by individuals. For women microentrepreneurs who are striving to improve their own and their families’ lives, even modest improvements to microenterprise revenues would help them take a positive step towards their aspirations.
We stand at a point in technological history where mobile phones are now firmly in the hands of the poor. Business-related mobile use might lead not only to more jobs, but to more decent jobs. For female microentrepreneurs, a growing business might provide the capability to pay for increased education for daughters and sons; to pay off outstanding, usurious loans; to get better health care; and to put money away for festivals, weddings or old age.
For those deemed poor and destitute, perhaps the real difference that these devices make is not just improving income or increasing a sense of self-worth. Perhaps the real effect is to give hope — hope that they will be able one day to escape the trap of poverty.
Index of entrepreneurial expectations (α = .80) 1 = strongly disagree, 5 = strongly agree
Business growth was the year-over-year percentage by which microenterprise revenues changed as reported by the microentrepreneur. In this study, the mean business growth was 6.26%, SD = 12.92, range = -50 – 80.
♦ ♦ ♦
This research is funded by the International Development Research Center.