Ajay Banga and predatory financial inclusion

Newly appointed World Bank President Ajay Banga at the World Economic Forum in Davos, January 18, 2017. Credit: World Economic Forum / Sikarin Thanachaiary

By Nick Bernards, Associate Professor, University of Warwick

On Wednesday, 3 May, former MasterCard CEO Ajay Banga was confirmed as President of the World Bank. The appointment, driven by the Biden administration, has rightly raised controversy with civil society groups around the continuation of the ‘gentlemen’s agreement’ whereby the US effectively unilaterally appoints the Bank’s President, while Europe nominates the Managing Director of the IMF. 

One significant reason behind Banga’s nomination is his track record of ‘financial inclusion’ initiatives during his time at MasterCard. One typical summary of Banga’s qualifications for the Presidency suggests that Banga ‘has been widely praised for his management skills at MasterCard, as well as his establishment of financial inclusion programs at the firm’.

Financial inclusion, meaning the extension of a range of financial services to impoverished people, has been a priority of the Bank’s for much of the last two decades. As the most recent World Development Report puts it succinctly: ‘Access to financial services is essential for resilience and economic recovery. Digital payments, savings, credit, and insurance allow businesses and individuals to manage risk, smooth expenses, and invest.’ This is a neat ‘win-win’ story — poor people get new means of managing the many risks with which they are faced on a daily basis, banks and other financial institutions get new sources of profit.

In practice, things haven’t worked out so well. There is a marked tendency for banks and new digital lenders to, in Phil Mader’s words, ‘cherry pick’ the aspects of the ‘financial inclusion’ agenda they want to participate in — mainly, high interest loans to ‘less poor’, predominantly urban borrowers. Another potentially lucrative area, which has proven to be of interest to some financial services firms, is the digitization of payments.

On this point, Banga’s MasterCard has been at the forefront. MasterCard participated in a number of pilot projects, predominantly in sub-Saharan Africa, aimed at rolling out biometric payment cards to ‘unbanked’ people. Notable projects in Nigeria and South Africa — the latter with significant support from the World Bank — administered state pensions and social grants using accounts linked to cards embedded with biometric data about recipients. 

Towards the end of his MasterCard tenure, Banga would tell an interviewer at Bloomberg that ‘I think the biggest realisation… was to define our competition—not other payment networks, but as the wider environment of cash. That just changed everything; how we approach the market, how we approach technology, how we approach financial inclusion and our commitments to financial inclusion over the years.’

Banga was quite happy to make himself the face of these projects. Interviewed in 2013 about MasterCard’s biometric programmes as part of a glowing profile in the Washington Post, Banga rhapsodized the benefits of biometric payment cards. Cashless transactions were cheaper and more efficient, both for recipients of social payments and for governments. Not only would the elimination of cash help reduce fraud, tax evasion and crime, but biometric data would give to the hitherto ‘unbanked’ a basic sense of personhood that cash payments could not provide. At the same time, the digitization of social payments in particular was clearly identified as a potential growth area for MasterCard. Banga told his interviewer, that while biometric projects would ‘do good’, ‘I’m not a philanthropy. I’m not a United Nations agency. I run for shareholders. I have to do well. I believe you can do both.’

With the benefit of ten years of hindsight, the picture is decidedly less rosy. For one, MasterCard-linked projects targeting the ‘unbanked’ seem primarily to have served as means of experimenting with technologies to be subsequently rolled out for more affluent markets. MasterCard eventually piloted its first biometric credit card in South Africa in 2017, shifting its gaze from social grant recipients to more affluent middle-class consumers. MasterCard has subsequently piloted a project with retailers in Brazil in 2022, with an eye to eventually deploying biometrics in Europe and North America. As MasterCard’s direct involvement in ‘financial inclusion’ initiatives has seemingly slipped onto the backburner, it’s hard to escape the conclusion that social grant recipients in Africa have been used as guinea pigs to test out products and technologies which MasterCard ultimately intends to deploy in more lucrative markets.

Moreover, the wider digitization of social payments has not had the kind of unalloyed development benefits Banga seemed to anticipate in 2013. We can see this especially clearly in South Africa where MasterCard’s involvement with the payment of social grants was notably heavily supported by the World Bank through loans by the Bank’s private-lending arm, the International Finance Corporation, to MasterCard’s partner bank, Net 1. Net1’s role in administering the social grants quickly became increasingly controversial, both because of irregularities in the tendering process, and because it was linked to facilitating exploitative lending practices. Net1 leveraged its near monopoly control over the distribution of social payments in order to aggressively market loans to transfer recipients. Net1 then used its position managing the flow of social transfers into recipients accounts to deduct loan payments from transfer payments directly. As Erin Torkelson puts it, ‘Funded by the state, Net1 turned social grantees into a lucrative and risk-free market’.

Ajay Banga’s track record with ‘financial inclusion’ projects, then, effectively boils down to making himself a figurehead for some of the most predatory and exploitative elements of a wider development agenda whose actual benefits have proven unclear at best. We should probably be cautious of overstating the influence of the President over the day-to-day operations of the Bank. However, Banga’s appointment is a worrying sign of what’s to come in the Bank’s approach to poverty, especially given that the particularly predatory take on ‘financial inclusion’ fostered during his time at MasterCard is being proffered as evidence of his suitability for the Presidency.

It’s perhaps notable in the context of Banga’s appointment that digitizing social payments has been identified as a policy priority for the World Bank in recent years, particularly post-pandemic. The Bank has launched twin initiatives around Identification for Development (ID4D) and digitizing ‘Government to Person’ (G2P) payments (G2Px). These projects carry with them a heavy emphasis on using social transfers primarily as mechanisms for expanding the use of digital finance by impoverished recipients, and on initiatives for targeting and fraud prevention. They also amount to a kind of ‘privatization by stealth’ of social transfer systems, as significant chunks of their administration are contracted out to private banks and payment firms like MasterCard. 

Given his MasterCard history, Banga’s appointment seems a worrying signal that projects like the MasterCard-Net1 debacle in South Africa will gain prominence and priority in coming years.