Article

Savings for the Poor: Banking on Mobile Phones

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Abstract

The paper reviews the relevance of formal financial services - and in particular savings - to poor people, the economic factors that have hindered the mass-scale delivery of such services in developing countries, and the technology-based opportunities that exist today to make massive gains in financial inclusion. We also highlight the benefits to government from universal financial access, as well as the key policy enablers that would need to be put in place to allow the necessary innovation and investments to take place.

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... The lack of banking infrastructure and its low coverage network as well as high transaction costs, financial illiteracy and the lack of information are often cited as the main causes of the low access to formal financial services (Ondiege, 2010;Dermish et al., 2012;Allen et al., 2014;Jack and Suri, 2014). The unbanked individuals are generally poor, live in rural area with precarious and irregular incomes, and often rely on microfinance and informal finance to realise their financial projects (Rutherford, 2002;Kendall, 2010;Mas, 2010;Mas and Mayer, 2011). Microfinance institutions play an important role in providing formal financial services to the excluded people (Ondiege, 2010). ...
... Two distinguishing features arise from the existing literature (Batista and Vicente, 2016;Morawczynski and Pickens, 2009;Kendall, 2010;Mas, 2010;Mas and Mayer, 2011;Mbiti and Weil, 2016;Rutherford, 2002). First, despite the lack of easy access to formal financial services in developing countries, poor people manage to save although they mainly do so through informal mechanisms, and second the adoption of mobile money may or may not affect saving behaviour. ...
... For instance, some ROSCAs disband and often without warning. Moreover, holding illiquid assets expose individuals to loss or theft and assets depreciation (Christen and Mas, 2009;Morawczynski, 2009;Mas, 2010). In this context, we suppose that individuals may consider adopting mobile money as an alternative saving device because mobile money account is personal and relatively safe, and they can easily determine their own target to reach in order to realise their investment project. ...
Article
We investigate whether the use of mobile money can help individuals build savings to face predictable and unpredictable life events. Studying the case of Burkina Faso, we use hand-collected data from individual responses to a survey we designed and conducted between May and June 2014. Our main results show that, although it is not possible to detect any correlation between using mobile money and saving for predictable events, it seems to increase the propensity of individuals to save for health emergencies. We also found robust evidence suggestive that using mobile money increases the propensity of disadvantaged groups such as rural, female, less educated individuals and individuals with irregular income to save for health emergencies. In our further investigations, we address the mechanisms underlying individual saving behaviour. We found that safety and the possibility to transfer money within the sub-region associated with mobile money may be factors that increase the propensity of mobile money users to save for health emergencies. Overall, our results are in line with policymakers' agenda worldwide to increase financial outreach and improve financial inclusion by using mobile technologies. © The Author 2017. Published by Oxford University Press on behalf of the Centre for the Study of African Economies, all rights reserved.
... The lack of banking infrastructure and its low coverage network as well as high transaction costs, financial illiteracy and the lack of information are often cited as the main causes of the low access to formal financial services (Ondiege, 2010;Dermish et al., 2012;Allen et al., 2014;Jack and Suri, 2014). The unbanked individuals are generally poor, live in rural area with precarious and irregular incomes, and often rely on microfinance and informal finance to realise their financial projects (Rutherford, 2002;Kendall, 2010;Mas, 2010;Mas and Mayer, 2011). Microfinance institutions play an important role in providing formal financial services to the excluded people (Ondiege, 2010). ...
... Two distinguishing features arise from the existing literature (Batista and Vicente, 2016;Morawczynski and Pickens, 2009;Kendall, 2010;Mas, 2010;Mas and Mayer, 2011;Mbiti and Weil, 2016;Rutherford, 2002). First, despite the lack of easy access to formal financial services in developing countries, poor people manage to save although they mainly do so through informal mechanisms, and second the adoption of mobile money may or may not affect saving behaviour. ...
... For instance, some ROSCAs disband and often without warning. Moreover, holding illiquid assets expose individuals to loss or theft and assets depreciation (Christen and Mas, 2009;Morawczynski, 2009;Mas, 2010). In this context, we suppose that individuals may consider adopting mobile money as an alternative saving device because mobile money account is personal and relatively safe, and they can easily determine their own target to reach in order to realise their investment project. ...
