Mobile Money, Trade Credit and Economic Development: Theory and Evidence

T.H.L. Beck, H. Pamuk, R.B. Uras, R. Ramrattan

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Abstract

Using a novel enterprise survey from Kenya (FinAccess Business), we document a strong positive association between the use of mobile money as a method to pay suppliers and access to trade credit. We develop a dynamic general equilibrium model with heterogeneous entrepreneurs, imperfect credit markets and the risk of theft to account for this empirical pattern. Mobile money
dominates at money as a medium of exchange in its capacity to avoid theft, but it comes with higher transaction costs. The interaction between risk of theft and limited access to trade credit generates demand for mobile money as a payment method with suppliers and the use of mobile money in turn raises the value of a credit relationship and hence the willingness to apply for trade credit. Calibrating the stationary equilibrium to match a set of moments that we observe in FinAccess Business and quantifying the importance of the endogenous interactions between mobile money and trade credit on entrepreneurial performance and macroeconomic development, wefind that the availability of the mobile money technology increases the macroeconomic output
of the entrepreneurial sector by 0.33-0.47%.
Original languageEnglish
Place of PublicationTilburg
PublisherTilburg University
Number of pages49
Volume2015-005
Publication statusPublished - 1 Apr 2015

Publication series

NameEuropean Banking Center
Volume2015-005

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Keywords

  • money
  • trade-credit
  • m-pesa
  • allocations

Cite this

Beck, T. H. L., Pamuk, H., Uras, R. B., & Ramrattan, R. (2015). Mobile Money, Trade Credit and Economic Development: Theory and Evidence. (European Banking Center ; Vol. 2015-005). Tilburg University.