Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution

This study examines the relationship between mobile money access and a household's ability to manage income shocks. The analysis is based on data from a large household survey in Kenya over a three year period. Study findings indicate that negative income shocks result in reduced per capita consumption for households that do not use M-PESA and for households who lack good access to the agent network. M-PESA user households experience no such fall in per capita consumption. Findings include:

• These effects are at least partially due to improved risk sharing and not due to any liquidity effects that M-PESA may provide;
• Users of M-PESA are better able to smooth risk associated with income shocks through remittances;
• When negative shocks occur, user households are more likely to receive a larger total value of remittances;
• M-PESA users receive remittances from a wider network of sources and a larger fraction of their network in response to a negative shock.