Effect of Mobile Network Operator Facilitated Digital Credit on the Financial Health of Youth Borrowers in Kibera, Nairobi County, Kenya
DOI:
https://doi.org/10.47941/jbsm.1470Abstract
Purpose: The increased advancements in technological integration within the financial sector has led to development of new credit platforms which improve access to borrowing among the youth. Further, with proliferation of digital lending platforms which provide unsecured loans has led to a debt chokehold among the youth. This has resulted in poor financial health among the youth. The general objective of the study was to analyze the effect of mobile network operator facilitated digital credit on the financial health of youth borrowers in Kibera, Nairobi County, Kenya.
Methodology: The study employed a correlational research design. The population of interest for this study was youth borrowers who live and work in Kibera, Nairobi County. The sampling frame for this study was active users of digital credit who are between 18 and 35 years, residing in Kibera. The list was obtained from the Independent Electoral and Boundaries Commission’s (IEBC) voter register for Kibera Ward. A stratified sampling technique was used to select the respondents. The sample size was 399 respondents. Data was collected using structured questionnaires. SPSS was used to aid in the data analysis. A descriptive statistical technique of analysis was used and shall entail the determination of the mean and frequency distribution of the datasets. Further inferential analysis was conducted using both correlation and regression analysis. The data was presented in tables and figures.
Findings: The study was able to obtain an 88 percent response rate, signifying high degree of accessibility of the youth in the area. Of these, most were male, while only 107 of the responses were from female respondents. The study established that mobile-facilitated digital credit on youth borrower’s financial health has a positive and significant effect on youth’s financial health. The study concludes that mobile network operator facilitated digital credit has a significant and positive effect on the borrower’s financial health. The study concludes that mobile operator facilitated loans are fast and easily accessible which increases their effectiveness to the user.
Unique Contribution to Theory, Policy and Practice: The study recommends that mobile money operators that provide digital loans reduce their operation rates considering they have high interest rates for the small loans they offer. The study also calls for the development of progressive peer to peer regulations that would improve the penetration of these loan devices that have been identified as key to young entrepreneurs.
Downloads
References
Ahmad, A. H., Green, C., & Jiang, F. (2020). Mobile money, financial inclusion and development: A review with reference to African experience. Journal of Economic Surveys, 34(4), 753-792.
Alumasa, S., & Muathe, S. (2021). Mobile Credit and Performance: Experience and Lessons from Micro and Small Enterprises in Kenya. Journal of Applied Finance & Banking, 11(4), 135-161.
Aron, J., & Muellbauer, J. (2019). The Economics of Mobile Money: harnessing the transformative power of technology to benefit the global poor. Centre for the Study of African Economies, University of Oxford.
Asuming, P. O., Osei-Agyei, L. G., & Mohammed, J. I. (2019). Financial inclusion in sub-Saharan Africa: Recent trends and determinants. Journal of African Business, 20(1), 112-134.
Babu, N. (2020). Effect of Digital Credit on Poverty Reduction among Low Income Borrowers in Kenya: A Case of Major Digital Credit Providers in Kenya. Doctoral Project, United States International University-Africa.
Bashir, A. B., & Ondigo, H. O. (2018). Effect of Financial Products on Financial Performance of Small and Medium Enterprises in Nairobi County. Journal of International Business, Innovation and Strategic Management, 2(2), 1-36.
Bazarbash, M. (2019). Fintech in financial inclusion: machine learning applications in assessing credit risk. International Monetary Fund.
Bećirović, S., Plojović, Š., & Ujkanović, E. (2017). Mobile Network Operators as Banks–Opportunites and Threats. TEM Journal, 6(3), 618.
Bhandari, A. K. (2022). Predicting the Likelihood of Loan Default Among Marginalised Population: A Case Study on Rural Bengal. In Microfinance to Combat Global Recession and Social Exclusion (pp. 277-294). Singapore.: Palgrave Macmillan.
Bj¨orkegren, D., Joshua, B., Omowunmi, F., Jacqueline, M., & Suraj, R. (2022). “Instant Loans Can Lift Subjective Well-Being: A Randomized Evaluation of Digital Credit in Nigeria. econ, q-fin.
Blumberg, B., Cooper, D., & Schindler, P. (2014). EBOOK: Business Research Methods. . McGraw Hill.
