Financial inclusion in rural areas: the role of mobile financial services

• Applicant: Dr. Constantin Johnen
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 549499373

Mobile Financial Services (MFS) have been shown to increase the consumption smoothing abilities of households who use these services when they experienced supply shocks. However, in the present proposal I argue that MFS-usage might cause negative spillovers on non-users in extremely isolated areas. More precisely, that an increase in MFS user rates ceteris paribus increases price spikes after supply shocks occurred. For non-users this implies that after supply shocks they face higher food prices without having the additional consumption smoothing instrument, MFS, to deal with the increased prices. It follows that increase in MFS-user rates could negatively affect real food consumption of non-users in isolated areas. This proposal therefore aims to investigate whether MFS can reinforce local food price increases after supply-shocks and whether such local food price increases translate in consumption downfalls for non-users in East-Africa. Given the scarcity of access to financial institutions in rural areas, many researchers have investigated the rural-urban gap in financial inclusion. Within this field of research, there is a substantial consensus that MFS decrease the rural-urban gap in financial inclusion. However, rural areas are far from being homogenous and the increase in financial inclusion in rural areas caused by MFS could be largely attributed to such rural areas which are in close proximity to urban areas, whereas extremely rural areas might remain excluded. There are several arguments supporting the aforementioned hypothesis, such as a lack of MFS-infrastructure in extremely rural areas, a lack of spatial spillover, and a lack of externalities in rural areas; however empirical studies supporting these arguments do not exist hitherto. This proposal therefore aims to investigate the diffusion process of MFS in East-Africa, with a specific focus on the role of spatial spillover, externalities, and access to the MFS-infrastructure in rural areas. Particularly, access to the agent network deserves further attention. Agents are responsible to convert e-money into cash and vice versa, to open MFS accounts, and to support people in using MFS. They hence constitute a crucial part of the MFS-infrastructure. Despite their importance not much is known how agents diffuse in space. Particularly the diffusion of agents in extremely rural areas might be impeded by low population densities. However, empirical investigations about agent diffusion and obstacles thereof in rural areas remain absent. Given the importance of agents this proposal aims to investigate the diffusion of agents in general and whether the diffusion follows different regimes, for instance below and above a certain population density threshold.

• DFG Programme: Research Grants