Article
We investigate whether the use of mobile money can help individuals build savings to face predictable and unpredictable life events. Studying the case of Burkina Faso, we use hand-collected data from individual responses to a survey we designed and conducted between May and June 2014. Our main results show that, although it is not possible to detect any correlation between using mobile money and saving for predictable events, it seems to increase the propensity of individuals to save for health emergencies. We also found robust evidence suggestive that using mobile money increases the propensity of disadvantaged groups such as rural, female, less educated individuals and individuals with irregular income to save for health emergencies. In our further investigations, we address the mechanisms underlying individual saving behaviour. We found that safety and the possibility to transfer money within the sub-region associated with mobile money may be factors that increase the propensity of mobile money users to save for health emergencies. Overall, our results are in line with policymakers’ agenda worldwide to increase financial outreach and improve financial inclusion by using mobile technologies.
... For instance, less than a quarter of adults in Sub-Saharan Africa have access to formal financial services (IFC, 2013). Frequent reasons cited for this include the lack of enough money, the fixed fees and high costs of opening and maintaining accounts, distance and insufficient documentation (Thorsten Demirgüç-Kunt and Klapper, 2012;Honohan and Beck, 2007;Kendall, 2010;Mas, 2010). Weak financial institutions and the cost of maintaining branches in remote areas where unbanked people are mainly located also explain the low level of access and usage of formal financial services. ...
... We find that the probability of participants in informal instruments, who report to have reduced their use since their adoption of mobile money, to make deposits using a bank account may increase by 9% (Table A.2 in Appendix). Accordingly, the use of mobile money seems to be strongly associated with the use of a bank account for deposits than with a credit union account as mobile money users can easily make deposits in their bank account with their mobile phone (Mas, 2010;Munyegera and Matsumoto, 2016). ...
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Access to and usage of formal financial services are important determinants of financial inclusion and yet, informal mechanisms still dominate the financial system in developing countries. In this context, the purpose of our paper is to investigate how the growing effort to harness mobile money may play a role to overcome barriers that prevent people to access formal financial services. Using a unique dataset obtained from an individual-level survey conducted in Burkina Faso, we explore the interplay between mobile money innovation as a deposit instrument and pre-existing formal and informal financial instruments. Our main findings show that, overall, the use of mobile money is not associated with deposits using formal and/or informal financial instruments. However, a closer investigation reveals suggestive evidence that it increases the probability of participants in informal mechanisms to make deposits in a bank account. Moreover, considering disadvantaged groups, we find for women, irregular income and less educated individuals that mobile money may increase their probability to make deposits in a bank and/or credit union accounts. Given the low access to formal financial services in developing countries, our findings taken together indicate how the increasing adoption of mobile money may act as a stepping-stone towards financial inclusion. (JEL Classification C83, D14, G21, G23, O12)
... Within this context, the challenges cited by banks have been the cost of physical infrastructure, operational cost and unprofitability of serving these consumers given the levels of their disposable income (Boston Consulting Group, 2011;Goss, Mas, Radcliffe & Stark, 2011;Mas, 2010;Mas, 2012;Alleman & Rappoport, 2010;Alexandre, Mas & Radcliffe, 2011;Dermish, Kneiding, Leishman & Mas, 2012). The expansion of network coverage by Mobile Network Operators (MNO) and the penetration of mobile phones throughout Zimbabwe has circumvented the infrastructural barriers, that is, in developing countries mobile phone network counteract poor infrastructure and geographical isolation that contribute high cost of providing banking services to the rural communities (Oluwatayo, 2013;De Sousa, 2010;Alexandre, Mas, &Radcliffe, 2011;Jack &Suri, 2011 andFlores-Rouxy &Mariscal, 2011). ...
... In sub-Saharan Africa, 75% of the population do not have access to any form of formal financial services (Mas, 2010;Alexandre, Mas & Radcliffe, 2011) while in Zimbabwe, 70% of the country's population live in the rural areas and only 11.7% of the branch network serve them (Reserve Bank of Zimbabwe, 2007 andWorld Bank, 2012). This implies that people from the rural communities still travel long distances to the nearest bank to get financial services, denuding or exhausting their very limited disposable income. ...
