Impact of Mobile Phone-based Money Transfer Services in Agriculture: Evidence from Kenya

Abstract

The recent introduction of mobile phone-based money transfer (MMT) services in developing countries has generated a lot of interest among development partners. It facilitates transfer of money in a quick and cost effective way. It also offers an easy and secure platform for small savings to majority of rural populations with no access to formal financial services. However, the impact of MMT services on smallholder agriculture has not been documented. This study therefore contributes to pioneering literature on the impact of MMT, especially in agriculture. It provides information regarding financial intermediation to the excluded through the use of new generation Information Communication Technology (ICT) tools especially the mobile phone. The study employs propensity score matching technique to examine the impact of MMT services on household agricultural input use, agricultural commercialization and farm incomes among farm households in Kenya. It uses cross-sectional data collected from 379 multi-stage randomly selected households in Central, Western and Nyanza provinces of Kenya. The study found that use of MMT services significantly increased level of annual household input use by $42, household agricultural commercialization by 37% and household annual income by $224. We conclude that MMT services in rural areas help to resolve an idiosyncratic market failure that farmers face; access to financial services. We therefore recommend that other developing countries should follow the Kenyan model and provide an enabling environment that would facilitate entry and survival of MMT initiatives.