William F. Steel
What does ‘microfinance’ really mean in these days of financial inclusion and digital financial services? Is ‘financial inclusion’ simply a rebranding of ‘microfinance’, that is itself a rebranding of ‘microenterprise credit’? In the 1990s, microfinance became recognized as a set of methodologies that can make provision of financial services to the lower-income, ‘unbanked’ population viable and affordable. ‘Banking for the poor’ involved managing the costs and risks that made commercial banks avoid small financial transactions and informal enterprises – largely by passing them on to clients via solidarity groups and by using dynamic incentives such as short repayment periods and gradually increasing loan sizes. Initially, ‘microfinance’ and ‘microfinance institutions’ (MFIs) were virtually synonymous – both implying outside the formal financial system.
Mobile money adoption is gradually bridging the financial inclusion gap in access to financial services between higher- vs. lower-income populations in many developing countries, including Ghana. However, levels of adoption differ within and between countries. Using a nationally representative survey sample of 5,220, this paper examines the determinants of mobile money adoption and use in Ghana and explores how they vary across demographic groups. The probit estimation showed perceived usefulness and social influence as drivers of adoption, while transaction costs inhibit adoption to varying degrees across demographic groups. The major challenges users faced were network failures and high service charges. Measures to enhance mobile network connectivity and liaise with service providers to reduce the service charges would boost adoption and financial inclusion.
Training vs. informal financial services for the promotion of financial literacy and inclusion in Uganda
Financial education aims to promote financial inclusion by increasing understanding and use of formal financial services. Despite such training, participation in informal financial practices remains high relative to formal ones in countries like Uganda. A cross-sectional sample survey of economically active urban financial service users is used to test whether financial education through formal training is associated with financial literacy (FL) and FL is associated with increased use of financial services, especially formal ones. The findings indicate that formal financial training is significantly associated with FL, and that higher FL is associated with higher use of both formal and informal financial services. The unexpectedly strong association of the use of informal financial services with financial literacy suggests that informal financial services may have a more complementary role than a simple model of financial formalization would imply. The study suggests that promoting informal financial services may be more efficient in raising financial literacy and inclusion than financial training.
While emerging studies on mobile financial inclusion have focused on the factors driving the adoption of mobile money, little evidence exists on how the service is facilitating the use of formal financial services. Using the World Bank Findex data, we estimate the effect of mobile money adoption on the use of formal accounts, savings, and credit in Ghana. The results of the recursive bivariate probit analysis showed a significant symbiotic relationship between mobile money adoption and the probability of operating a formal account. Mobile money adoption has a positive effect on savings and access to credit but does not affect the avenues to savings and obtaining credit respectively. Mobile money users save in their wallet and obtain microcredit through the mobile money platform but not through formal channels. These findings reinforce the hypothesis that mobile money is the surest financial tool for achieving universal financial inclusion in developing countries.