TECHNISCHE UNIVERSITÄT MÜNCHEN Fakultät Für Wirtschaftswissenschaften Lehrstuhl Für Betriebswirtschaftslehre – Finanzmanagement Und Kapitalmärkte
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TECHNISCHE UNIVERSITÄT MÜNCHEN Fakultät für Wirtschaftswissenschaften Lehrstuhl für Betriebswirtschaftslehre – Finanzmanagement und Kapitalmärkte Essays in Household Financial Capability among Kenyan Households focused on Financial Inclusion and Financial Literacy Teresa Wanjiku Schützeichel Vollständiger Abdruck der von der Fakultät für Wirtschaftswissenschaften der Technischen Universität München zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaften (Dr. rer. pol.) genehmigten Dissertation. Vorsitzender: Prof. Dr. Reiner Braun Prüfer der Dissertation: 1. Prof. Dr. Christoph Kaserer 2. Prof. Dr. Dr. Ann-Kristin Achleitner Die Dissertation wurde am 31.05.2019 bei der Technischen Universität München eingereicht und durch die Fakultät für Wirtschaftswissenschaften am 15.07.2019 angenommen. Acknowledgements To accomplish this work would not have been possible without the help of a number of people. Heartfelt gratitude goes to my supervisor, Prof. Dr. Christoph Kaserer who gave me the opportunity and provided the advice I needed to conduct my research. To the secretariat at Financial Sector Deepening (Kenya), with special thanks to Geraldine Makunda, who made available to me the datasets used to carry out the analysis to produce this dissertation. Further they gave me a chance to present the initial findings during the writing of the first two papers which provided helpful insights. To Strathmore University, my home and affiliate university for according me the time and financial support to undertake my PhD studies. Special thanks go to Dr. Daniel Urban and Karin Papavlassopoulos who guided me through the application and settling in process. My office mate Dr. Patrick Bielstein, and colleague Dr. Friedrich Osterhoff who offered helpful insights to my research papers and ideas, and Dr. Jochim Lauterbach who helped bring my German up to speed. And to the rest of my fellow PhD colleagues who made the Chair a fantastic research environment, I am very grateful: Dr. Stefanie Ahrens, Dr. Vitor Azevedo, Daniel Bias, Wenting Zhao, Christian Klein, Dr. Maximillian Overkott, and Robert Heigermosser. On a personal level I am eternally indebted to my husband Paul Schützeichel who with his love and support saw me through the highs and lows of writing this work, my children Karl and Christoph who were the best as well as the most challenging part of my PhD studies. I would also like to acknowledge my parents and siblings as well as my family in-law, and my long- time friend Victoria Gathogo who constantly encouraged me through the entire time of my studies. Most importantly I am grateful to the Almighty God who granted me good health and the physical ability to undertake this research. i Summary This thesis provides empirical evidence on the importance of financial access as well as financial literacy for households use of formal financial products and services to enhance their financial capability. Using nationally representative household survey data for the years 2009, 2013 and 2016, this thesis endeavours to show how being able to access formal financial services and products boosts a household’s financial well-being. In addition to access, I find that households also need a basic level of financial knowledge so as to be able to demand the products and services suitable for their needs. Where the needs of the customer, especially those that are un-or under-banked are understood, the supply side will come up with innovative financial products and services to meet these needs. In Kenya the concept of mobile money through the M-PESA platform has changed the way in which households interact with money as well as financial services. Introduced as a method of money transfer to enable people send and receive money, it has over time evolved to provide traditional banking services. Individuals with a mobile phone and subscribed to M-PESA can not only make transfers, they can also make payments for goods and services, save what is not immediately needed to be withdrawn or sent and more recently access credit. With this provision individuals who previously had no safe place to save money, i.e. used informal mechanisms such as under the mattress now have an easy to use, safe and cheap place to store money for later use, for example in case of emergencies. In addition to making simple financial services available to the poor, the mobile phone has also provided a channel for bite-sized information on financial matters to be discharged to the population. Where individuals are unable to attend financial literacy classes, basic financial information can easily be made available through mobile technology. Furthermore, the concept of mobile money has also increased the impact of social networks as individuals often tend to get financial information from their mobile money agent. The essays in this thesis empirically show the positive effects that ii financial inclusion through mobile money as well as financial literacy have had on individuals’ financial behaviour. The findings in these essays also open up the space for discussion on financial literacy matters in developing countries. Kenya is an interesting example of a developing economy where mobile technology on payments transfers is leading but it has a below-average literate population. In this regard, the essays here set out a platform to further find out what in what ways can the financial literacy be enhanced keeping in mind that individuals may not have the time to attend financial literacy courses. iii Table of Contents Acknowledgements ............................................................................................................................ i Summary ........................................................................................................................................... ii List of Tables .................................................................................................................................. viii List of Figures .................................................................................................................................. ix List of Abbreviations and Acronyms ................................................................................................ x CHAPTER 1 ...................................................................................................................................... 1 1. INTRODUCTION ..................................................................................................................... 1 1.1 The Concept of Household Finance ................................................................................... 1 1.2 Overview of Kenya ............................................................................................................. 4 1.2.1 Demographics .............................................................................................................. 4 1.2.2 Financial Inclusion Landscape in Kenya .................................................................... 4 1.2.3 Mobile Money and its role in the financial landscape of Kenyan households ............ 8 1.3 Motivation .......................................................................................................................... 9 1.4 Contributions of the specific empirical analyses undertaken ........................................... 11 1.4.1 Mobile Financial Services as a Tool for Financial Literacy ..................................... 11 1.4.2 Mobile Money and Household Saving Behaviour: Evidence from Kenya’s M-PESA. ………………………………………………………………………………………12 1.4.3 Financial Literacy and Saving for Retirement among Kenyan Households ............. 14 1.5 Structure of the Dissertation ............................................................................................. 16 CHAPTER TWO ............................................................................................................................. 17 2. Mobile Technology as a Tool for Financial Literacy: Evidence from Kenya’s M-PESA ....... 17 2.1 INTRODUCTION ............................................................................................................ 19 2.2 LITERATURE REVIEW ................................................................................................. 23 2.2.1 The Concept of Financial Literacy ............................................................................ 23 2.2.2 Economic Case for Financial Literacy ...................................................................... 24 2.2.3 The Mobile Phone as a Platform for Financial Services in Kenya ........................... 28 2.3 DATA DESCRIPTION AND EMPIRICAL FRAMEWORK ......................................... 32 2.3.1 Context and Data Description ................................................................................... 32 2.3.2 Empirical Framework ................................................................................................ 35 2.3.3 Measuring Mobile Money Usage and Determinants of Financial Literacy .............. 37 2.3.4 Model Specifications ................................................................................................. 40 2.3.5 Multi-Collinearity of Explanatory Variables ............................................................ 41 2.4 RESULTS AND DISCUSSION OF FINDINGS ............................................................. 42 2.4.1 Mobile Money Usage and Financial Literacy ........................................................... 42