Ethiopia is considered the “last frontier” for digital banking. That recently changed when the country was introduced to the mobile money service M-Pesa (inspired by the Swahili word for “money”). A recent study by Wharton doctoral candidate Aparajita Agarwal GRW24 and Edward B. and Shirley R. Shils Endowed Term Assistant Management Professor Valentina Assenova highlights the transformative effect of such platforms on emerging economies.

The Problem

Many countries in regions such as sub-Saharan Africa, Latin America, and South Asia grapple with inadequate infrastructure in credit markets, commonly referred to as “institutional voids.” Such voids impede access to financial services and hinder business growth.

The Study

Eleven percent.Agarwal and Assenova measured how regulatory reforms allowed non-banking entities, including mobile network operators and fintech startups, to fill these voids. Analyzing data from 71,000 adults across 78 countries, the authors discovered that initially, only 11 percent had access to formal financial services.

Key Findings

The authors argue that mobile money platforms boost financial inclusion in three ways:

Decorative currency.

(Illo: Ekin Kizilkaya)

A. By creating a digital record of financial activities that helps lenders make informed decisions on loan approvals

B. By establishing a massive network of users to enhance financial access (M-Pesa has more than 51 million users across seven African countries.)

C. By simplifying access to financial services that can fill gaps caused by limited access points, such as bank branches

The Takeaway

Post-regulatory changes led to a 22 percent rise in the likelihood of borrowing. “The increase was even more significant for women, the poorest individuals, and those with limited education,” says Agarwal. The research also carries significant implications for policymakers, who play a vital role in boosting financial access, says Assenova: “By enabling the launching of these platforms, governments can promote more collaborations between mobile money platforms and traditional financial institutions.”


Published as “Mobile Money: A Tool for Financial Inclusion” in the Spring/Summer 2024 issue of Wharton Magazine.