Mobile Money as a Steppingstone: Addressing Voids in Institutions through Enabling Innovations

Abstract

Technological innovations often emerge to meet the needs left unaddressed by underdeveloped or missing institutional infrastructure or voids in market-based institutions. Many of these innovations, particularly those based on digital technologies have an “enabling nature”, which allows them to spawn other innovations and have broader societal and economic benefits. We argue that such digital enabling innovations can address voids in market-based institutions not just by substituting for missing and underdeveloped institutional infrastructure and filling the unmet demand left by the voids but also by complementing the existing institutional infrastructure, thereby expanding the capacity of market actors to undertake more transactions. We study these effects and the underlying mechanisms in the context of mobile money in emerging economies with voids in credit-market institutions. Our findings suggest that enabling innovations like mobile money become steppingstones that bolster existing institutional infrastructure, rather than undermine or completely replace it.