Mobile Money in Tanzania

Abstract

In developing countries, mobile telecom networks have emerged as major providers of financial services, bypassing the sparse retail networks of traditional banks. We analyze a large individual-level data set of mobile money transactions in Tanzania. Transactions can be classified as (i) money transfers to others; (ii) short distance money self- transportation; and (iii) money storage for short to medium periods of time. We utilize a natural experiment of an unanticipated increase in transaction fees. We find that the demand for long-distance transfers is less elastic than for short-distance transfers, which suggests that mobile networks actively compete with antiquated cash transportation systems in addition to competing with each other. Further, we find that the willingnesses to pay to avoid walking with cash an extra kilometer and to avoid storing money at home for an extra day are 1.1% and 1% of an average transaction, respectively, which demonstrates that m-money ameliorates significant amounts of crime-related risk. We explore the implications of these estimates for pricing and propose Pareto superior price discrimination.

Keywords: mobile money network, financial exclusion, transaction costs, Tanzania, banking, telecommunications, social network, crime

JEL Classification: O16, O17, O33, L14, L15