In the remote areas of sub-Saharan Africa, less than 20 percent of the population has access to any type of formal financial institution. Yet access to financial services is a key aspect of development, as credit and savings allow households to invest, save and respond to shocks. Households in such contexts typically share risk by self-insurance (savings), including “at home savings” (i.e., under a mattress), saving with collectors (i.e., susu) or “rotating savings clubs”. In addition to savings, rural households often use migration to urban areas as a means of diversifying household income. While these strategies are important risk-sharing mechanisms for rural households, they are also subject to risks, including theft (in the case of the mattress), restricted access at relevant times (in the case of the savings club), fees (to the susu collector) or high transaction costs (in the case of remittances).
Since 2005, a new technology—mobile money—has become available in over eighty countries worldwide. Mobile money (m-money) is a product that allows clients to use text messages to store value in an account accessible by the handset, convert cash in and out of the stored value account, and transfer value between users (Aker and Mbiti 2010). As compared with the traditional means of sending and receiving money within many developing countries, such as Western Union and MoneyGram, the postal service or delivery by friends or family, m-money substantially reduces the costs of transferring money (Jack and Suri 2012).
M-money offers a new potential mechanism for increasing the financial inclusion of the world’s poor. First and foremost, since m-money can reduce the monetary and security costs associated with money transfers, it can allow households to send or receive money when it is needed, thereby improving households’ ability to share risk (Jack and Suri 2012, Blumenstock, Eagle and Fafchamps 2012). Beyond money transfers, m-money could also be used to create a secure pseudo-savings account, where individuals can deposit smaller savings amounts for more immediate needs (Mas and Mayer 2012). As the “account” is password-protected, the m-money savings channel could offer greater security (as compared with savings under the mattress) while having increased access (as compared to the annual “share out” of savings clubs). In addition, m-money could encourage individuals to save for particular objectives.
This research seeks to understand whether and how m-money can promote financial inclusion of the world’s poor, particularly those living in rural areas. In particular, the purpose of this research is to address some of the potential barriers to m-money adoption and usage in Ghana, with a goal towards providing insights into whether m-money services could be used to: 1) provide cash transfers to extremely vulnerable populations; 2) facilitate savings within rural areas, either by allowing individual members of savings groups to save, facilitating savings among different savings or promoting savings objectives; or 3) allow households to receive remittances from migrants.
by Jenny Aker; Kimberley WilsonDownload (876kB)