Mobile money and entrepreneurship in East Africa: the mediating roles of digital savings and access to digital credit

Abstract

PurposeThis study aims to examine the comparative link between mobile money (MoMo) and entrepreneurship in East Africa. Apart from analysing the data to examine locational, gender and age heterogeneities in the MoMo–entrepreneurship nexus, the authors explore the potential roles of digital savings and access to digital credit in serving as transmission channels in the link between MoMo adoption and entrepreneurship.Design/methodology/approachThis paper uses nationally representative samples from Kenya, Tanzania and Uganda which were extracted from the fifth wave of the InterMedia Financial Inclusion Insights (FII) Program. The authors employ a suite of quasi-experimental microeconometric techniques—standard instrumental variable estimation, Lewbel two-stage least squares (2SLS) and propensity score matching.FindingsOverall, the authors’ preferred endogeneity-corrected result suggests that adopters of MoMo are 24.4 percentage points more likely to engage in entrepreneurship. This result is robust to alternative ways of conceptualising MoMo adoption and different methods used in resolving endogeneity. The association between MoMo and entrepreneurship is stronger in Kenya compared to Uganda and not significant in Tanzania. The significant positive association between MoMo and entrepreneurship is observed among women and rural residents and not for their male and urban-located counterparts. MoMo significantly enhances entrepreneurship among the youth and adults but not the elderly. Digital savings and access to digital credit serve as important channels through which FinTech adoption influences entrepreneurship.Practical implicationsThe entrepreneurship-enhancing effect of MoMo adoption can be extended to discuss the possibility of employing MoMo as a policy tool to contribute to the attainment of Sustainable Development Goal (SGD) 8 which seeks to ensure full and productive employment and decent work for all. Incomes that accrue from entrepreneurial activities can also increase households' purchasing power to decrease poverty (SDG 1), reduce food insecurity (SDG 2) and provide resources needed to purchase clean and modern cooking and lighting fuels (SGD 7).Social implicationsThe growing rate of unemployment and vulnerable employment in Africa has been an issue of concern to policy makers. These problems have been caused by the inability of policy makers to create adequate jobs. The study’s findings show that policies geared towards enhancing the diffusion of MoMo can augment efforts being made by governments to decrease the unemployment rate in Africa through increased entrepreneurship. The employment effect of MoMo can also be realised through the emergence of digital entrepreneurship which has been identified as having the potential to transform African economies to knowledge-based economies for sustainable development.Originality/valueThis study contributes to the MoMo literature by deviating from the focus of existing studies which have emphasised more on the intermediate outcome (performance) and less on the immediate (i.e. entrepreneurship or small business venturing). This helps to highlight the entrepreneurship effect of MoMo which has evolved from a simple peer-to-peer payment system to a complex one that provides savings, credit, insurance and other products.

Moving away from trading on the margins: Economic empowerment of informal businesses through FinTech

“…By doing so, we add new insights to the ICT4D literature on the formal-informal and macro-micro dynamics that underpin technology-mediated change (Coleman, 1990;Ramadani et al, 2022;Rao & Kelleher, 2005). We also show that, as for formal small businesses (Koomson et al, 2022;Wirdiyanti et al, 2022), mobile money can lead to benefits for informal businesses. Thus in addressing our research question (and reflected in Figure 4) we show the influence of the logics at three levels: (1) at the macro level through regulatory changes which have allowed new opportunities for non-financial organisations (MNOs and FinTech firms) to participate in the financial industry;…”

“…These conflicts and misaligned interests explain the outcome of the shifts from one logic to another (the open market logic to interconnected logic) and the unexpected benefits for informal businesses as well as the ways they were neglected. Previous research (Amoah et al, 2020; Finau et al, 2016; Koomson et al, 2022; Senyo & Osabutey, 2020) has conceptualised the outcomes of mobile money at a single level without considering the interdependencies between levels. By doing so, we contribute to the literature on the relationships between macro‐level processes and micro‐level actions in technology‐driven development (Ramadani et al, 2022) which may be difficult to theoretically grasp without considering how broad social conditions affect individual social environments.…”

“…Senyo & Osabutey, 2020; Koomson et al, 2022Taewoo et al, 2022Belanche et al, 2019 Impact Financial inclusion, people's welfare, empowerment, digital financialisation, platform surveillance, datafication, and information capitalism Micro and meso level analysis (e.g., Individual users, and MNOs) Kikulwe et al, 2014;N'dri & Kakinaka, 2020;Senyo et al, 2021Jain & Gabor, 2020Lagna & Ravishankat 2021;Mann, 2017;Taylor & Broeders, 2015 Studies in the design/innovation research stream focus on the innovation process of FinTech. These studies demonstrate how meso level actors-organisational level players such as FinTech firms, banks, and MNOs-develop and offer FinTech innovations as well as reframe financial service ecosystems (Muthukannan et al, 2020;Ng et al, 2022).…”

“…These studies examine both technological and behavioural determinants of mobile money use and have found there are still factors that inhibit uptake. Koomson et al (2022) found that users of mobile money were more likely to engage in entrepreneurial activities. Studies have found links between the uptake of e-commerce and the financial inclusion of micro firms (Wirdiyanti et al, 2022), while other studies suggests that small firms that rely on FinTech may miss out on credit because they have not established adequate relationships and information exchanges with banks (Fasano & Cappa, 2022).…”

“…Previous research (Amoah et al, 2020;Finau et al, 2016;Koomson et al, 2022;Senyo & Osabutey, 2020) has conceptualised the outcomes of mobile money at a single level without considering the interdependencies between levels. By doing so, we contribute to the literature on the relationships between macro-level processes and microlevel actions in technology-driven development (Ramadani et al, 2022) which may be difficult to theoretically grasp without considering how broad social conditions affect individual social environments.…”