Can mobile banking reduce the presence of corruption? A minor field study in Kenya

Abstract: Corruption and lack of transparency go hand in hand in poor countries. As most corrupt countries in the world can be found on the African continent, these countries have become a main target for strategies with anti-corruption movements. Despite the widespread phenomenon of corruption in this area, the technology development is prosperous, and owning a mobile phone is more common than having a toilet. This study considers the case of Kenya, which is one of the poorest and most corrupt countries in the world. Over the last seven years the country has faced a radical shift from the traditional financial banking system towards a financial system based on an electronic platform. The platform, named M-Pesa, provides mobile phone-based payment and transfer services for everyone with a mobile phone. This technological innovation has had a tremendous success with users countrywide. As a result of this development, this paper examines how the large-scale mobile phone-based payment system is used, and attempts to empirically test if it has been a successful strategy to decrease corruption in Kenya. The relationship can be explained by public choice theory, but this study reveals that the Kenyan context of corruption may be seen as being within a collective choice framework where the cost of fighting corruption outweighs the benefits. The paper applies microeconomic data on two hundred households with the aim of developing a model, which is then linked to the adoption of M-Pesa and to its impact. The aim of this paper is to give a deeper understanding of how M-Pesa affects economic growth in terms of reducing corruption. The results of testing the relationship between M-Pesa and corruption yield some but not full supportive empirical evidence for the hypothesis in this study.