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Uganda study: Mobile money boosts non-farm employment — but not savings

Uganda study: Mobile money boosts non-farm employment — but not savings
A mobile money transfer shop in Kampala, Uganda. (Photo: EPA / Dai Kurokawa)

The World Bank has published an interesting study on the impact of making mobile money available to mostly subsistence farmers in a remote region of northern Uganda. One key, and perhaps unexpected finding, is that it can raise the level of ‘non-farm’ employment – a crucial step to weaning households out of the dire poverty of subsistence farming. This did not, however, translate into increased savings.

Digital financial services will be a common facet of life for virtually all readers of this publication. There are few, if any, financial transactions that cannot readily be done on a mobile phone. Such services remain beyond the reach of much of Africa’s rural poor, though that is changing, and so it is worth examining the effect they can have on rural household economies.

There have been a number of studies in this area, the latest by the World Bank. The study conducted a randomised experiment, with 168 areas randomly selected to receive a mobile money agent in Uganda’s rural north, and another 163 areas serving as control groups.

Apart from high poverty rates, areas in our sample also have low access to financial services, with the median distance to a bank branch being 25.2km. In this context, we ask whether and how rolling out mobile money agents affects households’ financial behaviour, occupational choices, food security, and poverty rates,” the study says.

One finding was that it saved costs on remittance transfers. This applied to only 15% of the households in the survey, but the results were still striking.

Data from a 2018 survey of more than 4,500 households show that the [mobile money] agent rollout led to cost-savings for remittance transactions. It also almost doubled the non-farm self-employment rate, from 3.4 to 6.4%, and reduced the fraction of households with very low food security from 62.9 to 47.2%, in areas far from a bank branch,” the study found.

In an age when “digitisation” and “Fourth Industrial Revolution” are all the rage, it is worth asking what this suggests for communities that are still often trapped in what are effectively pre-industrial modes of primarily household farm production.

The doubling of the non-farm employment rate is certainly of interest (though it must be said that the farm employment rate is still 93.6%, but you have to start somewhere). The study’s authors speculate “that households used their increased P2P [peer-to-peer] transfer receipts and cost savings from remittance transactions to invest in self‐employment, which in turn generated income that raised food security.”

These savings could be significant: “Households who receive remittances typically paid 4,000 Ugandan shillings ($1) per transaction in transportation costs, which in our study area represents about 10% of per capita daily household expenditures,” the study noted.

One would guess there are other possibilities at play here. Mobile transfers make it easier to pay for wages or services rendered, which could also surely give non-farm employment a boost.

Interestingly, the analysis “found no effect on savings, agricultural outcomes, or poverty”.

The study reaches the not unreasonable conclusion that: “A household’s poverty status is likely to take more time to change than labour market outcomes or food security, so it is possible that the [mobile money] agent rollout would reduce poverty levels in the longer‐run.”

And the non-impact on savings may simply attest to the scale of poverty in the region, though the study does not look at this in any detail. That could also presumably change in the longer run if more people became engaged in non-farm employment that generated cash.

The bottom line is that while it is hardly a panacea, mobile money can improve livelihoods, even in extremely poor, rural and remote regions. And it is an area where the private sector can make a difference and take the lead. People who have been barely touched by industrialisation can still reap benefits from digitisation. BM

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