in the 21st Century

8 Kenya’s Financial Transformation in the 21st Century
service reflects a provider-led bias in our analytical frameworks that obscures
the role of mobile money in intensifying informal financial practices and
improving the efficiency of informal financial institutions. To illustrate their
point, they analyse data beyond the simple act of registering for mobile money
(by which it is classified as ‘formal’). Instead, they look at data on use-cases
for mobile money, finding that the vast majority are connected to financial
activity in the informal sector, especially via investments in social networks. The
authors then conduct regression analysis on the association between mobile
money and other financial products. They find that uptake of mobile money
is associated with more intensive use of both formal and informal services.
When they break this down by sub-population, the authors find that mobile
money is more strongly associated with formal financial activity for male and
urban users, while female and rural users deploy this tool to deepen their
participation in the informal sector. 6
Mobile money clearly has a value proposition in relation to its efficiency gains
in moving value across space and offering a relatively secure wallet to store
value. This stems from its formal properties leveraging a technology solution
from a formal provider within a formally regulated payment space. However,
the reputed value of mobile money for low-income households in Kenya with
respect to risk pooling, liquidity management and possibly even investment and
growth (Jack and Suri, forthcoming; Jack et al., 2013; Suri et al., 2012) occurs
mainly through informal social networks (peer-to-peer borrowing and saving),
which are still little understood, let alone taken seriously as an important aspect
of financial inclusion (Johnson, 2014; Johnson and Krijtenburg, 2015).
The two perspectives that emerge from the analyses of Gürbüz and Jack and
Yenkey et al. are not necessarily mutually exclusive. The informal sector activity
being driven by mobile money is at the same time being increasingly formalised
through use of the service itself, with its attributes of security, scale, efficiency
and regulation. More recently, the layering of formal financial intermediation
devices on mobile money rails – such as M-Shwari – is also bridging the
informal/formal divide. Moving away from the informal/formal dichotomy,
Yenkey et al. propose that we focus instead on the value proposition of financial
institutions with respect to risk pooling, investment, liquidity management
and transaction costs. Gürbüz and Jack propose the same, from a different
perspective, asking what the significance is of increased formality in financial
service use unless it increases utility for the majority of the population.
6 Similarly, the FinAccess 2013 report underlines the extent to which people increasingly use services in their portfolios,
suggesting an increased intensity of usage rather than an evolution from informal to formal.