A recently published study on the longrun effects of mobile money on economic outcomes in Kenya provides 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% of Kenyan households (some 194000) out of extreme poverty. It has also enabled 185000 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 people without a bank at a significantly lower cost because physical infrastructure isn’t needed. Mobile phone penetration is rising across sub-Saharan Africa with at least 76% of the population having a mobile phone subscription.
The growth in mobile phone ownership raises the potential for mobile money to reach more people, providing them with an 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, with at least 96% of households outside Nairobi having 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. Before mobile money the transaction costs of sending money over large distances were high.
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 and cheaper money transfers over greater distances.
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 9.2km.
Eight years later in 2015 the average distance to the nearest M-Pesa agent was a mere 1.4km. When M-Pesa started it created a network of agents that were geographically dispersed which meant more people in sparsely populated areas were within reach of one.
Now that mobile money users are able to form more diverse risk-sharing networks, it’s not surprising that users, compared with nonusers, 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 increases in access to mobile money people were more likely to be working in business or sales rather than in subsistence farming. 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 185000 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 financial resources, rather than increasing their financial resources from credit or grants.
This finding has significant implications for policy and poverty-reduction efforts.
Sarah Logan is an economist at International Growth Centre.
This article first appeared on theconversation.com