Brailovskaya, V., Dupas, P., & Robinson, J. (2021). Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi. National Bureau of Economic Research.
Burlando, A., Kuhn, M., & Prina, S. (2020). Digital Credit Delivery Speed and Repayment Rates. Work. Pap., Dep. Econ., Univ. Oregon, Eugene, OR/Dep. Econ., Northeastern Univ., Boston Google Scholar Article Location.
Cornelli, G., Frost, J., Gambacorta, L., Rau, R., Wardrop, R., & Ziegler, T. (2021). Fintech and big tech credit: What explains the rise of digital lending? CESifo Forum, 22, (2), 30-34.
DeFusco, A. A., Tang, H., & Yannelis, C. (2021). Measuring the welfare cost of asymmetric information in consumer credit markets. National Bureau of Economic Research.
Ebong, J., & Babu, G. (2020). Demand for credit in high-density markets in Kampala: Application of digital lending and implication for product innovation. Journal of International Studies, 13(4), 295-313.
Elizabeth, N. M. (2020). Digital Credit Borrowing And The Financial Risk Exposure Of Micro And Small Enterprises In Nairobi City County, Kenya. Doctoral Project, Kenyatta University.
Fowler Jr, F. J. (2013). Survey research methods. . Sage publications.
Girón, A., Kazemikhasragh, A., Cicchiello, A. F., & Panetti, E. (2022). Financial inclusion measurement in the least developed countries in Asia and Africa. Journal of the Knowledge Economy, 13(2), 1198-1211.
Greenfield, T., & Greener, S. (. (2016). Research methods for postgraduates. . John Wiley & Sons.
Gubbins, P., & Totolo, E. (2018). Digital credit in Kenya: Evidence from demand-side surveys. FSD Kenya.
Hasan, M. M., Yajuan, L., & Khan, S. (2020). Promoting China’s inclusive finance through digital financial services. Global Business Review.
Heitmann, S., Peterson, Z. W., & Kinzinger, J. P. (2018). Banking on the Future: Youth and Digital Financial Services in Sub-Saharan Africa. Field Note 9.
Huang, Y., Zhang, L., Li, Z., Qiu, H., Sun, T., & Wang, X. (2020). Fintech credit risk assessment for SMEs: evidence from China.
Jamie, A., Hopkins, D., & Myra, V. (2019). The Role of Financial Services on Youth Education and Employment. Washington, D.C.: CGAP.
Jiang, X., Wang, X., Ren, J., & Xie, Z. (2021). The Nexus between digital finance and economic development: evidence from China. Sustainability, 13(13), 7289.
Johnen, C., Parlasca, M., & Mußhoff, O. (2021). Promises and pitfalls of digital credit: Empirical evidence from Kenya. Plos one, 16(7), e0255215.
Kedir, A., & Kouame, E. (2022). FinTech and women’s entrepreneurship in Africa: the case of Burkina Faso and Cameroon. Journal of Cultural Economy, 1-16.
Khandelwal, R., Kolte, A., Veer, N., & Sharma, P. (2022). Compulsive buying behaviour of credit card users and affecting factors such as financial knowledge, prestige and retention time: a cross-sectional research. Vision, 26(2), 172-180.
Kingu, P. S., Macha, S., & Gwahula, R. (2018). Impact of non-performing loans on bank’s profitability: Empirical evidence from commercial banks in Tanzania. International Journal of Scientific Research and Management, 6(1), 71-79.
Kouame, E., & Kedir, A. M. (2020). Disruptive financial technology (FinTech) and entrepreneurship in Burkina Faso. Disruptive Technologies, Innovation and Development in Africa, 171-186.
Linh, T. N., Long, H. T., Chi, L. V., Tam, L. T., & Lebailly, P. (2019). Access to rural credit markets in developing countries, the case of Vietnam: A literature review. Sustainability, 11(5), 1468.
MarketsandMarkets. (2021). Digital Lending Market by Offering (Solutions (Digital Lending Platforms and Point Solutions) and Services), Deployment Mode (Cloud and On-premises), End User (Banks, Credit Unions, and NBFCs), and Region - Global Forecast to 2026. MarketsandMarkets Research Pvt. Ltd.
Misiga, G. O. (2019). Determinants Of Uptake Of Digital Credit By The Youth In Institutions Of Higher Learning In Kisumu, Kenya. Doctoral Project, Kca University.
