THE IMPACT OF MOBILE MONEY ON FINANCIAL INCLUSION IN GHANA

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CHAPTER ONE INTRODUCTION

This chapter presents the background of the study, the problem statement, the objectives of the study, the research questions and the significance of the study. It also discusses the scope, limitations and chapter organization of the study.

          Background to the Study

Theories and empirical evidence have inspired the assumption that financial inclusion induces positive economic growth and development. Scholarly literature and research works have shown that financial inclusion has positively impacted economies that have embraced it (Onaolapo 2015; Babajide et al., 2015; Sharma, 2016; Gourene and Mendy, 2017; Kim et al., 2018).

Mbutor and Uba (2013) viewed financial inclusion as strategies aimed at increasing the number of people with accounts in banks and other formal financial institutions – savings, current and credit. It also pursues the promotion of the use of formal payment media, including cheques, ATM cards, internet payments, mobile payments and others by the populace. Beck et al. (2006) referred to financial inclusion as banking sector outreach that allows the access and usage of banking services by households and firms. The various dimensions to ‗Access‘ in banking services, as postulated by Claessens (2006), include availability of financial services, cost of access and range, type and quality of financial services offered. The study explained that ‗Access‘ is not synonymous to use, since most economic agents may decline to use accessible financial service, either for socio-economic reasons, or because opportunity costs are too high, hence exempt themselves, making them financially excluded (Beck et al., 2006).

As financial inclusion implies increasing the coverage of the formal financial system, it may be expected to contribute to the development of a financial system. This is achieved by ensuring the ease of access, availability, and usage of formal financial systems for all members of an economy (Shankar, 2013; Sarma, 2008). Visco (2007) viewed financial inclusion as a form of financial deepening because of its role in increasing the size of a financial system, growing diversification of firms‘ and households‘ portfolios and developing the financial markets.

Financial inclusion has numerous benefits for economic development. Studies have revealed that communities with access to savings‘ instruments experience improved savings, productive investments, as well as consumption and female empowerment (Aportela, 1998; Ashraf, Karlan, & Yin, 2010). It also helps in poverty reduction, lessening the level of income inequality and improving private investment (Allen, Demirgüç-Kunt, Klapper, & Martinez Peria, 2012; Beck, Demirguc-Kunt, & Peria, 2007). Financial inclusion improves the facilitation of remittances and eases the relocation of funds from overseas (Demirgüç-Kunt, Córdova, Pería, & Woodruff, 2011).

Again, financial inclusion also enables effective distribution of productive resources, implicitly advances the daily running of finances, and guarantees a complete financial structure that can help to diminish the progress of unauthorised avenues of accessing credit which time and again have tended to be manipulative (Sarma, 2012).

Over the years, there has been widespread adoption of technology in almost every sphere of life. This has led to the emergence of numerous systems used for paying and receiving of cash and non-cash items in Ghana. The use of mobile phones in transacting business in Ghana and the world cannot be overemphasised. As a result of the ever increasingly widespread use of mobile phones among consumers, mostly in emerging markets, mobile

money (MM) usage has become a great phenomenon. Orozco et.al (2007) posited that the introduction of prepaid cards and the reduction in price of mobile phone devices have made it less expensive and easier for people to own and operate mobile phones. The diverse opportunities that come with the use of mobile devices, apart from voice calls and messages, have been explored, consequently.

Hughes and Lonie (2007) found that the number of people in the world who own and use mobile phones totalled over 2 billion. This figure exceeds the total number of financially included people in emerging economies, of which Ghana is no exception.

Jenkins (2008) defined mobile money as money that can be used and accessed through mobile phones. Mobile money transfer service is a phase of a broader concept that has risen in the electronic payment and banking industries. Despite the fact that there is no clear-cut definition of mobile money in literature, Tobbin P. (2010) summarised it to include all the various initiatives, long distance remittance, micro-payments and formal air-time battery scheme that is aimed at bringing together financial services to the unbanked, through the use of mobile technology.

Konutsey (2017) held that the mobile money concept is seen by the unbanked population segment  as  a  ―just-in-time‖  technology  promising  to  be  the  key  anchor  towards  the achievement of financial inclusion around the world; and that as at 2014, there were two hundred and twenty-five (255) mobile money service providers across eighty-nine (89) countries.

Ghana has been one of the countries with four mobile money service providers, with mobile phone penetration reaching in excess of 115% (ibid). The Global Findex (2014) data highlighted that Ghana was one of the thirteen (13) markets that adopted the mobile

financial services (MFS) with penetration rate above 10%. In that same period, it was revealed that 13% of adult Ghanaians reported having access to a mobile account, compared to Sub-Saharan Africa with an average of 11.5% in that same period. The 2015 Financial Inclusion Insight survey also reported that while access to banking had improved, this has been merely slightly; that is, 34% to 36% of Ghanaian adults (CGAP, 2019). Thus, access to mobile money improved from virtually zero to 29% from 2010 to 2015. Similarly, as of November 2015, the number of mobile money transactions per month in Ghana averaged 24 million individual counts, through 44,000 registered agents, with corresponding cash value of GH¢3.4 billion in transaction value. It is therefore apparent that the concept of mobile money and financial inclusion has led to a segment of the population who hitherto were deprived of financial products and services. With the widespread use of mobile phones coupled with the adoption of mobile money and the urgent need for Ghanaians to be banked, it is imperative to establish whether the emergence of mobile money has impacted on financial inclusion in Ghana.

