1. 2015 EAST AFRICA EVIDENCE SUMMIT JULY 8-9, 2015 | NAIROBI, KENYA A PATHWAY TO FINANCIAL INCLUSION: MOBILE MONEY AND SAVING BEHAVIOR IN UGANDA ANNET ADONG | ECONOMIC POLICY RESEARCH CENTER

2. TABLE OF CONTENTS Introduction Rationale Data and Methods Preliminary results

3. INTRODUCTION Exclusion from the formal financial system is a barrier to eradicating poverty (Donovan 2012). lack of access to financial services reduces households’ ability to invest, save and respond to shocks (Aker and Wilson, 2013) Sub-Saharan Africa - 25 percent own an account in a formal financial institution 39 percent in Latin America and the Caribbean, and 89 percent in high income countries (Demirgüç-Kunt and Klapper, 2013) Poor people use informal saving devices – rotating savings associations, keep money at home –unreliable methods An RCT of access to formal savings for businesses in Kenya found increased business environment and personal income growth among women. Findings suggest that savings could be an effective tool to help the poor accumulate funds for investment or consumption (Bauchet et al., 2011; findings from RCTs in microfinance) Mobile money has been cited as a platform and a game changer especially for the poor (IFC Mobile Money report 2011; ITU 2013).

4. RATIONALE Examine the association of being a registered mobile money user on the savings behavior of individuals

5. RATIONALE Different context Jack and Suri (2012) using two rounds of data set collected in 2007 and 2008 in Kenya find an increased proportion of households using mobile money to save their earnings. Their definition of savings was however limited to whether or not an individual had a balance reserve in their phone. Reasons attributed to saving money in their phones and not elsewhere were- the ease of use, safety reasons and emergency situations. Similarly, while analyzing data from the 2006 and 2009 financial surveys for Kenya, Mbiti and Weil (2011) find out that that the adoption of mobile money decreases the use of informal saving mechanisms such as ROSCAS in addition to increasing the frequency of sending transfers in Kenya

6. RATIONALE In India for example, a saving mechanism from phone to bank account encouraged low income to save directly from the phone to the bank and it substituted for informal saving methods that were risky (Nandhi, 2012). In Tanzania, Tigo Tanzania pays out interest accrued on a mobile money account; an incentive that is directed towards encouraging mobile money savings (GSMA report, 2014). Need for new approaches in terms of new services, delivery channels and providers (Allen et al., 2015).

7. DATA AND METHODS Data Fin Scope III survey carried in 2013. Are national geographic and demographic surveys on the demand for, access and usage of financial services ( Uganda, Kenya, Tanzania, Rwanda, Nigeria, Ghana, Mozambique, Malawi, South Africa, Botswana and Zambia) Surveys measure the extent to which financial services and products are used, by whom and what constraints are faced by individuals who do not use financial services. Finscope III survey builds on the previous nationally representative FinScope I and II conducted in Uganda in 2006 and 2009 respectively. Gathered information of the adult population (individuals aged 16 years and above, about 3000), socio economic characteristic and use and non-use of financial services Able to capture information on the use of mobile money

8. METHODS Methods Instrumental variables – being a registered mobile money user

9. DESCRIPTIVE Ownership and awareness of mobile money Characteristic Knowledge about mobile moneyRegistered userCurrently using Uganda76.833.756 Below 18758.833.7 18-2484.531.253.9 25-3980.93961.3 40-5974.434.356.1 60+55.320.842.4 Wealth quintile Lowest6214.731.6 Second68.619.641.5 Middle76.627.854.1 Fourth83.639.563.4 Fifth92.256.678.4 Place of residence Rural73.528.850.7 Urban90.750.774.5 Region: Kampala96.860.683 Central88.736.866.7 Eastern70.928.351.3 Northern65.522.934.8 Western76.536.157.4

10. PRELIMINARY RESULTS Mechanism of saving FormalInformal Non-bank formalMobile money Interaction registered mobile money and distance to semiformal institution0.2380.1820.308**1.080*** Have a bank account2.139***0.1830.959***0.485** [0.18][0.13][0.15][0.19] Interaction of age and registered mobile money-0.003-0.006-0.003-0.019* Household sex-0.0310.228*-0.0600.355 Regions (cf: Kampala) Central0.3120.889***0.512*0.626** Eastern0.1020.879***-0.125-0.785** Northern0.636*1.271***0.003-0.414 Western-0.1591.164***0.398-0.124 Wealth quintile (cf: lowest wealth quintile) Second wealth quintile-0.3110.2200.100-0.616* Third wealth quintile0.4110.382***0.501**-0.469 Fourth wealth quintile0.1710.0880.313-1.201*** Highest wealth quintile0.702*0.0460.088-0.985** Constant-2.648***-1.011**-2.176***-0.958 Number of observations1,163 1,101

11. CONCLUDING REMARKS Saving through the phone is the preferred alternative individuals far away from semiformal institutions, are younger and at the lowest wealth quintile. Mobile money has been able to resolve the market failure associated with accessing formal and semi- informal services (distance); need for incentives to encourage saving through the phone (savings are still minimal) Some Policy options Regulation: In Uganda, mobile money is still viewed as a payment and transfer service and not for saving and deposit taking. This limits the extent through which this service can be used for savings mobilization For mobile money to grow faster, regulators must encourage investments while guaranteeing fair competition, and assuring customers that systems are secure and their money is safe. Connecting mobile money with; the banking system….