Mobile money and entrepreneurship in East Africa: the mediating roles of digital savings and access to digital credit

Abstract

<p><b>Purpose</b> – This study aims to examine the comparative link between mobile money (MoMo) and entrepreneurship in East Africa. Apart from analysing the data to examine locational, gender and age heterogeneities in the MoMo–entrepreneurship nexus, the authors explore the potential roles of digital savings and access to digital credit in serving as transmission channels in the link between MoMo adoption and entrepreneurship.</p> <p><b>Design/methodology/approach</b> – This paper uses nationally representative samples from Kenya, Tanzania and Uganda which were extracted from the fifth wave of the InterMedia Financial Inclusion Insights (FII) Program. The authors employ a suite of quasi-experimental microeconometric techniques— standard instrumental variable estimation, Lewbel two-stage least squares (2SLS) and propensity score matching.</p> <p><b>Findings</b> – Overall, the authors' preferred endogeneity-corrected result suggests that adopters of MoMo are 24.4 percentage points more likely to engage in entrepreneurship. This result is robust to alternative ways of conceptualising MoMo adoption and different methods used in resolving endogeneity. The association between MoMo and entrepreneurship is stronger in Kenya compared to Uganda and not significant in Tanzania. The significant positive association between MoMo and entrepreneurship is observed among women and rural residents and not for their male and urban-located counterparts. MoMo significantly enhances entrepreneurship among the youth and adults but not the elderly. Digital savings and access to digital credit serve as important channels through which FinTech adoption influences entrepreneurship.</p> <p><b>Practical implications</b> – The entrepreneurship-enhancing effect of MoMo adoption can be extended to discuss the possibility of employing MoMo as a policy tool to contribute to the attainment of Sustainable Development Goal (SGD) 8 which seeks to ensure full and productive employment and decent work for all. Incomes that accrue from entrepreneurial activities can also increase households' purchasing power to decrease poverty (SDG 1), reduce food insecurity (SDG 2) and provide resources needed to purchase clean and modern cooking and lighting fuels (SGD 7).</p> <p><b>Social implications</b> – The growing rate of unemployment and vulnerable employment in Africa has been an issue of concern to policy makers. These problems have been caused by the inability of policy makers to create adequate jobs. The study's findings show that policies geared towards enhancing the diffusion of MoMo can augment efforts being made by governments to decrease the unemployment rate in Africa through increased entrepreneurship. The employment effect of MoMo can also be realised through the emergence of digital entrepreneurship which has been identified as having the potential to transform African economies to knowledge-based economies for sustainable development.</p> <p><b>Originality/value</b> – This study contributes to the MoMo literature by deviating from the focus of existing studies which have emphasised more on the intermediate outcome (performance) and less on the immediate (i.e. entrepreneurship or small business venturing). This helps to highlight the entrepreneurship effect of MoMo which has evolved from a simple peer-to-peer payment system to a complex one that provides savings, credit, insurance and other products.</p>