Can Mobile Money Help Firms Mitigate the Problem of Access to Finance in Eastern sub-Saharan Africa?

ABSTRACT

Mobile money is a mobile-phone-based financial tool that can transfer money safely and quickly across a wide geographical area. Mobile money has transformed the way businesses in Eastern sub-Saharan Africa operate. Nowadays, banks team up with mobile-money-service providers and pay interest on deposits and grant loans based on financial transactions in mobile-money accounts. In this paper, these recent developments are investigated in order to determine whether the adoption of mobile money by firms can actually help them mitigate the vexing problem of access to finance. To answer this question, the World Bank’s Enterprise Surveys Program data set for the year 2013 is used, thus making the study applicable to the present time. The results obtained, after controlling for a large number of firm-level characteristics and using a newly introduced measure to identify access-to-finance status of the firms, indicate that firms which use mobile money are more likely to obtain loans or lines of credit. Further analysis shows that the firms that use mobile money are more productive than other firms in the region.

KEYWORDS:

• Mobile money
• access to finance
• firms
• banks
• service providers
• Easternsub-Saharan Africa

Notes

1. The Financial Sector Assessment Program (FSAP), which is a joint undertaking of the World Bank and the International Monetary Fund, reports on a country’s financial structure.

2. The World Bank defines as a small firm one that has between 5 and 19 employees, a medium firm one that has between 20 and 99 employees, and a large firm one that has more than 99 employees.

3. For more detailed discussion, see Demombynes, G., & Thegeya, A. (2012). Kenya’s mobile revolution and the promise of mobile savings. World Bank Policy Research Working Paper, Available at SSRN 2017401.