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The Puzzle of Mobile Money Markets: An Example of Goldilocks Conditions

By Ricardo Martínez-Cid and Gonzalo Pernas

This paper investigates the supply-side and demand-side factors that explain the success of mobile money markets. Namely, we argue that there exists a set of Goldilocks conditions that best supports mobile money services. A population must have exposure to financial services to understand mobile money and have a high enough level of income to have a use for these services. However, the population must also not have access to highly developed banking architecture, such that their banking needs are already satisfied. By comparing El Salvador and Kenya, countries in different stages of development, we find empirical support for our hypothesis. Our evidence suggests that low income regions and households with some exposure to financial services are more likely to use mobile money than fully banked people who enjoy a higher income.

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Advisor: Erica Field | JEL Codes: E40, E42, G21, G23, O12, O16, O17

An Economic Approach to Evaluating the Impact of AML/CFT Regulations

By Caitlin Mcgough

This paper addresses the unintended consequences of AML/CFT regulations, seeking to provide an economic analysis of the drivers of derisking and the broader consequences for the goal of financial integrity. Looking at qualitative data, this paper (1) concludes the problem of derisking warrants a reconsideration of the enforcement approach and (2) recommends reorienting the banks’ payoff matrix by reducing the cost of compliance and regulatory risk associated with providing financial services to highrisk, lowprofit customers. This paper culminates with the recommendation to consider tolerating “honest mistakes” on the part of financial institutions in order to achieve the goals of integrity and inclusion in the international financial system.

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Advisor: Connel Fullenkamp | Tagged: De-Risking, Financial Inclusion, Money Laundering, Terrorism Financing

The Rise of Mobile Money in Kenya: The Changing Landscape of M-PESA’s Impact on Financial Inclusion

By Hong Zhu

M-PESA, the hugely popular mobile money system in Kenya, has been celebrated for its potential to “bank the unbanked” and increase access to financial services. This paper provides evidence to support this idea and explores mechanisms through which this might be the case. It specifically looks at the savings products held by individuals and how this changes in relation to M-PESA use. It then constructs an index for measuring the extent to which individuals are integrated into the formal financial sector. This paper argues that M-PESA’s effect on financial inclusion is a growing phenomenon, which suggests that keeping pace with the rapid evolutions of this mobile money system should be a high priority for researchers. As this paper elucidates, M-PESA has become notably more integrated with the formal financial sector in 2013 as compared to 2009, which holds implications for user behavior.

Honors Thesis

Advisor: Michelle Connolly, Xiao Yu Wang | JEL Codes: D14, E42, G21, G23, O1, O17, O16, O33 | Tagged: Financial Inclusion, Mobile Money, Savings,Technology

Questions?

Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu