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«bath papers in interna onal development and well-being ISSN 2040-3151 Compe ng visions of financial inclusion in Kenya: The ri revealed by mobile ...»

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bath papers in interna onal development

and well-being

ISSN 2040-3151

Compe ng visions of financial inclusion in Kenya:

The ri revealed by mobile money transfer

Susan Johnson

Working Paper no. 30

March 2014

Bath Papers in Interna onal Development and Wellbeing

A working paper series of the

Centre for Development Studies, University of Bath

h p://www.bath.ac.uk/cds/

© Susan Johnson, 2014

All rights reserved. No part of this publica on may be reproduced, stored in a retrieval system, or transmi ed in any form or by any means without the prior permission in wri ng of the publisher, nor be issued to the public or circulated in any form other than that in which it is published.

Published by:

The Centre for Development Studies University of Bath Claverton Down Bath, BA2 7AY, UK h p://www.bath.ac.uk/cds/ ISSN 2040-3151

Series Editors:

Susan Johnson Shahid Perwez COMPETING VISIONS OF FINANCIAL INCLUSION IN KENYA: THE RIFT REVEALED BY MOBILE MONEY TRANSFER Susan Johnson, University of Bath Bath Papers in International Development and Well-Being no. 30 March, 2014 The Centre for Development Studies University of Bath, Bath, BA2 7AY http://www.bath.ac.uk/cds/ © Susan Johnson, 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission in writing of the publisher nor be issued to the public or circulated in any form other than that in which it is published.

bpidw bath papers in international development and well-being Bath Papers in International Development and Well-Being (BPIDW) is a working paper series of the Centre for Development Studies at the University of Bath. The Centre for Development Studies aims to contribute to combating global poverty and inequality through primary research into the practical realities of global poverty; and, critical engagement with development practice and policy making.

Bath Papers in International Development and Well-Being publishes research and policy analysis by scholars and development practitioners in the CDS and its wider network. Submissions to the BPIDW series are encouraged; submissions should be directed to the Series Editor, and will be subject to a blind peer review process prior to acceptance.

Series Editor: Susan Johnson and Shahid Perwez Website: http://www.bath.ac.uk/cds/bpidw Email: s.z.johnson@bath.ac.uk Competing visions of financial inclusion in Kenya: The rift revealed by mobile money transfer Susan Johnson Contents 1 Introduction

2 Literature review

2.1 Mobile money transfer and savings behaviour

2.2 The alternative logics of monetary and financial practices

3 Methodology

4 Financial services and financial practices

4.1 Overview of the financial landscape

4.2 Mobile money transfer

4.3 Informal financial groups

4.4 Banks

5 Explaining financial practices: Social relations and negotiability

6 Conclusion


List of Tables Table 1: Financial service access (% using)

Table 2: Multiple use of main services

Competing visions of financial inclusion in Kenya: The rift revealed by mobile money transfer Susan Johnson Abstract Financial inclusion policy has been ignited globally by the rise of money transfer services over mobile telecommunications platforms. Explanations for the success of the leading example in Kenya have focussed on conditions of supply side development and the demand for domestic urban to rural remittances. This paper investigates this phenomenon by examining the financial practices of low income people and in particular the social relational dimensions of debt that underlie these mobile money transactions. By contrasting the social relations involved in mobile money to those of informal groups and banks which are the next most used services, this evidence highlights a ‘fiduciary culture’ in which relationships of equality and ‘negotiability’ dominate and which are seamlessly facilitated by mobile money in contrast to relations with banks which tend towards relations of hierarchy. I argue that this reveals a competing emic vision that questions policy makers expectations that mobile money transfer will itself seamlessly facilitate engagement with the formal sector for savings and credit.

Key words: microfinance, mobile money, financial inclusion, financial practices, Kenya, Africa Acknowledgement The author is grateful to the Financial Sector Deepening Trust, Kenya for funding this research. I am particularly grateful to those people and organisations who willingly contributed their experience and insights. I also gratefully acknowledge comments on previous drafts from Haroon Akram-Lodhi, Keith Hart, Amrik Heyer, Radha Upadhyaya, and Richard Williams.

1 Introduction Across Africa, household level access to formal financial services is less than 20% (Honohan

2008) and these are concentrated in the wealthiest 20% of the population (Beck, et al. 2011).

Since 2005 the policy agenda towards financial services for low-income people has moved away from the more limited focus of the previous decade on micro-credit, particularly through microfinance institutions, towards a policy of inclusion in the mainstream financial sector (Beck, et al. 2011; World Bank 2008). Moreover, enthusiasm for the achievement of inclusion has been ignited by the advent of money transfer services provided over mobile phones and the further potential this technology offers for financial service development (Aker and Mbiti 2010; Ivatury and Mas 2008). The phenomenally rapid take-up of mobile money transfer (MMT) in Kenya has led this wave. Introduced in 2007 by Kenya’s leading mobile phone operator Safaricom, by 2013 62% of the adult population were registered users (FSD Kenya and Central Bank of Kenya 2013).

This has been explained primarily as revealing the unmet demand for domestic remittances (Heyer and Mas 2011).

As the agenda for financial inclusion has gathered pace, the arena of policy and practice has expanded into an “assemblage” of “subjects, technics and rationalities” (Schwittay 2011). The dominant ‘rationalities’ of the financial inclusion discourse, that is the “intellectual machineries that render reality thinkable in such a manner as to make it calculable and governable” (Schwittay 2011, quoting Inda p393) are underpinned by economics, in particular new institutional economics, and more recently the rise of behavioural economics. The Global Partnership for Financial Inclusion’s definition emphasises the rationality of convenience and affordability, recognising people as agents choosing informal services as a default option in the absence of formal options.1 Market approaches to financial sector development are expected to drive competition and innovation and the inexorable lowering of costs and prices which will drive inclusion (World Bank 2008). A policy perspective to which behavioural economics is now seen as offering accompanying “nudges” in enabling low income people to overcome the timeinconsistencies and self-control constraints that lead to sub-optimal saving behaviour (Banerjee and Duflo 2011).

