Mobile Money in Tanzania – A Panacea for Financial Inclusion?

Abstract: Despite developments in economic growth theory, the importance of savings and investment has remained consistent. It intrinsically connects to the importance of functioning financial intermediation and high levels of financial inclusion. While Sub-Saharan Africa still lags, Tanzania has during the last decade seen a rapid rise in mobile money services. This paper attempts to answer the potential of this technology in improving financial inclusion, by investigating the usage patterns of it, as well as how it eases in reducing existing constraints of improving the level of formal financial inclusion. Theory suggests that both supply factors, e.g., access, and demand factors, e.g., literacy, are potential constraints. Using multivariate regressions and qualitative interviews, these constraints help in explaining the current situation. The result show that while mobile money provides financial services to poorer individuals previously unattainable including small-scale loans, savings, and remittances, it should not be viewed as a panacea for conventional forms of financial inclusion. Supply of bank services, income, and literacy are important factors in explaining low levels of bank account ownership, while demand factors also play a role, with uptake gaps falling considerably after controlling for awareness. No causal link appears to exist between mobile money and formal financial inclusion. These constraints point to the importance of a provision of education among older generations, better access to modern infrastructure enabling access to bank branches, and better access to formal employment.