Mobile Money and Financial Development: The Case of M-PESA in Kenya
41 Pages Posted: 11 Nov 2015
Date Written: November 10, 2015
Many economists argue that financial market development plays a role in fostering economic development. However, the question of how to extend financial access to the unbanked in underdeveloped countries has long remained a puzzle in the development finance literature. Much of the debate thus far has centered on how strong a role the government should play in directing this process. Using Kenya as an illustrative case study, I show that entrepreneurial innovations like the ‘mobile money revolution’ and the associated phenomena of ‘agent banking’ can play a pivotal role fostering financial inclusion and promoting financial development. The key to bringing about these innovations, I argue, is not relying on ‘hands on’ government involvement but rather pursuing a ‘hands off’ approach whereby the government merely focuses on establishing a fertile institutional environment that protects private property and promotes entrepreneurship.
Keywords: M-PESA, Mobile Money, Financial Inclusion, Financial Deepening, Financial Development, Free Banking
JEL Classification: E40, E41, E42, E44, E49, F40, F62, F63, G20, K29
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