Article
Full-text available
This study contributes to a deeper understanding of the usage level of mobile money, and how it has accelerated financial inclusion among the rural communities in an emerging economy such as Zimbabwe. The study employed a mixed methods approach and a concurrent dominant status design where quantitative and qualitative approaches were concurrently used with the quantitative approach having a dominant status. The study was carried out in the Midlands Province and a simple random sampling technique was applied to select the province. Eight districts in the province formed the study population of 262 493 households and a pilot sample size of 37 household was chosen. The study used a survey method to collect data, where a questionnaire and focus group discussions were used as the main data collection instruments. It emerged that the usage of mobile money by the unbanked rural people is very high, especially for sending and receiving remittances. However the saving and loan aspect of mobile money were not very popular. Users were still relying on their traditional methods of savings and borrowing. The implications are that the service providers need to increase their awareness programs targeting this specific market to encourage them to migrate from traditional ways to safe and secure way of saving their meagre income. More so, that their saving patterns will determine their access to loans. DOI: 10.5901/mjss.2014.v5n25p216
... Our observation during the Review Copy -Not for Redistribution File Use Subject to Terms & Conditions of PDF Licence Agreement (PLA) cause of the study reported in this work indicates that businesses in the base of the pyramid that are categorized as informal sector businesses have ways to raise the funds they need for businesses and rarely use microfinance banks due to financial inclusion challenges. This is consistent with Mas' (2010) study that showed that traditional saving and credit systems done through hiding cash at home, loans to friends and relatives, deposit collectors livestock and physical assets are mainly the sources of finances and credits for business in the informal sector. Rasheed's et al. (2019) study also shows that in Pakistan only 58% of the small and medium scale enterprises (SMEs) own and use bank accounts in formal financial institutions. ...
... Our observation during the cause of the study reported in this work indicates that businesses in the base of the pyramid that are categorized as informal sector businesses have ways to raise the funds they need for businesses and rarely use microfinance banks due to financial inclusion challenges. This is consistent with Mas' (2010) study that showed that traditional saving and credit systems done through hiding cash at home, loans to friends and relatives, deposit collectors livestock and physical assets are mainly the sources of finances and credits for business in the informal sector. Rasheed's et al. (2019) study also shows that in Pakistan only 58% of the small and medium scale enterprises (SMEs) own and use bank accounts in formal financial institutions. ...
... This implies that the higher the net monthly income of the respondent, the higher the probability of adopting MMT for payment. The adoption model result contradicts the findings of Chowa et al. (2012), andMas (2010), which indicates that individuals with low-income may find mobile money as accessible innovation and hence rely more on it to overcome predictable and unpredictable life events than people with high income. In Table 5, the net monthly income is positive in both models but significant at 5% in the first part model and 1% in the second part model. ...
Article
Full-text available
Adoption of mobile money technology in peripheral regions of Africa where conventional banking services are entirely lacking is very important for financial inclusion. Although the population of mobile money users has recently increased, its adoption in rural areas remains low. This study investigates the determinants of mobile money adoption in rural areas of Africa. Data from Research ICT Africa Access Survey were analysed with the two-part model. The first part involves the adoption of mobile money; second part, how much money was sent or received using mobile money. Relative to other means of sending or receiving money, 88%, 83%, 78%, 80%, and 89% agreed that mobile money is easier, safer, more trustworthy, more convenient, and faster, respectively. Two-part model findings show that age, years of education, unemployment, and ownership of bank accounts explain both the adoption and the amount of money sent using mobile money technology. Conversely, age, bank account ownership, and net monthly income determine both the adoption of mobile money and the amount of money received using mobile money technology. We recommend that mobile money operators target rural dwellers that are young and educated with a net monthly income in their marketing strategies in order to encourage its adoption among the unbanked.
... Mobile money technology has become widely adopted in Nigeria as banks have developed full-fledged banking service through the mobile phone technology with variety of services which were hitherto only possible in the banking hall (Anyasi and Otubu, 2009). Studies have shown the benefits of mobile money technology (Mas, 2010;Aker, et al, 2011;Jack and Suri, 2014), but its impact on prices and output is yet to be empirically validated in Nigeria. The few works on the impact of mobile money on macroeconomic variables for Africa are conducted on Uganda (Munyegera and Matsumoto, 2014;Mawejje and Lakuma, 2017), Tanzania (Chale and Mbamba, 2014) and Kenya (Mbiti and Weil, 2011). ...
