Payment instruments, finance and development

This paper studies the effects of a payment technology innovation (mobile money) on entrepreneurship and economic development in a quantitative dynamic general equilibrium model. 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 a payment instrument vis-a-vis suppliers. Calibrating the stationary equilibrium of the model to match firm-level data from Kenya, we show significant quantitative implications of mobile money for entrepreneurial growth and macroeconomic development

Financial Inclusion and Financial Stability: Current Policy Issues

The recent financial crisis has shown that financial innovation can have devastating systemic impacts. International standard setters' and national regulators' response has been a global concerted effort to overhaul and tighten financial regulations. However, at a time of designing stricter regulations, it is crucial to avoid a backlash against financial inclusion. In this chapter, we argue that greater financial inclusion presents opportunities to enhance financial stability. Our arguments are based on the following insights: Financial inclusion poses risks at the institutional level, but these are hardly systemic in nature. Evidence suggests that low-income savers and borrowers tend to maintain solid financial behavior throughout financial crises, keeping deposits in a safe place and paying back their loans. Institutional risk profiles at the bottom end of the financial market are characterized by large numbers of vulnerable clients who own limited balances and transact small volumes. Although this profile may raise some concerns regarding reputational risks for the central bank and consumer protection, in terms of financial instability, the risk posed by inclusive policies is negligible. In addition, risks prevalent at the institutional level are manageable with known prudential tools and more effective customer protection. The potential costs of financial inclusion are compensated for by important dynamic benefits that enhance financial stability over time through a deeper and more diversified financial system. In the following pages, we present the current state of financial inclusion globally. We also explore some trends in financial inclusion and what the most effective policies are to favor it. In doing so, we suggest that innovations aimed at countering financial exclusion may help strengthen financial systems rather than weakening them

Exploring the contribution of mobile money to well-being from a capability perspective

This study considered the impact of mobile money on well‐being and development from a capability perspective using data from the Upper East Region of Northern Ghana. The evidence suggests varied capability enhancing benefits of mobile money use, ranging from empowerment to participate in the financial system, to choice, and agency to meet various functionings that contribute to better well‐being outcomes in employment, health, and education. Erratic power supply and a poor network signal in some communities are unfreedoms that need removing for people to take advantage of the huge well‐being and human development potential of mobile money. The long‐term dependency on family and social networks for monetary support is a capability diminishing feature of mobile money. The study findings support the necessity to adopt a multifaceted and pragmatic conceptualisation of development in information and communication technology for development research

Understanding the Impact of Mobile Phones on Livelihoods in Developing Countries

Mobile phones are spreading rapidly in developing countries, but research conceptualisations have been lagging behind practice, particularly those that link mobile phones to livelihoods. This article seeks to fill this gap in two ways. First, by means of a literature review which analyses how they impact upon assets - through facilitating asset substitution, enhancement, combination, exchange and forms of disembodiment. On this basis key roles for mobile phones are defined within livelihood strategies. Secondly, the analysis demonstrates the shortcomings of the livelihoods framework for understanding technological innovation; its agriculture-oriented understanding of assets; its silence on the developmental role of information and on user appropriation of technology; and its narrow categorisation of impact. Ways of addressing these shortcomings are suggested, pointing towards areas of future research and application. © 2014 Overseas Development Institute