Hello, I am calling to ask for some money: mobile phones and credit uptake in rural Ethiopia
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 17 April 2020
Issue publication date: 28 September 2020
Abstract
Purpose
It is widely believed that ICT has a significant influence on the daily life of the poor and has positive spillover effects in their livelihoods. Mobile phones are one of the few ICT innovations that have found their way into the hands of the poor residing in remote and rural areas. In Ethiopia, mobile phones are recently introduced but got an acceptance from everyone including the rural poor; in five years’ time, mobile phones subscription has increased from less than 4% to more than 40%. Empirical evidence generally documents the positive role mobile phones play in facilitating the development efforts of poor households. However, using panel data from Ethiopia, the current paper explores a less investigated issue of the possible effects of mobile phone adoption on the credit uptakes of the rural poor who are mostly neglected from the formal credit markets but finance their credit demand from informal sources including relatives/friends.
Design/methodology/approach
To investigate the relationship between mobile phones and credit uptake and/or loan size, one can use different empirical strategies. For partly unleashing the endogeneity problem, an instrumental variable estimation approach is adopted in this paper. To deal with the endogeneity problem, one may consider using the linear IV approach or the control function. But the outcome variable and the endogenous variable are binary in nature, and the usual trend is to use the linear IV models or control functions, which do not consider these binary natures of the variables. To this end, a special regressors estimator is adopted, mostly used when both the dependent and the endogenous variables are binary in nature.
Findings
The econometric results suggest mobile phones are positively associated with the credit uptake of rural households, especially credit uptake from informal sources. Households with mobile phones are found to have 4%–14% higher probabilities of credit uptake and about 6%–17% in the case of credit from informal sources. Besides, households with mobile phones are found to have about ETB 65 (USD 3.42) higher loan size and about ETB 78 (USD 4.11) higher amount of loan in the case of a loan from the informal sources. Thus, policy-makers and financial providers working on providing credit in rural areas need to exploit the use of mobile phones in reaching out to the rural poor.
Originality/value
The author attests the fact that the work described has not been published previously and that it is not under consideration for publication elsewhere. Besides, it is the original work of the author.
Keywords
Acknowledgements
I am so grateful to Simone Bertoli for his time and insightful comments. I actually started working on this paper while I was in CERDI, Clermont Ferrand, for a research visit, and Prof. Bertoli had contributed a lot in shaping the paper. I am also highly indebted to my supervisors, Elisabetta Lodigiani and Giacomo Pasini, for their fruitful comments and help starting from the inception to revision stages of the paper. The data used in this publication come from Young Lives, a 15-years study of the changing nature of childhood poverty in Ethiopia, India, Peru, and Vietnam (www.younglives.org.uk). Young Lives is funded by UK aid from the Department for International Development (DFID). The views expressed here are those of the authors. They are not necessarily those of Young Lives, the University of Oxford, DFID, or other funders.
Citation
Gebremariam, A.G. (2020), "Hello, I am calling to ask for some money: mobile phones and credit uptake in rural Ethiopia", African Journal of Economic and Management Studies, Vol. 11 No. 3, pp. 457-480. https://doi.org/10.1108/AJEMS-03-2019-0109
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited