The Role of Financial Technology in SME Financing in East Africa

This study investigates the influence of financial technology on financing for small and medium enterprises in East African countries, including Kenya, Tanzania, Uganda, Rwanda, and Ethiopia, through three primary instruments: mobile money as electronic transfers via mobile phones, instant account-to-account payments with real-time settlement, and digitally licensed lenders that originate and service credit online. Given the persistent financing gap for micro, small, and medium enterprises and the region’s rapid adoption of digital payments, event-study and difference-in-differences designs are employed to link firm-level outcomes from enterprise surveys to dated policy milestones, such as nationwide payment-system interoperability, the introduction of instant payment rails, and the licensing of digital credit providers. The analysis estimates the effects on loan approval, collateral requirements, borrowing costs, and firm performance, measured by sales and employment. Three mechanisms are examined: interoperable payments that reduce settlement frictions and shorten Days Sales Outstanding; alternative data that enables cash-flow underwriting based on transaction histories rather than fixed collateral; and risk-sharing arrangements that distribute potential credit losses and expand credit supply. The study concludes with testable hypotheses and a transparent measurement plan designed for replication using public microdata and official policy documents.