Role of Financial Capabilities in Harnessing Digital Mobile Payments For Enterprise Success

KENYA POLICY BRIEFS MAY 2020 Volume 1 No.
2
Towards Realisation of Vision 2030
Series 1 – Economic Pillar: Financial Services
Role of Financial Capabilities in

Harnessing Digital Mobile Payments
for Enterprise Success
Grace N. Muraya and Dr Radha Upadhyaya
Context Furthermore, there has been overwhelming
attention in the literature to credit products
Key Messages In Kenya, Micro and Small Enterprises
(MSEs) are key engines for growth,
with literature ignoring payment products
available to MSEs. This study focuses on
creation of employment, innovation, one such product, Lipa na MPesa that was
industrial development and GDP growth. designed to reduce the over-reliance by
The important role played by the The 2016 Kenya National Bureau of MSEs on cash for making and receiving
financial capabilities of Statistics data indicates that this sector payments. Use of cash has several
entrepreneurs to enhance accounted for 45 per cent of the challenges including loss due to theft,
establishments and 85 per cent of difficulty in tracking, and impulse buying.
translation of the benefits of employment (KNBS, 2016). Despite their Therefore, this study focused on the role of
innovative financial products great importance, the sector has capabilities in determining the impact of the
to the success of MSEs. experienced many challenges and one of use of Lipa na MPesa on MSE
Need for strong consumer them being the exclusion, in terms of performance.
access and use, of formal financial
protection regulations to products.
ensure no hidden or Financial capability, the theory in which Operationalizing Financial
exploitative charges to this study is anchored, proposes that an Capabilities
increase the quality of MSE must have the opportunity to access This study’s key strength was developing a
suitable quality financial products (Storchi detailed operationalization of the key
financial inclusion. and Johnson, 2106). However, it variable – financial capabilities, ensuring
emphasizes that the performance of the that several attributes of financial
MSEs and in turn the well-being of the capabilities were taken into account.
entrepreneur hinges on the financial Financial capabilities were operationalized
capabilities of the entrepreneur to embed at three levels:
the use of financial products. We 1. Financial Literacy –
examine two aspects of financial (a) Financial knowledge (know about it)
capabilities in this study: financial literacy including education, planning, risk
and financial behaviour. identification, contracts, and cash flow
While the literature has focussed on the management;
importance of access, and Kenya has (b) Financial skills (how to experience)
made great strides in term of increase in including business plan, budgets, standards
access (Upadhyaya, 2020), research on adherence, credit management, coping with
Source: Safaricom Website financial capabilities of entrepreneurs is emergencies.
still scarce (Storchi and Johnson, 2016).
©2020 Authors 29
Published by Office of DVC Research, Innovation and Enterprise, https://uonresearch.org/journal/kpb
University of Nairobi, http://www.uonbi.ac.ke
KENYA POLICY BRIEFS MAY 2020 Volume 1 No. 2
Towards Realisation of Vision 2030
2. Desirable financial behaviour – to pay school fees for their children. outcome from the study may lead to
(actually doing it) includes investments, Secondly, the use of Lipa na MPesa policies that enhance their financial
savings management, tracking income, increased the credit ratings of the capability which is a road to financial
timeliness, comparing prices. enterprises with most respondents saying inclusion and is theoretically linked to
3. Digital payments – they can easily access bank loans when outcomes of increased performance,
(level of use) including receipts, payments, they need it. However, it was noted that productivity, and employment. This will
savings, bank loans, and digital loans. the uptake of digital loans was very poor. lead to the increased success of the
Most respondents said that they only MSEs which play a very critical role in
Further, MSEs success was operationa- uptake the loans for personal use but not the Kenyan economy.
lized as sales volumes, profits, employ- for use in their businesses
ment, livelihoods, self-assessment.
Acknowledgements
Approach and Results Policy Institute for Development Studies for the
guidance and the enabling environment
This study adopted a mixed methods Recommendations they have for research. The respondents
research design to determine the impact of
who created time during the survey, the key
financial capabilities. The choice of the
study area, Starehe Constituency in Nairobi Short-Term informants; special thanks to them Ravi
 The emerging issues of consumer Ruparel, Edoardo Totolo and Samuel
County, was guided by literature which has
protection should be urgently Balongo. Their valued time, constructive
shown that urban areas have higher
addressed. Some of the respondents criticism and inputs helped significantly in
adoption of formal financial products. The
felt there were hidden costs that the shaping this study.
study began with a mapping of MSEs that
use Lipa na MPesa establishing a digital payments services make them
population of 344. A total of 103 MSEs incur without their knowledge. References
were sampled which was approximately Improvement in consumer protection KNBS. (2015). Micro and Small
30% of the mapped population. will ensure that MSEs continue to Enterprises Survey.
increase their use of formal financial World Bank. (2013). Why Financial
The bivariate analysis found out that overall products rather than turn to informal Capability is important and how surveys
financial capability measure of financial products. can help.
behaviour had the greatest significant  There should be a proper clarification Storchi, S. and Johnson. S. (2016).
correlation to enterprise success. The on all the costs implication to all the Financial Capability for Wellbeing : An
measures of the capability of financial parties for both the buyers and the alternative perspective from the Capability
knowledge, financial skills, and financial sellers so that a person can make an Approach. Centre for Development Studies,
behaviour had a significant correlation with informed decision when using the University of Bath. Calverton Down: Bath,
the level of use of the digital financial product. BA2 7AY, UK.
service of Lipa na MPesa. There was a Medium-Term Upadhyaya, R., and Totolo, E. (2020).
significant relationship between financial The Financial Sector in Kenya. In N.
 This study revealed that there exists a
capabilities and enterprise success at a Cheeseman, K. Kanyinga & G. Lynch
positive relationship between financial
confidence level of 95%. (Eds.), The Oxford Handbook of Kenyan
capability and enterprise success.
Aspects of financial capabilities Politics. Oxford: Oxford University Press.
Qualitative analysis brought out two key
should, therefore, be enhanced
messages. First, enterprise success means
different things to different entrepreneurs.
through awareness creation and
capacity building.
Authors
To some, it is an increase in sales, Grace N. Muraya
 The key variable, financial behaviour,
profitability, while others cited growth in ([email protected])
is difficult to influence through training
terms of opening of new branches. Dr Radha Upadhyaya ([email protected])
only. A more in-depth case study
However, improvement in livelihoods was Institute of Development Studies,
analysis is therefore needed to
considered the most important, with University of Nairobi
understand why some MSEs display
respondents giving examples of being able P.O. Box 30197-00100, Nairobi, Kenya.
positive financial behaviour. The
©2020 Authors 30
Published by Office of DVC Research, Innovation and Enterprise, https://uonresearch.org/journal/kpb
University of Nairobi, http://www.uonbi.ac.ke

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KENYA POLICY BRIEFS MAY 2020 Volume 1 No.

Series 1 – Economic Pillar: Financial Services

Role of Financial Capabilities in

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