Access to finance for small and medium-sized firms: Evidence form Eastern Sub-Saharan Africa

Mobile money is widely used by individuals since its launch in the midst of the last decade. Nowadays, this service is also making its way through businesses that use mobile money for their financial transactions. The use of mobile money has transformed the way businesses in developing countries operate, particularly in Sub-Saharan Africa. Notably, firms in Kenya, Tanzania, Uganda, and Zambia are saving time for financial transactions, satisfying customers’ and suppliers’ requests to transact in mobile money and reducing costs of financial transactions. Currently, among the firms that use mobile money about 64 percent of firms receive payments from their customers in the form of mobile money. Additionally, more than 44 percent of businesses use the service to pay their suppliers. This dissertation examines the service usage among businesses using the World Bank’s Enterprise Surveys Program data set for the year 2013, making the study applicable to the present time. Firstly, the dissertation investigates the type of firms that are more likely to use mobile money, and whether mobile money compliments the formal banking system. The results indicate that older firms are 20 percent more likely to use the service than younger firms, whereas medium and large-sized firms are 24 percent and 45 percent respectively less likely to use the service than small firms. Also, the firms that use mobile money are 20 percent more likely to have bank accounts. Secondly, the dissertation examines whether the enterprises that use mobile money are less credit constrained than other firms. The investigation reveals that the firms that use mobile money are 25 percent more likely to have bank loans. Finally, the dissertation addresses the gender bias regarding whether female-owned firms are more likely to be credit constrained than their male counterparts, and whether mobile money can help these firms to mitigate the problem of credit rationing. The results indicate that female-owned firms exhibit the Pecking Order Hypothesis for their capital structure and that these firms are 16 percent more likely to have bank loans compared to their male counterparts