          Problem Statement

The introduction of banking in Ghana predates independence from British colonial masters; however, the formal banking industry has not been able to financially include the large number of the unbanked. This can be traced to the fact that traditional banks have little regard for low value transactions. Their preference lies in the high-frequency transaction-based business which they deem as cost-effective. The traditional bank account holders are nearly twice as likely to have an active bank account that has not been used in the last three months, than Ghanaians who do not patronize formal bank services (Zetterli, 2015).

The widespread adoption of Technology in almost every sphere of life has led to the emergence of numerous systems used for paying and receiving of cash and non-cash items in Ghana and the world at large. In Ghana, the mobile phone is the commonest electronic device for transacting business (Jack & Suri, 2011).

Mobile Network Operators (MNO) in Ghana have identified a clear business opportunity in offering mobile technology-based financial transaction services that include payment/transfer, credit and insurance services, to their customers. This, in ordinary language, is called Mobile Money. Mobile money transfer service is a phase of a broader concept that has risen in the electronic payment and banking industries. Despite there being no clear cut definition of mobile money in literature, Tobbin P. (2010) summarised it to include all the various initiatives, long distance remittance, micro-payments and formal air-time battery scheme that is aimed at bringing together financial services to the unbanked through the use of mobile technology. With the widespread use of mobile phones coupled with the adoption of mobile money and the urgent need for Ghanaians to be banked, it is imperative to establish whether the emergence of mobile money has impacted financial inclusion in Ghana.

In its quest to make sure Ghana fully benefits from financial inclusion, by any legitimate means possible, whether through the Telecommunications or formal financial institutions, the government of Ghana has launched a National Financial Inclusion Strategy (NFIS) which aims at increasing access to formal financial services for the adult population from 58 percent as at 2017, to 75 percent by 2023, focusing primarily on relatively excluded groups. Again, mobile money interoperability system was launched on 10th May, 2018, to enable customers of different mobile money service providers undertake money transfers between two accounts at different mobile money companies, or transfer money from

mobile money accounts to bank accounts. This is an attempt by government and various stakeholders to favour bank-led models in which there exists a direct partnership with banks and mobile money providers. As a result, many financial institutions provide mobile money services as part of their universal services. Mobile money subscribers who own bank accounts can make withdrawals, payments and transfers from their wallets using ATM cards and other banking facilities. It is also possible for mobile money service providers (telecommunications) to provide similar services to their clients who have bank accounts with financial institutions. This confirms Demirgüç-Kunt and Klapper‘s (2012) finding that mobile money has enabled the rather unbanked to enjoy similar banking services as the banked.

The massive acceptance of mobile money service and the government of Ghana‘s ambition to ensure high level of financial inclusion among adult Ghanaians, call for critical examination of the extent to which mobile money, which has seemingly been accepted by majority of Ghanaians of varying socio-economic statuses as one of the surest means of transacting businesses, has influenced financial inclusion in Ghana.

Extensive literature on the impact of mobile money on financial growth and development health, and education are easily available. Empirical Studies on the adoption of mobile phones using micro based financial survey data revealed positive impact on savings (Jack and Suri, 2014,2011; Honohan and King, 2012; Shem et al., 2012; Mbithi and Weil, 2011; Wilson et al., 2010; Collins et al., 2009; Comninos et. al., 2009).

In spite of the positive effects of mobile money adoption in Sub-Saharan Africa, Mbithi and Weil (2011) in their study on the impact of M-PESA on some economic and social outcomes using a balanced panel of 190 sub-locations in Kenya, revealed little evidence

linking use of M-PESA accounts as a place to store wealth. In addition, the study findings revealed that increased use of M-PESA had lowered the propensity of people to use informal savings mechanisms such as RoSCAS, but raised the probability of them being banked. Jack and Suri (2011) found similar findings which revealed that M-PESA users with a bank account are much more likely to save on M-PESA due to ease of use and safety.

However, no research has been conducted to evaluate the significant impact of mobile money usage on financial inclusion using bank account, loan request and loan grant as a measure of financial inclusion. Appropriate research needs to be conducted in this area.

The question now is, what is the impact of mobile money usage on financial inclusion in Ghana? This study therefore seeks to measure the impact of mobile money adoption on financial inclusion, using Ghana as the study area.

          Research Purpose

The purpose of the research is to study the extent to which payment systems, specifically the use of mobile money, influences financial inclusion in Ghana.

          Objectives of the Study

The key objective of this research work is to analyse the effects of mobile money on financial inclusion in Ghana. The exact objectives are:

  1. To examine the extent to which mobile money (receipt and payment) influences the decision to open a bank account.
  • To examine the extent to which mobile money influences request for loans among households that operate mobile money.
  • To examine whether mobile money subscribers are granted loans by financial institutions or not, based on their mobile money transaction records.