Article
Full-text available
This paper examines the impact of mobile money on prices and output in Nigeria between 2008M1 to 2016M12. Using mobile money payment (MM) as a proxy for mobile money transaction, the structural vector auto-regressive (SVAR) model was adopted to test for the response of money supply (M2), consumer price index (CPI) and real gross domestic product (RGDP) to shocks from mobile money. The result shows that output responds positively to positive shocks from mobile money. This confirms the postulations that increase in velocity of money would improve the volume of money in circulation and given the slack in the economy wherein the economy operates below full-employment or potential capacity, increase in money supply will account for increase in national productivity with no effect on price. Also, the response of consumer price index to shocks in mobile money was stable which implies that shocks from mobile money transactions that results in increase in money supply and velocity does not precipitate price increase rather it would increase the macroeconomic stability of the countries in which it is widespread. Based on the study's findings, it is recommended that the government and policymaker should encourage the use of mobile money to achieve price and output stability. They should also develop means of controlling mobile money transactions to channel macroeconomic variables in the desired direction towards achieving the desired policy goals. JEL Classification: E4, E5, E52, E58
... Despite these challenges, the mainstream discourses around financial inclusion appear overwhelmingly positive, with focus remaining on targets of density, penetration and geographic access, as measured in the World Bank Findex. Practitioners and researchers tend to be concerned with how people as borrowers (Johnson and Arnold, 2012), savers (Mas, 2010), bank account users (Acosta et al., 2011) and mobile phone users access and use financial services (Graham and Nikolova, 2013). But whilst there is a wealth of knowledge on the demographics and usage patterns of these users, there is very little understanding of the users' specific subject positions as social actorspositions that are "essential to understanding the agency and identity of specific organizational actors" (Mantere and Vaara, 2008, p. 343). ...
... We find that the probability of participants in informal instruments, who report to have reduced their use since their adoption of mobile money, to make deposits using a bank account may increase by 9 percentage points ( Table A1 in the Appendix). Accordingly, the use of mobile money seems to be associated with the use of a bank account for deposits than with a credit union account as mobile money users can easily make deposits in their bank account with their mobile phone (Mas, 2010;Munyegera & Matsumoto, 2016). ...
Article
Access to formal financial services is a key determinant of financial inclusion and yet, informal mechanisms still dominate the financial system in developing countries. In this context, the purpose of our article is to investigate how the growing effort to harness mobile money designed for unbanked individuals may help to overcome barriers to access formal financial services. Using a unique dataset obtained from an individual-level survey conducted in Burkina Faso, we explore the interplay between mobile money innovation and pre-existing formal and informal financial instruments. Our main findings show that, overall there are no differences in the inclination of mobile money users and non-users to make deposits in formal or informal deposit instruments. However, a closer investigation reveals suggestive evidence that it may increase the probability of participants in informal mechanisms to make deposits in formal financial instruments, especially using a bank account. Moreover, considering disadvantaged groups, we find for women, irregular income and less educated individuals that mobile money may increase their probability to make deposits in a bank and/or credit union accounts. Our results are robust to using instrumental variables and propensity score matching techniques that mitigate the endogeneity problem. They also pass a number of robustness checks as well as considering an alternative dataset. Given the low access to formal financial services in developing countries, our findings taken together indicate how the increasing adoption of mobile money may act as a stepping-stone towards financial inclusion.
Chapter
Full-text available
A wide range of technologies impinges on all disciplines including financial services in this era of the Fourth Industrial Revolution. The deployment and security of mobile phones have considerably increased financial services access such as mobile money to the low-income households in developing African markets recently. The financial services that were once randomly accessible to those financially excluded have now become a potential pathway to enhance financial inclusion in allowing the low-income households to transact through mobile financial services in a more speedy, reliable, and secure manner. However, many security challenges remain to be addressed to promote a more inclusive mobile financial system. This chapter focuses on mobile devices security landscape and unprecedented security breaches by cyber criminals and how those threats can be mitigated in a view to promote financial inclusion in the mobile financial services sector of emerging African markets in the midst of the Fourth Industrial Revolution.
