A recently published study on
the long-run effects of mobile money on economic outcomes in Kenya provides
some valuable insights that will benefit economic development and financial
inclusion policies across Africa.
The study found that increased access to mobile money has
reduced poverty in Kenya, particularly among female-headed households. Rapid
expansion of mobile money has lifted an estimated 2 percent of Kenyan
households (some 194 000) out of extreme poverty. It has also enabled 185 000
women to move out of subsistence farming and into business or sales
occupations.
Mobile money is a form of electronic money that allows
you to conduct financial transactions using your
mobile phone. It allows financial services to be extended to unbanked
people at a significantly lower cost because physical infrastructure isn’t
percent of the population having a mobile phone subscription. The
growth in mobile phone ownership raises the potential for mobile money to reach
unbanked people, providing them with a more affordable payments system.
M-PESA, Africa’s first mobile money platform, was
launched by Safaricom in Kenya in 2007. The service was designed to enable
remittances to be sent home, and has enjoyed widespread adoption. Today 96 percent of
households outside Nairobi have at least one M-PESA account.
Poverty reduction
The impact on poverty reduction appears to be the result
of improved financial behaviour – by facilitating easier and safer savings –
and changes in the occupational choice of users.
Mobile wallets offer a secure place to save as funds are
stored virtually. And both the mobile money facility and the mobile phone can
be password-protected. Savings can be used during hard times or for productive
investments, like establishing or expanding a small business.
Before mobile money the transaction costs of sending
money over large distances were high. This was true both in terms of time as
well as the financial resources needed to effect transactions.
High transaction costs meant that households were limited
to forming risk sharing networks with others in close proximity. This reduced
the effectiveness of informal risk sharing as all households in the network
were vulnerable to experiencing the same shocks at the same time. Examples of
shocks that could affect an entire community include droughts, fires, crop or
livestock diseases and floods.
Mobile money enables quicker, cheaper and more reliable
money transfers over greater distances. In turn, this has allowed mobile money
users to diversify their informal risk-sharing networks and draw on a wider
network of social support.
Impact of M-PESA
M-PESA has significantly reduced transaction costs in
Kenya. When it was launched the average distance to the nearest bank was 9.2
kilometres. Eight years later in 2015 the average distance to the nearest
were geographically dispersed which meant that more people in rural and
sparsely populated areas were within reach of one. This resulted in significant
and widespread adoption.
Now that mobile money users are able to form more diverse
risk-sharing networks, it’s not surprising that users, compared with non-users,
tend to receive more remittances from more people. This is particularly marked
when users are responding to negative shocks.
Mobile money users are therefore more financially
resilient and can protect themselves better against economic and other shocks.
It also allows them to increase their consumption in bad times. This is key to
enabling households to lift themselves out of extreme poverty.
The recent findings also show that in areas that have
experienced large increases in access to mobile money people were more likely
to be working in business or sales rather than in subsistence farming.
Additionally, fewer people in these areas reported having secondary
occupations.
Both these findings were seen to be particularly true for
women. This was found to be true in female-headed households as well as
male-headed households. An estimated 185 000 women have been induced to switch
from subsistence farming to business or sales as their primary occupation as a
result of mobile money access.
That mobile money has a positive impact on economic
outcomes for women is particularly notable when seen against some historical
studies on related subjects. For example, studies on the impact of
micro-finance on female clients, and on the economic returns to capital grants
for female-operated small businesses, have
tended to show limited results.
This may reveal something crucial. For women, the route
out of poverty may be financial inclusion that allows them to better manage
their existing financial resources, rather than increasing their financial
resources from credit or grants.
This finding has significant implications for policy and
poverty-reduction efforts.
More to come
As other products built on mobile money platforms are
developed, financial inclusion is deepened and users are empowered to improve
the management of their financial resources.
Other products allow users to, for example, earn interest
on savings, access micro-loans and affordable insurance, and invest
in government securities.
Mobile money has been transformational in Kenya, and has
the potential to similarly benefit the rest of sub-Saharan Africa.
THE
CONVERSATION