Cannibalizing the informal economy: frugal innovation and economic inclusion in Africa

Frugal innovation focuses on engagement with the informal economy for the ‘co-creation’ of low-cost, decent quality goods and services for the poor. While representing informal actors as agents rather than just consumers of innovation, frugal innovation models fail to recognize informal economies as economic systems in their own right, treating them instead as a pool of workers and organizational resources to be tapped for the benefit of external innovators. In this paper I will examine how frugal innovation models selectively transform informal economic and institutional systems around formal economic interests, reconfiguring informal opportunities and the distribution of gains in ways that promote adverse incorporation of informal actors rather than mutual benefit. I will examine four mechanisms of adverse incorporation operating within frugal innovation models: copying, free-riding, eliminating nodes of accumulation, and shifting risk. Drawing on case studies of M-Pesa and micro-insurance, I will illustrate the often selective and disempowering effects of frugal innovation, which operate to reconfigure informal economic systems in ways that divert profits and control away from informal operators.