The Transformative Role of Mobile Money in Fostering Financial Inclusion - Praxis
The Transformative Role of Mobile Money in Fostering Financial Inclusion

The Transformative Role of Mobile Money in Fostering Financial Inclusion

Mobile money platforms have emerged as powerful agents of change, fostering financial inclusion and economic development in economies grappling with institutional voids. A study from the Wharton Business School validates its positive impact while emphasising the role of regulatory reforms in catalysing these transformative effects.



As we stand at the crossroads of an ongoing digital revolution, mobile money platforms emerge as transformative catalysts for economies grappling with inadequate financial infrastructure. The groundbreaking research coming out of Wharton sheds light on the profound impact of mobile money platforms in addressing institutional voids and fostering financial inclusion, exemplified by the pioneering M-Pesa, and how that has reshaped the global financial landscape and driven economic development.

Mobile Money’s Rise: A Beacon of Hope for Emerging Economies

In a pivotal move, Safaricom, Kenya’s leading telecoms operator, extended its innovative mobile money service, M-Pesa, to Ethiopia, Africa’s second-most populous country. This expansion marks a significant leap towards digital banking in what is often referred to as the “last frontier” for such innovations. M-Pesa, named after the Swahili word for “money,” has been a game-changer in Kenya, incorporating tens of millions of unbanked individuals into the financial system, enabling them to store and transmit money using their mobile phones. TheWharton study underscores the transformative potential of mobile money platforms, particularly in regions like sub-Saharan Africa, Latin America, and South Asia, where institutional voids impede access to financial products and services.

Three Critical Ways Mobile Money Platforms Drive Financial Inclusion

  • Creating a Digital Record of Financial Activities: Mobile money platforms play a pivotal role in verifying users by assessing digital data on the platform. For individuals lacking an established credit history, this becomes an alternative means for lenders to assess creditworthiness.

By creating a digital record of users’ financial activities, platforms like M-Pesa empower lenders to make informed decisions on loan approvals. The study emphasises that these platforms fill the void where credit information is missing and infrastructure isn’t well developed. This digital record not only facilitates financial transactions but also contributes to positive spill-over effects on economic activity for various market players.

  • Simplifying Access to Financial Services: The decentralised networks of mobile money platforms offer simplified access to a myriad of financial services. Acting as a one-stop-shop, these platforms connect users with various financial products and services from partners like banks.

This approach addresses gaps caused by limited access points, such as bank branches, in emerging economies, thereby facilitating the distribution of financial products. Mobile money serves as a comprehensive solution, providing users with easy access to a range of financial services. This not only fosters financial inclusion but also bridges the gap for those excluded from traditional financial systems.

  • Establishing a Massive Network of Users: Leveraging network effects, mobile money platforms expedite their growth, reaching millions of users who previously lacked access to banking services. M-Pesa’s expansion to over 51 million customers across seven African countries exemplifies the power of these network effects.

This not only enhances financial access but also serves as a bridge to established financial groups like banks, credit unions, and microfinance institutions, facilitating credit access for individuals and businesses alike. Such loans have played a pivotal role in helping individuals and small businesses expand their growth and enhance productivity, addressing the deficiencies in traditional financial systems.

Policy Reforms: A Catalyst for Broadening Financial Inclusion

As we navigate the digital landscape of the future, mobile money platforms stand poised to play a pivotal role in shaping inclusive and sustainable financial ecosystems across the globe.To validate these transformative impacts, the study delved into the regulatory changes that allowed non-banking entities to introduce mobile money platforms. Analysing data from over 71,000 adults before the reforms in 2014 and over 80,000 adults after the reforms in 2017 across 78 countries, the authors discovered that initially, only 11% had access to formal financial services. Post-regulatory changes, mobile money usage increased, and access to credit from formal financial institutions rose significantly, leading to a 22% rise in the likelihood of borrowing.

The research also underscores the socio-economic impact, particularly for women, the poorest individuals, and those with limited education. Mobile money platforms have played a crucial role in broadening financial service access in emerging and developing economies.

The study’s findings carry substantial implications for policymakers and regulators, suggesting that welcoming new entrants into the financial services sector can boost financial access. By enabling the launching of these platforms, governments can promote collaborations between mobile money platforms and traditional financial institutions, fostering innovation and co-creation in the financial sector. This, in turn, contributes to sustainable growth and development.


Read the Wharton study here.

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