Intervention (Hidden)
Access by individuals and businesses to beneficial and inexpensive financial services and products, also known as financial inclusion, is a critical pathway to poverty alleviation and economic growth in developing countries. Recent studies show that financial inclusion decreases poverty and inequality (Iqbal et al., 2020; Demir et al., 2022), increases long-run GDP per capita (Kanga et al., 2022, Nandi et al., 2022), increases diversity of non-food items in a household’s consumption set (Chakrabarty and Mukherjee, 2022), smooths consumption of preventative health expenditures and decreases child labor (Abiona and Koppensteiner, 2022) among many other positive impacts. Providing access to a formal savings account can also potentially reduce the risk of theft, increase women’s economic empowerment, and improve household welfare (Ashraf et al., 2006; Brune et al., 2016). It is therefore in the public interest for governments and organizations to encourage financial inclusion, particularly in rural and provincial regions where overall rates of engagement with financial services and levels of financial literacy are lower.
While Armenia has made many advances in financial inclusion over the past two decades, persistent geographic inequities between Yerevan, the capital city, and the regions mean that those outside the capital have significantly lower levels of financial service adoption. While the World Bank does not provide statistics by region, they report that in 2017 (the latest year statistics are available) among the poorest 40% of Armenians (who are significantly more likely to live outside Yerevan), only 34% have a bank account, 28% have borrowed from a financial institution or used a credit card, and 11% have money saved at a financial institution. However, statistics suggests that there is opportunity for greater use of digital financial products. For example, even though 85% of the poorest 40% of Armenians had a mobile phone in 2017, only 6% of this demographic have used a mobile phone or the internet to check an account balance.
The Central Bank of Armenia has identified the size of the informal economy as a key constraint to economic growth, and would like to address this through the expansion of mobile banking and electronic payment phone applications. The intervention in this program focuses on training individuals in using these mobile apps in rural villages, and using incentives to generate diffusion of this technology through the social networks of those trained. This project, to be conducted jointly with the Central Bank of Armenia, will test whether mobile banking can be adopted by a significant share of rural households, and if so, whether it increases economic outcomes, leads to greater use of electronic public services, and increases the variety of interactions with the formal financial sector. Specifically, we seek to identify whether, over a multiple year time period, households in treatment villages that received training on the mobile banking app have difference in their levels of savings, income, expenditures, remittances received/sent, loans applied for/received, entrepreneurial activity, and financial literacy compared to households in control group villages. As secondary outcomes, we are also interested in outcomes related to education and health expenditures, as well as social capital within these villages.
This will be an experimental study (RCT). There will be three treatment groups: 1) a pure control group, 2) villages in which a random subset of households is trained in mobile banking, and 3) villages in which a random subset of households is trained in mobile banking and who receive incentives to use the banking app and to teach others to use it.
Initially, we will collect a baseline sample that will survey a random selection of 1000 households within 71 eligible villages several regions of the country. The baseline survey will determine current exposure to banking and financial services, access to ICT infrastructure including smartphones, and other household and demographic characteristics, employment and agricultural production, travel, assets, finances, and money transfers. We will also ask questions to garner information related to the household village-level social network and conduct a test of financial literacy.
Following the baseline survey, villages will be randomly divided between the three groups. Trainers will visit households randomly selected to be trained in the two treatment groups of villages twice. On the first visit, the trainers will help the household set up and apply for a mobile banking account. During the second visit the trainers will teach the household members how to use the account. We will then work with our banking partner to provide micro-rewards for households that share and use the mobile banking app (e.g. when friend opens an account, paying bills with app, sending/receiving remittances from abroad, etc.).
In the final phase (year 2025), we will conduct an endline survey with all households to evaluate the impact of the program on various economic and financial outcomes. With our experimental design, we would also be able to measure whether offering incentives for mobile banking adoption and use increases the impact of the program on any of these outcomes.
This project thus fills gaps in our knowledge in the general economics literature as to whether incentivized diffusion of mobile banking apps can lead to greater financial inclusion and positive economic outcomes. A better understanding of efficacy of this potential mechanism can allow better policy to be designed in various developing country contexts.