Effects of Mobile Money on Financial Deepening in Kenya

Abstract

Globally, more than 2.5 billion adults do not have access formal bank account, most of them in developing economies. The recent and widespread availability of affordable mobile phone technology in developing countries has paved the way for the development of a number of mobile money and electronic remittance services. Similarly, financial services industry has undergone phenomenal transformation and in just half a century, banking and customer’s access has changed from traditional retail banking to mobile phone banking. These developments triggered this study to determine the effects of mobile money on financial deepening in Kenya. The descriptive study used macroeconomics variables such as lending rates, deposits money bank and credit to private sector as control variables to develop a regression model using secondary data obtained from Central Bank of Kenya between 2007 and 2013. The results established that mobile money is the major determinant of financial deepening levels in Kenya. An increment in mobile money factor by single factor leads to increment of financial deepening factor by 3 times, at 95% level of confidence. Deposits and lending rates also have a positive influence on financial deepening while credit to private sector affects deepening levels negatively though insignificantly. This result calls for policy makers in Kenya to critically address the mobile money concept in order to develop financial sector. Risks factors affecting development of mobile money should be addressed urgently and regulation put in place to encourage use and access of these services. Finally mobile service providers should open up money transfer services to all players and competition should be encouraged to ensure efficiency and effective service delivery.