Mobile money system and market risk mitigation: an econometric case study of Kenya's farm business

Abstract

PurposeThe study presents and evaluates a proposition that there is market information bundled with the mobile money (m-money) system. Also, that such information is disseminated to farmers in the process of their normal financial transactions and business interactions. This market information is important to mitigate the price uncertainty of farm products.Design/methodology/approachThe empirical analysis is conducted with a two-stage econometric procedure. First, a probit model is used to estimate the likelihood of m-money take-up by farm entrepreneurs. Second, the ordinary least squares model is used to regress the farming price uncertainty index on the m-money take-up, which is quantified with a set of predicted values from the probit model in the first stage. The data used in econometric estimation come from Kenya's FinAccess Household Survey published in 2016.FindingsThe results of this paper show a negative effect of m-money service take-up on the price uncertainty index. A one unit increase in the m-money system is associated with a 12% reduction in the price uncertainty index. The authors interpret this as saying that access to the m-money system by farm business has a beneficial spillover effect on product risk mitigation, ceteris paribus.Research limitations/implicationsThe implication of this research is that policy initiatives which support farm entrepreneurs to access the m-money system should be encouraged not only for their financial inclusion advantage but also for their positive externality on product risk amelioration for rural farm businesses.Originality/valueThe paper introduces an idea that the m-money system is bundled with relevant information for mitigating price risk to the benefit of rural farm businesses.