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SKY[Skills and Knowledge for Youth] home Hot Issues of Skills Development Financial inclusion and mobile money

Financial inclusion and mobile money Yujiro Yamazaki
  • Skills Needed in Labour Market and Issues Related to Skills of Workers

 Financial inclusion has gained importance since the early 2000s, and its concept is included in the Sustainable Development Goals (SDGs) set forth in 2015. According to the World Bank, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs.

 Until recently, the low-income people in developing countries did not have bank accounts and relied on informal financial services or social networks such as local money lenders, person to person money transfers, and informal saving groups. Such informal financial tools do not necessarily impose a high-interest rate, but the transaction costs (in addition to the interest, transportation, money transfer cost, days until people get money, labor, and cost of negotiation) tend to be higher, making it difficult for people to get money.

 Mobile money services have successfully lowered this transaction cost and increased financial inclusion across the world. The percentage of adults with a mobile money account reached 69% (3.8 billion) in 2017 from 51% in 2011 and 62% in 2014 (World Bank, 2017).

 Accordingly, the structure of financial transactions in developing countries has changed drastically. For example, in Kenya, the use of social risk-sharing networks (purchase at credit, wage advance, sending money through bus drivers or friends, and group savings) has rapidly reduced, and, instead, mobile money transfers—though still often from informal sources such as friends and family—have significantly increased (Mbiti & Weil, 2011; Ismailov et al., 2019).

 Relatedly, mobile money increases the resilience of individuals, resulting in stable consumption even during income or weather shocks (Jack & Suri, 2014; Abiona & Koppensteiner, 2018; Riley, 2019; Btista & Vicente, 2019). For example, in the recent spread of COVID-19, some social groups transfer money and support low-income people through mobile money in developing countries (Mugema, 2020).

 However, there are two layers of knowledge and skills gaps related to mobile money. First, it is occurring at the level among users. While many poor people have gained access to financial services, the most impoverished population has not received access due to a lack of knowledge of using the system (Dubus & Hove, 2017). This issue overlaps with Cowen’s (2013) alarming remarks about the modern era of technological innovation, that it divides those who use technology and those who cannot keep up. The gap between the poorest and the poorest will be widening due to the knowledge gap in technology.

 Secondly, the knowledge gap arises from the disparity between the ability to develop and use new technologies. Bhagavan (1990) argues that as technological innovation progresses, there is a difference in the difficulty in the ability to develop and the ability to use new technologies so that those who can only use new technologies are not catching up with the ability to develop the new technology. As mentioned earlier, while mobile money aims to become universal for financial inclusion, its technological development requires a high level of knowledge. Therefore the difficulty diverges between the ability to develop the service and the ability to use the service. As mentioned earlier, while mobile money aims to become universal for financial inclusion, its technological development requires a high level of knowledge. Therefore the difficulty diverges between the ability to develop the service and the ability to use the service.

 Furthermore, in digital services such as mobile money, when one service becomes popular, users tend to be familiar with it that it becomes difficult for other companies to enter the market as competitors. This difficulty of entry makes the market a “winner takes all,” which means that knowledge of the innovation will continue to be concentrated in the hands of one company like a monopoly of knowledge. From the perspectives, while the spread of mobile money has brought tremendous benefits in terms of financial inclusion, it is also necessary to consider bridging the knowledge and skills gap between the actors driving technological innovation and the users of the service in the future.

(Aya Mizutani & Yujiro Yamazaki)


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