Key message 1 – Mobile money improves financial inclusion and resilience, reducing poverty and furthering economic growth
The advent of mobile money has allowed for the transfer of resources more cheaply, securely, quickly, and over far greater distances than ever before, reducing transaction costs for low-income and rural households. For example, M-PESA, Safaricom’s mobile payments system in Kenya, has significantly reduced transaction costs for users in terms of distance to the nearest agent, with the average Kenyan household being within 1.4 km of a mobile money agent in 2015, down from some 9.2 km away from the nearest bank branch in 2007 (Suri, 2017).
Figure 1: Roll-out of M-PESA agents across Kenya, June 2008 and March 2010
The increased resource mobilisation enabled by mobile money has raised consumption and kick-started growth in communities. Mobile money has improved allocations of savings and labour, both in firms and households, and enabled more efficient investment decisions (Aron, 2015).
In Kenya, mobile money access has resulted in an estimated 194,000 households, or 2% of Kenyan households, being lifted out of extreme poverty, with poor female-headed households experiencing a pronounced effect (Suri & Jack, 2016). This appears to be from improved financial behaviour – easier and safer savings, and changes in occupational choice. M-PESA access has empowered an estimated 185,000 women to move out of subsistence farming and into business and retail (Suri & Jack, 2016).
In Kenya, mobile money access has resulted in an estimated 194,000 households, or 2% of Kenyan households, being lifted out of extreme poverty, with poor female-headed households experiencing a pronounced effect.
The benefits of mobile money usage accrue and become more visible as usage increases. The findings in this brief pertain mainly to Kenya, where usage exceeds that of other developing countries (WDI); smaller impacts would be expected for countries with lower usage rates. Transfer fees levied by mobile network operators have a large effect on usage, and flat fees that apply regardless of transaction size, such as the $0.05 levied on every mobile money transaction in Zimbabwe, have a disproportionate impact on low income users and discourage usage.
Figure 2: Change in log (per capita consumption) by gender, for households with and without improvements in agent access (growth in agent density), 2008 to 2014
Increasing financial resilience
A core component of financial wellbeing is resilience – the ability to respond to unexpected economic shocks. Households that lack access to formal financial services must rely on informal networks for access to credit, risk-sharing, and insurance. In the past, high transaction costs have meant that households in informal credit and savings networks have tended to be within close proximity to one another. This leaves them vulnerable to experiencing the same economic shocks, including droughts, fires, crop and livestock disease, and flooding, which reduces the risk-sharing potential of the network.
Using mobile money, households can transfer resources across a wider, more diverse network that is less prone to experiencing the same shocks at the same time and can better share risk, allowing informal networks to function more effectively. Evidence shows households with mobile money accounts receive a greater number and value of remittances in the face of a negative shock than households without mobile money accounts (Jack & Suri, 2014). In the face of a medical health shock, for example, mobile money users have been able to spend more on medical expenses while also increasing expenditure on food and keeping children in school (Jack, Stoker & Suri, 2012).
Mobile money products that offer savings and credit facilities, such as M-Pawa in Tanzania, MoKash in Uganda and Rwanda, and M-Shwari in Kenya, further provide users with a buffer against economic shocks or seasonal fluctuations in income. Users can save for rainy days and draw on short-term, uncollateralised micro-loans when needed. Savings and credit access also raises users’ income generation potential by giving them access to finance for productive investments. Recent findings show that the loan component of M-Shwari has improved resilience and increased propensity to spend on education (Bharadwaj, Jack & Suri, 2017).
Such credit facilities would be expected to be beneficial for small firms as micro-loans could ease temporary financing constraints, and firms’ business opportunities may be increased through facilitating transactions with customers. However, take-up rates of M-Shwari micro-loans have been lower than anticipated, suggesting that the loan size on offer may be unattractive (Aron, 2015). More generally, studies on the impacts of micro-financing (not facilitated by mobile money products) have found no transformative effects on the average borrower in terms of income, consumption, health, or schooling expenditure(Banerjee, 2015)1. It remains unclear whether mobile money products offering micro-loans will achieve better outcomes.