Effect of Mobile Money Transfers on Financial Deepening in Kenya

Abstract

In Kenya mobile money transfers are making financial deepening even more realizable as demand for money transfer services continues to increase. Since introduction of mobile telephony in Kenya in late 90’s, cell phones have acted as a means of cash transfers for all types of transactions plans which are in line with the financial institutions. The practice has long-time been the norm in the new era of technology which keeps on changing for the better. For a long time there has been a widening gap as a result of developed worlds and the struggling emerging markets to penetrate the new markets. Just like the Sub-Saharan Africa, which have had a chance to enjoy handful landlines which are managed through a miniature broad band, quite a sizeable number of people didn’t have access to banks and a huge chunk of the economies relied on cash. Since the year 2020 there has been a 101% increase from 2% by 2019 of mobile phone penetration. With these big strides, Mobile Money Transfer services, M-pesa being the first one, was introduced in March 2007. Financial services providers have since used the platform to offer their services to the mobile users and customers. The purpose of the study was to establish whether this has had an effect on financial deepening. The researcher used descriptive research design by use of secondary data to be collected from central Bank of Kenya, communication authority and Kenya National Bureau of statistics for 10 years period between 2011 and 2020. The analysis was undertaken by the use of multiple linear regression where quarterly data was collected for the study period. The regression model had a coefficient of determination of 79.4% indicating that it was a strong model and could be used to predict changes in financial deepening to an extent of 79.4%. The study rejected the null hypothesis and therefore concluded that money transfers have a significant effect on financial deepening in Kenya. The study variables of internet banking, mobile banking, agency banking and money lending had significant and strong correlations with financial deepening. The study concluded that mobile transfer has a positive and significant effect on financial deepening for firms in Kenya. The study therefore recommended that the government should ensure that it undertakes tremendous steps to enhance mobile transfer and implement regulations that would ensure that there is a more controlled and responsible system of mobile money transfer in Kenya.