Friends or Foes?: Mobile Money Interaction With Formal and Informal Finance

Abstract

Access to and usage of formal financial services are important determinants of financial inclusion and yet, informal mechanisms still dominate the financial system in developing countries. In this context, the purpose of our paper is to investigate how the growing effort to harness mobile money may play a role to overcome barriers that prevent people to access formal financial services. Using a unique dataset obtained from an individual-level survey conducted in Burkina Faso, we explore the interplay between mobile money innovation as a deposit instrument and pre-existing formal and informal financial instruments. Our main findings show that, overall, the use of mobile money is not associated with deposits using formal and/or informal financial instruments. However, a closer investigation reveals suggestive evidence that it increases the probability of participants in informal mechanisms to make deposits in a bank account. Moreover, considering disadvantaged groups, we find for women, irregular income and less educated individuals that mobile money may increase their probability to make deposits in a bank and/or credit union accounts. Given the low access to formal financial services in developing countries, our findings taken together indicate how the increasing adoption of mobile money may act as a stepping-stone towards financial inclusion.