While anthropology has done much to uncover the social and symbolic dimensions of money, exchange and debt, much of its analysis has operated on a Polanyian spectrum in which social relations become dis-embedded (Maurer 2005; Maurer 2006). Finding this problematic because of the diverse ways in which practices in both developed and developing countries are found to have social and symbolic dimensions alongside material content, moves in anthropology have therefore been towards a re-working of perspectives and a focus on monetary and financial practices in order to reveal alternative underlying logics.

“Financial inclusion”… refers to a state in which all working age adults have effective access to credit, savings, payments, and insurance from formal service providers. “Effective access” involves convenient and responsible service delivery, at a cost affordable to the customer and sustainable for the provider, with the result that financially excluded customers use formal financial services rather than existing informal options.” (GPFI and CGAP n.d.:1).

Bath Papers in International Development and Well-Being Paper Number 30 The purpose of this paper is to apply this alternative perspective to the rise of mobile money in Kenya by examining the financial practices of low income people using it and contrasting this to the two other most heavily used services - informal financial groups and banks – in order to examine what this reveals about the social relations and logics of people’s engagement with different institutional forms of financial service. In focussing on the social relations these involve I draw on Graeber’s (2011) framework of their related moral dimensions to analyse the dynamics of debt, additionally using Berry’s insights into ‘negotiability’ in African institutional contexts. This focus reveals that MMT and informal financial groups offer strong dynamics of equality in social relationships of exchange and offer routes to securing access to resources through their “negotiability” (Berry 1993). Banks, by contrast, receive debt from poor people (in the form of savings) but rarely offer it and hence do not behave in ways that are seen as either equal or “negotiable” but their historical political context rather suggests they verge on hierarchy. The conclusions highlight the challenge of these social relations for financial inclusion into formal savings and credit services beyond payments services over mobile phones.

The paper first considers the emerging literature on mobile money transfer and related literature from experimental and behavioural economics research on how to design products to encourage savings. It then reviews developments in the anthropology of money and debt before presenting the methodology and context of the research. After presenting the key logics influencing engagement with each of the three most used services, that is, mobile money, informal groups, and banks, I discuss the insights that a focus on social relations offers in explaining the nature of financial practices before concluding.

2 Literature review

2.1 Mobile money transfer and savings behaviour Safaricom’s M-Pesa2 service grew out of a donor funded experiment to enable the repayment of microfinance loans over the mobile phone (Mas and Morawczynski 2009). Market research demonstrated the extent to which airtime was being used as a means of payment (see also (Maurer 2012) and set in motion the creation of an ‘e-wallet’ in the mobile phone into which units of e-money are transferred at a one for one exchange rate when a deposit is made with an agent. The e-money can be transferred to others by sending to their mobile phone number.

They in turn can then visit an agent to withdraw the funds or use the e-value to send to others or pay bills.

The runaway success of MMT in Kenya compares with significant success in the Philippines and more moderate success elsewhere such as South Africa and India (McKay and Pickens 2010), resulting in much research concentrated in Kenya. An easily understood menu in the phone and wide understanding of text messaging along with the initial marketing tag of “send money home” is seen as having given it a clear identity (Mas and Morawczynski 2009) and it filled a gap M-Pesa as a brand name uses ‘m’ for mobile and ‘pesa’ which is the Swahili word for money - so means mobile money.

2|P a g e Competing visions of financial inclusion in Kenya: the rift revealed by mobile money transfer Johnson in the market given the cost and risk of previous mechanisms: mainly courier services and informal arrangements with friends. Further factors contributing to its success in Kenya have been identified as a ‘light touch’ regulatory regime; the potential for the development of retail agent networks; and the nature of the mobile phone network landscape in particular related to coverage, texting, and the dominance of a particular operator (Safaricom) (Heyer and Mas 2011). Additionally, trust in the telecommunications operator was initially important with its expatriate CEO offering political neutrality in the midst of Kenya’s ethnically divided politics, and reducing concerns that either the company would collapse or funds disappear (Morawczynski and Miscione 2008).

Ethnographic research has identified the way that its availability has affected the frequency and amounts sent by remitters allowing better tailoring to need and cash flow management ability, which lower cost also makes more viable, though it can also reduce the frequency of visits by urban dwelling husbands (Morawczynski 2009). In addition the extent of migration and an “ethnically based rendition of citizenship” maintains strong links to home areas (Heyer and Mas 2011:32).

Maurer (2012) has pointed out the way in which airtime used to transfer money in a range of contexts creates new socialities of talk and text as well as monetary value sent and received. In the case of Kenya too, ease of use also enabled rural recipients to access wider social networks of support more easily when the need arose – whether for seasonal farming inputs or emergencies and hence deal with risk and reduce vulnerability, although this increased volume of requests has also required new management strategies in dealing with them for those expected to send funds (Morawczynski 2009). In terms of remittance behaviour, based on national data, Mbiti and Weil (2011) find that adoption appears to increase the frequency of sending transfers but interestingly not to increase the likelihood of receiving them (Mbiti and Weil 2011). Jack and Suri suggest that MMT has significant impacts in reducing the impact of negative shocks on consumption compared to those who do not have it (Jack and Suri 2014).

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