Hello, I am calling to ask for some money: mobile phones and credit uptake in rural Ethiopia

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PurposeIt is widely believed that ICT has a significant influence on the daily life of the poor and has positive spillover effects in their livelihoods. Mobile phones are one of the few ICT innovations that have found their way into the hands of the poor residing in remote and rural areas. In Ethiopia, mobile phones are recently introduced but got an acceptance from everyone including the rural poor; in five years’ time, mobile phones subscription has increased from less than 4% to more than 40%. Empirical evidence generally documents the positive role mobile phones play in facilitating the development efforts of poor households. However, using panel data from Ethiopia, the current paper explores a less investigated issue of the possible effects of mobile phone adoption on the credit uptakes of the rural poor who are mostly neglected from the formal credit markets but finance their credit demand from informal sources including relatives/friends.Design/methodology/approachTo investigate the relationship between mobile phones and credit uptake and/or loan size, one can use different empirical strategies. For partly unleashing the endogeneity problem, an instrumental variable estimation approach is adopted in this paper. To deal with the endogeneity problem, one may consider using the linear IV approach or the control function. But the outcome variable and the endogenous variable are binary in nature, and the usual trend is to use the linear IV models or control functions, which do not consider these binary natures of the variables. To this end, a special regressors estimator is adopted, mostly used when both the dependent and the endogenous variables are binary in nature.FindingsThe econometric results suggest mobile phones are positively associated with the credit uptake of rural households, especially credit uptake from informal sources. Households with mobile phones are found to have 4%–14% higher probabilities of credit uptake and about 6%–17% in the case of credit from informal sources. Besides, households with mobile phones are found to have about ETB 65 (USD 3.42) higher loan size and about ETB 78 (USD 4.11) higher amount of loan in the case of a loan from the informal sources. Thus, policy-makers and financial providers working on providing credit in rural areas need to exploit the use of mobile phones in reaching out to the rural poor.Originality/valueThe author attests the fact that the work described has not been published previously and that it is not under consideration for publication elsewhere. Besides, it is the original work of the author.