The case of Mobile Money innovation in Uganda

Undeniably, a lot has been said as well as written about mobile money. However, it seems there is still some unfinished business related to the topic of mobile money. This unfinished business explains why there is still an ongoing debate about the effect of mobile money on an economy, in this case the economy of Uganda. I found this debate a very intriguing one and I got tempted to contribute to it, particularly from the perspective of inclusiveness and poverty reduction. I would like to rebuff the line of thinking that mobile money has adverse effects on the economy and instead reiterate the counter argument that mobile money has already been playing significant roles, which are quite relevant in the quest for economic transformation and mass poverty reduction.

First, I introduce the concept of inclusion and how this concept relates to poverty reduction. Thereafter, I will put forward the arguments for and against mobile money. I will then use some numbers concerned with mobile phone growth and coverage to demonstrate what mobile money has done to this country’s economy so far.

Low income people can participate in their own capacities as producers or consumers of a product or a service. Inclusiveness simply means harnessing the capacities of poor men, women and youth to participate in the market, as consumers or producers. An inclusive market will be that market, where hindrances of poor people’s participation are at their basic minimal, or completely absent. The advent, growth and expansion in coverage of mobile phone has, to this date, been such an exposé in the development circles, particularly because of the way that mobile money brings poor people, in their various categories – men, women and youth to participate in the financial market. I will spare this discourse for later, as I prefer to illustrate this point using numbers.

Hereby, macroeconomic juxtaposition of mobile money!

An awesome number of arguments concerning mobile money has, by and large, been based on macro-economic theories. This is not surprising, because most of the research done on this topic has been academic, applying macroeconomic frameworks for data collation and analysis. Macro-economic arguments about mobile money has orbited around money demand, inflation, credits and interest rates, aggregate output and monetary policies. I will endeavour to tackle some of these theories as well arguments and counter arguments that theorists put forward.

Some studies show that the proliferation of mobile money payments may disadvantage commercial banks by weakening their liquidity positions. In response to these studies, other studies show that the adoption and use of mobile money implies a gradual substitution of real cash balances for banks deposits. By so doing, mobile money reduces demand for real cash, thereby strengthening liquidity of banks. Some studies claim a positive effect between mobile money balances and price index in the medium term and long term. In response, there are modest and insignificant effect of mobile money on inflation processes. Inflation is probable if mobile money does not lead to improvement in production and overall gross domestic product.

With respect to aggregate output, antagonists of mobile money argue that it may increase the demand for money. And for this, other studies show that innovations in the financial sector (including mobile money) are negatively associated with money demand. This is because, the increase in the velocity of money arising from application of mobile money is not yet higher than that of cash transactions. Notably, from the macro-economic perspective, there is very minimal adverse macroeconomic effect of mobile money and most of such effects appears only in the short run.

Now, inclusiveness and mobile money in numbers!

Mobile money is driving financial inclusion in Uganda. The advent of mobile money in 2009 has helped expand formal financial services to populations that were previously excluded. In 2013, 56% of all adults were using mobile money services. By August 2016, the value of mobile money transactions had reached 3.6 trillion and balances on mobile money reached 326 billion. Mobile money continues to be the predominant financial service and registered mobile money accounts increased from 35% in 2015 to 38% in 2016. Almost all who are included can access their money digitally. Mobile money access continued to grow in 2016, because of increase in the numbers of mobile money agents, who are men, women and youth. Notably, most agents are women. There is new evidence that having a registered mobile money account increases the likelihood of having some household savings.

From macroeconomic and inclusive perspectives, mobile money does not have any adverse effects on the economy Instead, mobile money has already been playing significant roles, which are quite relevant in the quest for economic transformation and mass poverty reduction. There is rich evidence, to support the cause for enhancing the contribution of mobile money services to the economy. Interventions, which are policy or innovations related, that can drive mobile money further will unleash the latent potential of mobile money to transform our economy. A framework through which mobile money balances could yield interests can go a long way to attract users and continuously elicit the potential of mobile money.


By Jimmy Ebong
Research Specialist, FSD Uganda

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