Can mobile money adoption induce microenterprises to formalize? Evidence from a field experiment in Burkina Faso

Working Paper
Published on 8 December 2022

Abstract

This paper examines whether mobile money adoption can induce informal firms to formalize, an aspect that has been overlooked in the empirical literature. Despite several regulatory reforms such as simplifying tax systems and reducing the costs and time needed to register a business, informality is still pervasive and persistent in developing countries. Using the case of Burkina Faso, we test leading theories of demand of mobile money for enterprises and business registration in developing countries, combining a quasi-experiment with a randomized controlled trial conducted in March 2021. We find a strong positive impact of mobile money adoption on the decision to formalize. Furthermore, we show that the impact of adoption and usage of merchant account on formalization is stronger for businesses that are comparatively younger (less than 3 years old), lack sales records or located outside the capital city Ouagadougou. Therefore, mobile money appears as a springboard toward formalisation for this category of informal firms. According to our treatments, we find that while information about registration process, formal merchant account, and supporting 30% of registration fees (through reimbursement or payment in advance) increase formalization, the impact varies across several dimensions. Precisely, whether the recipient of the program indicated willing to formalize or adopted the merchant account at baseline appears to be of great importance. For instance, the subsidy of 30% of registration fees works better when paid as a reimbursement instead of payment in advance, particularly for business owners who responded willing to formalize at baseline. Thus, our findings cast doubt on universal incentives packages and suggest that incentives should be carefully designed and tailored to the characteristics of the targeted firms. Taken together, our results have important implications for both researchers and policy makers.

Authors

Serge Stéphane Ky

Université de Ouahigouya

Clovis Rugemintwari

Université de Limoges