ZEF Colloquium on Does FinTech contribute to Financial Inclusion? Access, use and effect of digital financial services in Kenya

July 1, 2021 | 15:30 h - 16:30 h

ZEF Colloquium

Speaker: Oliver K. Kirui (ZEF)

Title: Does FinTech contribute to Financial Inclusion? Access, use and effect of digital financial services in Kenya

Abstract:

Financial technologies (Fintech) and innovations, particularly Digital Financial Services (DFS) provide a wide range of opportunities that might radically improve the variety of products and the financial market environment. Digital finance and financial inclusion is thought to have significant positive impacts and several benefits to financial services users, digital finance providers, governments and the economy. Kenya is among global leaders in development and adoption of mobile money payment systems.

This paper examines whether the introduction and widespread digitalization in Kenya has led to increased financial inclusion using three waves on nationally representative data (collected in 2006, 2013 and 2019) and robust analytical approaches. We specifically identify various forms of DFS products (including credit, savings, and insurance), assesses their usage by various segments of the population, and estimate the impact among the users and their households and/or businesses. 

Findings show that there is a significant increase in the proportion of people having a transactional account mostly driven by mobile money uptake. The use of formal financial services has increased from just about 26% in 2006 to about 79% in 2019. On the contrary informal financial services has seen a sharp decline from 34% in 2006 to 9% in 2013 and further down to 7% in 2019. By 2019, the proportion of people with bank account stood at 42% as compared to 27% in 2013 and 12% in 2006. Meanwhile, the proportion of individuals with an active mobile money account stood at 78% in 2019 compared to 59% in 2013. Although digital credit/loans and digital savings are new phenomena, they account for 13% and 50% of all credit/loans and savings respectively. Further, mobile money device is increasingly driving insurance policy premiums payment (accounting for 33% of all payments to insurance companies).

Despite rapid digitalization of payments, cash still remains the most dominant mode of making payments (like daily expense, monthly bills, and paying school fees). Costs, affordability and preference influence the choice of financial product and service. Having bank account is least preferred because they are deem unaffordable while mobile money are least preferred because of service charges.  These findings notwithstanding, a number of issues still persist which if addressed can make digital finance work better for individuals and businesses. We discuss the implications of these findings for policy and practice.

Registration: https://uni-bonn.zoom.us/meeting/register/tJUqd-6orDMiEtFHEYn53qYU40UbSv5Kz8Bq

Contact: Sascha Stark (sstark(at)uni-bonn.de)