Finance: Research, Policy and Anecdotes

Mobile Money and Firm Growth

Now forthcoming in the Journal of Development Economics, my paper with Haki, Ravi and Burak on how access to mobile money allows small and micro-enterprises better and cheaper access to trade credit and ultimately higher (productivity) growth.     While recent papers (most prominently by Billy Jack) have explored the impact of mobile money on household welfare, we look at its effect on firms’ productivity growth.   Specifically, constructing a dynamic general equilibrium model, we assess how payment mechanisms interact with trade credit in increasing growth.  Using Kenyan firm survey data, we calibrate the model and provide evidence for our theoretical model.  For a non-technical summary, see this Vox column.


In the model, mobile money dominates fiat money as a medium of exchange, since it avoids the risk of theft, but comes with electronic transaction costs. We show that entrepreneurs with higher productivity and access to trade credit are more likely to adopt mobile money as payment instrument vis-a-vis suppliers. Calibrating the stationary equilibrium of the model to match firm-level data from Kenya (which we collected jointly with FSD Kenya), we show that the use of M-Pesa (the most successful mobile money technology so far) by enterprises can explain 10% of Kenyan growth between 2007 and 2013, thus a significant macroeconomic effect. 


This paper is part of an expanding literature that has shown that more efficient retail payment services (such as mobile money) can have important positive macro-economic effects and thus speaks to the literature on financial inclusion (which has shown much more ambiguous effects of expanding credit services to the poor).  It thus also adds to the debate on which financial service to focus when expanding access to financial services. 


This paper is dedicated to our friend Ravi, who was to become a PhD student in Tilburg in 2013, but was killed in the atrocious attacks in Westgate Malls in Nairobi, on 21 September 21, 2013.  For a wonderful obituary, see Koen Schoors in this eBook.