Mobile money, Entrepreneurship, and Informality

Abstract This paper investigates the impact of mobile money access on informal businesses in Sub-Saharan Africa. While mobile money can improve business performance and facilitate transactions, it may also enable labor informality. I examine this trade-off by studying solo entrepreneurs and small business owners in Kenya, Nigeria, Tanzania, and Uganda between 2013–2015. Leveraging changes in cellular coverage as a natural experiment, I employ a fuzzy spatial regression discontinuity design to analyze the impact of mobile money on informality rates. Findings suggest that living within GSM coverage areas increases the formalization of employment for entrepreneurs in Kenya and Tanzania but not necessarily in Nigeria. The paper also explores the broader effects of mobile money access. Mobile money is associated with lower poverty levels, particularly for informal entrepreneurs, and promotes higher formalization rates for previously unbanked entrepreneurs. Additionally, the study reveals network effects, where neighbors’ mobile money adoption influences individual entrepreneurs’ formalization decisions. JEL codes: G21, O17, G51, J62