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Mobile money system and market risk mitigation: an econometric case study of Kenya's farm business

Thabo J. Gopane (Department of Finance and Investment Management, University of Johannesburg, Johannesburg, South Africa)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 18 November 2020

Issue publication date: 1 June 2021

175

Abstract

Purpose

The study presents and evaluates a proposition that there is market information bundled with the mobile money (m-money) system. Also, that such information is disseminated to farmers in the process of their normal financial transactions and business interactions. This market information is important to mitigate the price uncertainty of farm products.

Design/methodology/approach

The empirical analysis is conducted with a two-stage econometric procedure. First, a probit model is used to estimate the likelihood of m-money take-up by farm entrepreneurs. Second, the ordinary least squares model is used to regress the farming price uncertainty index on the m-money take-up, which is quantified with a set of predicted values from the probit model in the first stage. The data used in econometric estimation come from Kenya's FinAccess Household Survey published in 2016.

Findings

The results of this paper show a negative effect of m-money service take-up on the price uncertainty index. A one unit increase in the m-money system is associated with a 12% reduction in the price uncertainty index. The authors interpret this as saying that access to the m-money system by farm business has a beneficial spillover effect on product risk mitigation, ceteris paribus.

Research limitations/implications

The implication of this research is that policy initiatives which support farm entrepreneurs to access the m-money system should be encouraged not only for their financial inclusion advantage but also for their positive externality on product risk amelioration for rural farm businesses.

Originality/value

The paper introduces an idea that the m-money system is bundled with relevant information for mitigating price risk to the benefit of rural farm businesses.

Keywords

Acknowledgements

The author would like to thank the editor of this journal and the anonymous reviewers for useful comments and being good torch bearers. I absolve them all of any remaining errors or oversight.

Citation

Gopane, T.J. (2021), "Mobile money system and market risk mitigation: an econometric case study of Kenya's farm business", Agricultural Finance Review, Vol. 81 No. 3, pp. 310-327. https://doi.org/10.1108/AFR-05-2020-0071

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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