Transparency and Financial Inclusion: Experimental Evidence from Mobile Money

Abstract

Electronic payment instruments have the potential to spur the transparency of business transactions and thereby reduce information frictions. We design a field experiment to understand whether e-payments facilitate the financial inclusion of SMEs in developing world and to study adoption barriers. We encourage a random sample of Kenyan merchants to adopt a new mobile-money payment instrument and find that the decision to adopt is hampered by the combination of information, know-how and seemingly small transaction costs barriers. In addition, we find that business owners who are more averse to transparency are more reluctant to adopt. Sixteen months after the intervention, we observe that treated firms have better access to finance in the form of mobile loans. The impact on financial access is more pronounced for smaller establishments, which also experience a considerable reduction in sales volatility. We conclude that e-payments can help un-collateralized firms become transparent and get financially integrated.