Yesterday was July 7th, which according to Malawi’s somewhat mysterious accounting rules marked the end of the month. That means one thing: payday, and therefore lines of dozens to hundreds of people at the bank. Once a month basically every Malawian employed in the formal sector lines up at their bank’s ATM to withdraw all the money they’ve been paid. These are not people who are particularly infatuated with the wonders of modern finance. Word on the street is nobody trusts the banks, since sometimes you can’t get your money out.
So why on earth are they using them? I don’t have solid evidence on this, but I do have plenty of hearsay and conjecture, which are kinds of evidence. Apparently the government requires its own employees, and many other people with business-type jobs, to be paid through direct deposit against their will. They prefer cash, so they line up to get it.
Put this way, the idea is obviously a silly one. Malawi is a cash economy, and it would make more sense to pay people in something they can use. This approach does have the upside of reducing logistics and overhead on the part of the employer, but I doubt that’s the reason. My development spider-sense tells me the real reason is that various white people who control grant and aid money think financial development is awesome and want everyone doing it, so the local government has complied.
Indeed there’s a whole branch of development work that’s dedicated to the use of finance to help people out of poverty. The fact that economists are so big on this approach (Dean Karlan’s new book is almost entirely about various microfinancial interventions) is especially odd. Left to their own intentions, markets in developing countries would have little or no formal finance. In order to believe that financial interventions are worthwhile we have to be convinced that markets in these places aren’t sufficiently free or competitive. This is entirely possible, and, I’d say, likely – but I think we’re about 50 yards ahead of the ball with all this promotion of banking and so forth. Even with outside support finance in a place like Southern Africa is expensive, inconvenient, and basically unwanted. We have to figure out why markets aren’t working right, and how, before we jump to the step of making every person in Zomba spend an hour in line at the ATM once a month.