Abstract
Mobile money services have been associated with unprecedented access to financial services, notably to under-banked and unbanked populations. Thus, mobile money opens a channel through which to examine the supply of private sector credit in Uganda. This study investigates how mobile money services influence private sector credit growth. We applied the vector error correction (VEC) model and Granger causality analysis to Ugandan data from March 2009 to February 2016, the period when mobile money services were introduced. The VEC model reveals that mobile money has a significant positive long-run association with private sector credit growth. Granger causality analysis reveals long-run unidirectional causality from mobile money to private sector credit. Mobile money is critical for financial intermediation because it attracts resources from both the banked and the unbanked populations into the formal financial system, facilitating private sector credit growth.
Highlights
Mobile money services have been associated with unprecedented access to financial services, notably to under-banked and unbanked populations
Data We study the effect of mobile money transactions on private sector credit growth using monthly data from March 2009 to February 2016, the period during which mobile money services were implemented in Uganda
The Langrage Multiplier (LM) test for serial correlation confirms no serial correlation with two lags
Summary
Mobile money services have been associated with unprecedented access to financial services, notably to under-banked and unbanked populations. The advent in Uganda of mobile money, a transfer and payment service potentially available to anyone owning a mobile phone has generated unprecedented access to financial services, notably under-banked and unbanked populations (Aron et al 2015). The literature suggests that adoption of mobile money increases the mobilization of deposits from households (Lwanga & Adong 2016). In doing so, it may enhance the supply of loanable funds by reallocating capital and risks across the economy. This study examines how mobile money services influence private sector credit growth, and it Nampewo et al Financial Innovation (2016) 2:13 extends the literature in two ways. This long-run relationship is confirmed by Granger analysis, which indicates long-run unidirectional causation from mobile money balances to private sector credit
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