By Bernadin G. C. Ahodode, Researcher, the University of Abomey-Calavi (UAC), Benin Republic
The blog is based on a study conducted by the author on comparative analysis of the complementarity effect between the use of bank finance, mobile money services, microfinance, mobile money services on enterprises’ sectorial turnovers and export performance in Cameroon.
Improving the performance of enterprises is crucial for developing countries, particularly African countries. Indeed, African countries are characterized by a large number of enterprises that contribute to their achievement of sustainable development goals by creating jobs, accelerating industrialization, increasing their economic growth and improving the well-being of their populations. However, enterprise performance is generally poor due to limited access to financing services (Beck et al., 2015). This difficulty hinders their export performance as well as decreases the turnover of enterprises that manage to stay in business. Indeed, financial inclusion through banks and microfinance enables those enterprises that find it difficult to secure funding from the traditional banking institutions to have access to a wide range of financial products & services at a lower cost. The emergence of innovations in both products/services and delivery mechanisms made possible by the mobile revolution makes financial innovation essential for the effectiveness of financial inclusion. Mobile money is the most reliable of them in terms of improving enterprise performance. The use of mobile money by enterprises varies with the sector – but it is mainly used in retail as a means of payment for goods/ services (Higgins et al., 2012). The most notable experience is that of the M-Pesa in Kenya which is used for both domestic and international transactions. Kenya and some other African countries like Ghana and Tanzania have witnessed a rapid development of microcredit services by mobile network operators especially for the benefit of SMEs. In Cameroon, by contrast, efforts to open up banks for the benefit of SMEs have only been made by the government, in 2015 (MSMESEH, 2018). Mobile money is used by enterprises to pay their employees, suppliers, utility bills and to receive payments from customers in order to improve their performance without the possibility of microcredit services.
Using bank finance and microfinance services in association with mobile money increases enterprises’ overall and sectorial turnover
Results from the study show that effects on the overall turnover of the average treatment effect regarding the use of the twin microfinance mobile money services were found to be positive. However, they were found to be negative for the use of the twin bank finance mobile money services. The average treatment effect on treated for the use of the bank finance mobile money services on the turnover was positive; the enterprises’ use of the bank finance mobile money services was found to contribute to increasing their overall turnover by about 0.46 points. The average treatment effect on treated for the turnover of the enterprises in the manufacturing and services sectors was negative while that of the retail sector was positive in relation to their use of the microfinance mobile money services. The turnover for the manufacturing sector was positive while both the turnover of the retail sector and that of the services sector were negative in relation to their use of the bank finance mobile money services.
Why should enterprises use bank finance and microfinance services in association with mobile money to increase their sectorial turnover?
The use of the twin bank finance mobile money services has a positive effect contrary to negative effect for the twin microfinance mobile money services on the enterprises’ turnovers in the manufacturing and services sectors. These results are due to the fact that traditional banking services are more appropriate than microfinance services in terms of minimizing costs and increasing the operations of the enterprises concerned. In addition, the opposite effects observed between the two types of services for the retail-sector enterprises can be explained by the fact that these enterprises are small in size and easily incorporate mobile money services in their operations. The positive average treatment effect on treated for the use of microfinance mobile money services rather than the use of bank finance mobile money services was also observed by Kimani (2016). This can also be explained by the practical use of microfinance and mobile money services by the enterprises for their operations. These findings are consistent with those made by Islam et al. (2018), Ubi and MBA (2019), and Talom and Tenge (2020). This is because these studies stress the importance of liberalizing the microfinance sector for the benefit of the Global System for Mobile operators.
Policy Implications – liberalize mobile money services
In light of these findings, the study recommends a liberalization of the financial sector in Cameroon for the benefit of mobile money network operators – to enable them to provide microfinance services as is seen in Ghana and Kenya, for increasing the performance of enterprises. The liberalization of mobile money services can help in the fight against COVID-19 by reducing the influxes of per-to-person financial transactions and reducing the use of hard cash which are possible vectors of the virus.
References
- Beck, T., Senbet, L., Simbanegavi, W., 2015. Financial inclusion and innovation in Africa: An overview. J. Afr. Econ. 24, i3–i11.
- Higgins, S.T., Washio, Y., Heil, S.H., Solomon, L.J., Gaalema, D.E., Higgins, T.M., Bernstein, I.M., 2012. Financial incentives for smoking cessation among pregnant and newly postpartum women. Prev. Med. 55, S33–S40.
- Islam, A., Muzi, S., Meza, J.L.R., 2018. Does mobile money use increase firms’ investment? Evidence from Enterprise Surveys in Kenya, Uganda, and Tanzania. Small Bus. Econ. 51, 687–708.
- Kimani, E.M., 2016. Effect of adoption of Financial Innovation on Performance of small and medium Enterprises in Kenya.
- Ministry of Small and Medium Sized-Enterprises, Social Economy and Handicrafts (2018). Annuaire Statistique des PMEESA 2018. Ministry of Small and Medium Sized-Enterprises, Social Economy and Handicrafts: Yaoundé, Cameroon.
- Talom, F.S.G., Tengeh, R.K., 2020. The impact of mobile money on the financial performance of the SMEs in Douala, Cameroon. Sustainability 12, 183.
- Ubi, P., Mba, P. 2019. Financial innovation and output growth of small and medium-scale industries in Nigeria. Nigerian Journal of Economic and Social Studies, 61(2).