Mpofu, F. Y. (2022). Industry 4.0 in Financial Services: Mobile Money Taxes, Revenue Mobilisation, Financial Inclusion, and the Realisation of Sustainable Development Goals (SDGs) in Africa. Sustainability, 14(14), 8667.
Myeni, S., Makate, M., & Mahonye, N. (2020). Does mobile money promote financial inclusion in Eswatini? International Journal of Social Economics, 47(6), 693-709.
Natile, S. (2020). Digital Finance Inclusion and the Mobile Money “Social” Enterprise. Historical Social Research/Historische Sozialforschung, 45(3), 74-94.
Normawati, R. A., Rahayu, S. M., & Worokinasih, S. (2021). (2021, May). Financial Knowledge, Digital Financial Knowledge, Financial Attitude, Financial Behaviour and Financial Satisfaction on Millennials. CLSSEE 2021: Proceedings of the 1st International Conference on Law, Social Science, Economics, and Education (p. 317). Jakarta, Indonesia: European Alliance for Innovation.
Nyerere, J. (2018). Youth Unemployment in Kenya: Incorporating Entrepreneurial and Transferable Skills in Education. Youth Entrepreneurship and Africa’s Sustainable Industrialization, 125.
Owusu-Manu, D. G., Kukah, A. S., Boateng, F., Asumadu, G., & Edwards, D. J. (2020). Exploring strategies to reduce moral hazard and adverse selection of Ghanaian public–private partnership (PPP) construction projects. Journal of Engineering, Design and Technology.
Oyier, J. O. (2020). Access to digital Nano-credit and the economic welfare: a case study of the low-income earners in Nairobi County. Doctoral Project, Strathmore University.
Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.
Pazarbasioglu, C., Mora, A. G., Uttamchandani, M., Natarajan, H., Feyen, E., & Saal, M. (2020). Digital financial services. World Bank, 54.
Pickard, A. J. (2013). Research methods in information. . Facet publishing.
Robinson, J., Park, D. S., & Blumenstock, J. E. (2022). The Impact of Digital Credit in Developing Economies: A Review of Recent Evidence.
Rosser, J. S. (2008). A Nobel prize for asymmetric information: the economic contributions of George Akerlof, Michael Spence and Joseph Stiglitz. Leading Contemporary Economists, 162-181.
Sambo, W. (2016). Factors affecting youth entrepreneurship development in Kibera district, Kenya. Problems and Perspectives in Management, 14(3), 154-161.
Saunders, M., Lewis, P., & Thornhill, A. (2012). Research methods for business students (6. utg.). . Harlow: Pearson.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building approach. . John Wiley & sons.
Shema, A. (2022). Effects of increasing credit limit in digital microlending: A study of airtime lending in East Africa. The Electronic Journal of Information Systems in Developing Countries, 88(3), 12199.
Stiglitz, J., Akerlof, G., & Spence, M. (2001). Asymmetric Information Theory: The Role Of Private Equity In Financing Small And Medium Enterprises.
Suri, T., Prashant, B., & William, J. (2021). Journal of Development Economics, 153: 102697.
Tay, L. Y., Tai, H. T., & Tan, G. S. (2022). Digital financial inclusion: A gateway to sustainable development. Heliyon.
Toh, Y. L., & Tran, T. (2020). How the COVID-19 Pandemic May Reshape the Digital Payments Landscape. Payments System Research Briefing, 1-10.
Wamalwa, P., Rugiri, I. W., & Lauler, J. (2019). Digital credit, financial literacy and household indebtedness. KBA Centre for Research on Financial Markets and Policy Working Paper Series., 38.
Wathome, F. N. (2020). Effects of Digital Credit on Financial Inclusion of the Youth in Kenya: A Survey of Kangemi, Nairobi County . Doctoral Project, United States International University-Africa.
Wieser, C., Bruhn, M., Kinzinger, J. P., Ruckteschler, C. S., & Heitmann, S. (2019). The impact of mobile money on poor rural households: Experimental evidence from Uganda. World Bank Policy Research Working Paper, 8913.
Yamane, T. (1973). Determining Sample Size.
Yue, P., Korkmaz, A. G., Yin, Z., & Zhou, H. (2022). The rise of digital finance: Financial inclusion or debt trap? Finance Research Letters, 47, 102604.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Mercy Wambui Wachira, Dr. Allan Kihara Ph.D.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
