Mobile Money, Financial Inclusion and Development: A Review With Reference to African Experience

Abstract

Survey literature on mobile money and its contribution in promoting financial inclusion and development, with a focus on sub‐Saharan Africa. We use taxonomic, descriptive and analytical methods to evaluate the state of knowledge in the area. We analyse how mobile technology in general may contribute to economic development and financial inclusion in theory and practise. We explain the mechanics of mobile money using Kenya's M‐Pesa as a canonical example; and consider whether the literature has fully established the potential economic impact of mobile money especially its contribution to financial inclusion. We also consider market structure, pricing and regulatory implications of mobile money. We conclude by highlighting issues that require further investigation: the take‐up of mobile money; mobile money and financial inclusion; substitutability between mobile money and conventional finance; and regulatory structures for institutions providing mobile money services.

Mobile Money Use: The Impact of Macroeconomic Policy and Regulation

“…While mobile money tax regulation is associated with a 0.7 percentage point decline in mobile money usage in the short run, in the long run it leads to a 0.8 to 0.9 percentage point decline in mobile money usage. Taxation levied on mobile money services, especially over and above standard rates, make the use of mobile money services less attractive to the detriment of the financial inclusion of marginalised groups (Ahmad et al 2020;Andersson-Manjang et al 2020;Bahia and Muthiora 2019;Kipkemboi and Bahia 2019;Maina 2018). In 2018, Uganda introduced a one per cent tax on all mobile money transactions, over and above the 10 per cent excise duty levied on transaction charges which was later that same year revised to 0.5 per cent on withdrawal transactions only following public outcry and pressure (Bahia and Muthiora 2019;Maina 2018;Pasti 2019).…”

“…This notwithstanding, uncertainties remain regarding the speed and nature of customer adoption and usage in the mobile money field which is relatively new albeit fast evolving especially in Africa. In a recent survey of the literature in the context of sub-Saharan Africa, Ahmad et al (2020) find mixed evidence on mobile money's contribution to financial inclusion and economic development and conclude by highlighting issues that require further empirical investigation, key to which are the determinants of mobile money adoption and usage. This corroborates reports from mobile money service providers in Africa which highlight uncertainties over drivers of customer adoption and regulatory issues as some of the main barriers to their growth (Maina 2018;Porteous 2006).…”

“…Although macroeconomic and regulatory frameworks are important determinants of the success of mobile money systems, empirical evidence on the effect of macroeconomic policy and regulation on mobile money usage is very sparse in Africa, constrained by, among other things, data limitations because it is a relatively new field. A substantial number of studies are survey-based, but there is a lack of consistency among surveys, across countries and over time (Ahmad et al 2020;Aron 2018). In addition, this literature has focused on the effects of regulation on mobile money, with little work on the effects of macroeconomic policy on mobile money (see (Di Castri 2013;Maina 2018;Rulangaranga et al 2016).…”

“…The advent of mobile money transformed the landscape of financial inclusion in developing countries, giving access to essential financial services for the vulnerable and poor who constitute a large segment of the population. For instance, in Africa, the continent where financial exclusion is a serious impediment to development, mobile money technology has 26 times the reach of ATMs and 58 times the reach of bank branches (Ahmad et al 2020). This is because unlike conventional banking and financial services, mobile network operators (MNOs) have networks that reach further and deeper into rural areas historically marginalised.…”

“…Economies 2021, 9, 51 2 of 19 While there is a considerable and growing literature on mobile technology and its potential for promoting financial inclusion (Ahmad et al 2020;Di Castri 2013; (Groupe Speciale Mobile Association) GSMA 2021; Maina 2018;Porteous 2006), a significant part of it is concerned with the management of mobile technology (e.g., (Davidson and McCarty 2011;Donner 2008)), rather than with formal empirical investigation of its implications, costs and benefits (Ahmad et al 2020). Given the financial inclusion benefits of mobile money (see (Ahmad et al 2020;Aron 2018;Demirguc-Kunt et al 2018;Masocha and Dzomonda 2018;Mothobi and Grzybowski 2017) among others, an understanding of the effects of macroeconomic policy and regulation on mobile money usage is pertinent for developing an effective policy framework that is genuinely enabling for the growth and development of the mobile money industry. This is particularly important because access to financial services may be compromised by economic obstacles (Aron 2018).…”