Article
We investigate the determinants of mobile money adoption process and whether its use helps households in Togo to be resilient to predictable and unpredictable life events. Using ordered logit and sequential logit models, our results show that in the adoption process, households benefit from weak ties of social groups such as religious group and informal saving group for the adoption of mobile money. We equally find that being client of banks or microfinance institutions act as powerful channels from one step to another in the process. Besides, our findings reveal that households whoever use mobile money seem to be more resilient to climatic shocks such as drought, irregular rain, soil degradation, erosion and fertility reduction and to shock that affect households’ assets (non-climatic: high prices of agricultural inputs). However, the picture is more contrasted when the individuals are classified by disadvantaged groups such as rural people, women, less educated and people with low incomes.
Chapter
A wide range of technologies impinges on all disciplines including financial services in this era of the Fourth Industrial Revolution. The deployment and security of mobile phones have considerably increased financial services access such as mobile money to the low-income households in developing African markets recently. The financial services that were once randomly accessible to those financially excluded have now become a potential pathway to enhance financial inclusion in allowing the low-income households to transact through mobile financial services in a more speedy, reliable, and secure manner. However, many security challenges remain to be addressed to promote a more inclusive mobile financial system. This chapter focuses on mobile devices security landscape and unprecedented security breaches by cyber criminals and how those threats can be mitigated in a view to promote financial inclusion in the mobile financial services sector of emerging African markets in the midst of the Fourth Industrial Revolution.
Chapter
A wide range of technologies impinges on all disciplines including financial services in this era of the Fourth Industrial Revolution. The deployment and security of mobile phones have considerably increased financial services access such as mobile money to the low-income households in developing African markets recently. The financial services that were once randomly accessible to those financially excluded have now become a potential pathway to enhance financial inclusion in allowing the low-income households to transact through mobile financial services in a more speedy, reliable, and secure manner. However, many security challenges remain to be addressed to promote a more inclusive mobile financial system. This chapter focuses on mobile devices security landscape and unprecedented security breaches by cyber criminals and how those threats can be mitigated in a view to promote financial inclusion in the mobile financial services sector of emerging African markets in the midst of the Fourth Industrial Revolution.
Chapter
With increasing urbanization, India has been witnessing phenomenal domestic migration and the resultant surge in remittances. The paper examines the case of using migrant remittances as one of the key triggers to encourage financial inclusion. It also seeks to initiate a policy debate on the role that the State should be playing towards financial inclusion. The paper echoes the need for a business approach tailored to financial needs and behavior of the end user. In line with this, it attempts to assess the demand side challenges faced by the banking sector in promoting financial services to the poor labor migrants. It also tries to assess their willingness and ability to shift to mobile based platforms of financial inclusion. The paper presents its findings based on a primary survey conducted in the state of Goa which has been witnessing a considerable inflow of labor migrants annually.
Article
Nearly forty percent of humanity lives on an average of two dollars a day or less. If you've never had to survive on an income so small, it is hard to imagine. How would you put food on the table, afford a home, and educate your children? How would you handle emergencies and old age? Every day, more than a billion people around the world must answer these questions. Portfolios of the Poor is the first book to systematically explain how the poor find solutions to their everyday financial problems. The authors conducted year-long interviews with impoverished villagers and slum dwellers in Bangladesh, India, and South Africa--records that track penny by penny how specific households manage their money. The stories of these families are often surprising and inspiring. Most poor households do not live hand to mouth, spending what they earn in a desperate bid to keep afloat. Instead, they employ financial tools, many linked to informal networks and family ties. They push money into savings for reserves, squeeze money out of creditors whenever possible, run sophisticated savings clubs, and use microfinancing wherever available. Their experiences reveal new methods to fight poverty and ways to envision the next generation of banks for the "bottom billion." Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.
mobile payments go viral: m-PESA in Kenya. Paper prepared for Yes Africa Can: Success Stories from a Dynamic Continent
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mas, I. & radcliffe, d. (2010) mobile payments go viral: m-PESA in Kenya. Paper prepared for Yes Africa Can: Success Stories from a Dynamic Continent. Washington, dC: World Bank, forthcoming.
Sizing and segmenting financial needs of the world's poor
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Wyman, o. (2007) Sizing and segmenting financial needs of the world's poor. Unpublished paper commissioned by the Bill & melinda Gates Foundation.
Access to Finance Survey in nigeria 2008: key topline findings Available online at: www.efina.org
Enhancing Financial Innovation and Access (EFInA) (2008) Access to Finance Survey in nigeria 2008: key topline findings. Available online at: www.efina.org.ng/ Key_Findings.pdf. Accessed 4 August 2010.