MOBILE MONEY AND MONETARY POLICY IN KENYA: A POLICY REVIEW

Author

JOB ETOLE KUTAI,YASIN GHABON


Abstract

 Mobile money has emerged as one of the most transformative financial innovations in Kenya, fundamentally changing the delivery of financial services and influencing the conduct of monetary policy. This paper reviews the relationship between mobile money and monetary policy in Kenya by synthesizing theoretical, empirical and policy literature. Specifically, the review examines how mobile money influences money demand, money supply, monetary policy transmission, financial inclusion, payment system efficiency and price stability. The study is anchored on the Quantity Theory of Money, Keynesian Liquidity Preference Theory, the Monetary Policy Transmission Mechanism and Financial Innovation Theory, which provide a conceptual basis for understanding the interaction between digital financial services and monetary policy. The review finds that mobile money has significantly enhanced financial inclusion, reduced transaction costs, improved payment system efficiency and strengthened several channels of monetary policy transmission by expanding access to formal financial services and accelerating the circulation of money. However, it has also introduced new policy challenges, including difficulties in measuring money demand, the rapid growth of digital credit markets, cybersecurity risks, regulatory complexities and the need for continuous adaptation of monetary policy frameworks. The paper further highlights the Central Bank of Kenya's regulatory initiatives aimed at promoting innovation while preserving financial stability. It recommends strengthening digital monetary policy frameworks, improving regulatory oversight, enhancing interoperability, investing in cybersecurity, promoting financial literacy and expanding data-driven policymaking. The review concludes that mobile money complements rather than substitutes conventional monetary policy instruments and that its continued growth requires adaptive regulatory and policy frameworks to sustain macroeconomic stability and inclusive economic development in Kenya. 



Keywords

Mobile money; Monetary policy; Financial innovation; Financial inclusion; Monetary policy transmission; Digital financial services; Payment systems; Kenya.



Full Text:

Download Paper PDF


References


  • Aron, J. (2018). Mobile money and the economy: A review of the evidence. The World Bank
  • Research Observer, 33(2), 135–188. https://doi.org/10.1093/wbro/lky001
  • Bank for International Settlements. (2023). BIS Annual Economic Report 2023. Bank for
  • International Settlements. https://www.bis.org/publ/arpdf/ar2023e.htm
  • Central Bank of Kenya. (2011). National Payment System Act, 2011. Central Bank of Kenya.
  • Central Bank of Kenya. (2022). Discussion paper on central bank digital currency. Central Bank of Kenya. https://www.centralbank.go.ke
  • Central Bank of Kenya. (2024). National Payment System Annual Report 2024. Central Bank of Kenya. https://www.centralbank.go.ke
  • Central Bank of Kenya. (2025). Monetary Policy Statement. Central Bank of Kenya. https://www.centralbank.go.ke
  • Communications Authority of Kenya. (2024). Sector statistics report: Fourth quarter of the financial year 2023/2024. Communications Authority of Kenya. https://www.ca.go.ke
  • Demirgüç-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2022). The Global Findex
  • Database 2021: Financial inclusion, digital payments, and resilience in the age of COVID-19.
  • World Bank. https://doi.org/10.1596/978-1-4648-1897-4
  • Fisher, I. (1911). The purchasing power of money: Its determination and relation to credit, interest and crises. Macmillan.
  • Jack, W., & Suri, T. (2014). Risk sharing and transaction costs: Evidence from Kenya's mobile money revolution. American Economic Review, 104(1), 183–223. https://doi.org/10.1257/aer.104.1.183
  • Frame, W. S., & White, L. J. (2014). Technological change, financial innovation, and diffusion in banking. In A. N. Berger, P. Molyneux, & J. O. S. Wilson (Eds.), The Oxford handbook of banking(2nd ed., pp. 486–507). Oxford University Press.
  • International Monetary Fund. (2024). Kenya: Financial sector assessment program—Technical note on fintech, digital payments and financial stability. International Monetary Fund.
  • Jack, W., & Suri, T. (2011). Mobile money: The economics of M-PESA. National Bureau of Economic Research Working Paper No. 16721. National Bureau of Economic Research. https://doi.org/10.3386/w16721

 

Share your valuable work from Social Media Buttons