The Impact of Mobile Money on Perception about Cash and Financial Inclusion: Micro-Level Evidence from Uganda

Abstract

The debate about the future of cash has recently intensified as technology innovations in the financial sector accelerate digital payments and the creation of new, digital forms of money. Several countries have embraced initiatives towards cashless or cash-light payments. In Sub-Saharan Africa (SSA), mobile money has dominated the list of digital payment innovations. These innovations hold the potential to alter individuals’ behaviour towards cash. Will mobile money render cash less dominant in Africa? Can it promote financial inclusion? We address these questions by exploring individual-level data for Uganda, a country in an African region that pioneered the mobile money revolution in the world. We use the Propensity Score Matching method to robustly compare mobile money users and non-users across various indicators that capture individuals’ perceptions about cash, and the extent to which they remit, save, and borrow money. We present the first evidence that mobile money users, compared to non-users, are more likely to perceive cash as risky and less likely to prefer carrying large amounts of cash. We also confirm that mobile money users are more likely to receive and send remittances, save, and borrow. They also save and borrow larger amounts. The estimation methodology used in the paper, robustness analysis, and a falsification test help reduce potential concerns about selection bias and reverse causality. Two implications emerge from the findings. First, the rapid expansion of fintech technologies in Africa is likely to reduce, although slowly, the demand for and usage of cash over time. Second, the expansion of fintech technologies could help promote financial inclusion in Africa