The Effect of demonetization and COVID-19 on mobile money transactions in Kenya

Omanga, Gabin Nyamweya
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Strathmore University
Mobile money has been identified as having several advantages over cash. It has the potential to boost economic growth and financial inclusion while closing the related gender- and rural-gaps in the process. It has further been found that demonetization, through a money supply shock can enhance use of other non-cash forms of money. This study sought to determine the effect of demonetization on mobile money in Kenya. The focus of the study was Kenya which demonetized its largest denomination, the one-thousand-shilling note, in May 2019. This dissertation is motivated by the need to determine the efficacy of demonetization as a tool for digitization and expansion of non-cash transactions in an economy, specifically mobile money. The study employed an event study methodology using the Mean Adjusted Model. The timeframe under review was split into two between April 2017 and May 2019 (25 observations) and May 2019 and June 2021 (25 observations). The study found that there was a significant increase in mobile money transactions attributed to demonetization. Further, the study concluded that measures on mobile money taken by the Kenyan government to cushion its citizens against economic effects of SARS COVID-19 pandemic in early 2020 did not have a significant moderating effect on the association between demonetization and mobile money transactions. This study has contributed to existing literature that demonetization through a cash supply shock, leads to use of alternative non-cash forms of payments. Additionally, the study deduced that demonetization is a good policy tool for expansion of currency digitization.
A Dissertation submitted to Strathmore Business School in Partial fulfillment of the requirements for the award of Master of Science in Development Finance Degree of Strathmore University
Demonetization, Digitization, Mobile money, Event study