The Effects of 4G Coverage on Financial Inclusion

Poverty is a global phenomenon that still affects millions of people around the world. In the last decades it started to be studied and defined not only as the lack of economical resources to thrive on a daily basis, but as a multidimensional problem. Mexico was the first country in the world to carry out an official multidimensional poverty measure. This methodology complements the income dimension with other social deprivation indicators; allowing for interaction between economic and social effects on well-being (CONEVAL, 2020). In this sense, a person is considered to be poor not only because its income falls below an arbitrary and outdated benchmark, but because he is lacking both basic access to social rights and sufficient economic resources. In this context, information and communication technologies (ICTs) become very relevant, as they can now be considered a basic necessity just as food, health and education.Mobile phone services arrived to Mexico in 1989 brought by Telcel and Iusacell. In 2005 3G was launched and three years later it reached its first million connection. In 2010, it reached 10 million connections and only two years later, it registered 100 million connections. That same year, in 2012, 4G was formally launched in the country, reaching its first million connection one year later (GSMA, 2016).In this context, one of the most recent studied mechanisms through which ICTs, specifically mobile broadband, could foster development, mainly amongst the most marginalised population, is the access to financial services. Financial inclusion is then a basic pillar of development, a tool for individuals to have access to financial products that may allow them to smooth consumption and transfer money through time and space more effectively (Bateman et al., 2019). In Mexico, however, the level of financial inclusion is at 36.9 per cent, 20 percentage points below countries with comparable levels of per capita income and relative to its income, it is the worst performing Latin American country (The World Bank, 2021).Moreover, one of the most promising tool to promote financial inclusion, is digital banking. Digital banking services include a variety of services with special features that differentiate one from another. According to the Comisi´on Nacional Bancaria y de Valores (CNBV), we can distinguish three different services: Mobile money, digital bank accounts and mobile banking. The present research narrows down the analysis to the last two services, which necessarily require broadband connection to work.This paper estimates the impact of broadband coverage on Financial Inclusion in Mexico, via mobile banking. Based on data on broadband coverage retrieved from GSM Association (GSMA) and Collins Bartholomew and financial inclusion data published by the Comisi´on Nacional Bancaria y de Valores (CNBV), it consists of a quasi-experimental analysis based on difference-in-difference and instrumental variables strategy to estimate broadband coverage impact on the use of mobile banking.Under the COVID-19 crisis, the Mexican government has put special emphasis on financial access as a main recovery effort to promote growth and poverty reduction (The World Bank, 2021). In this context, the results of the present research show that the deployment of 4G coverage at the municipality level, has a positive and statistically significant impact on the number of mobile banking accounts per c´apita. This suggests that poverty alleviation policies aiming to foster financial inclusion, should take into consideration the promotion of universal access to quality broadband coverage, as it promises to be an important mechanism towards it.