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

This paper examines whether mobile money innovation can induce microenterprises to formalize, an aspect that has been overlooked in the empirical literature. We leverage the unique case of Burkina Faso, where two distinct types of merchant accounts coexist: the Bronze account for informal businesses and the Gold account for formal businesses. To this end, in March 2021, we initiated a quasi-experimental introduction of merchant accounts among 1,387 informal businesses. Our findings indicate that businesses using the Bronze merchant account are twice as likely to transition from informal to formal status compared to those without it. Following this, we conducted a randomized controlled trial (RCT) on two groups of businesses, defined by their (un)willingness to formalize, to evaluate the effects of seven different treatments on formalization. The results show that expense reimbursement is the most effective treatment, driving nearly 40% of formalization. Further analysis underscores how these results vary based on the characteristics of both the businesses and their owners, as well as their (un)willingness to formalize before the intervention. Overall, our findings emphasize the importance of designing and tailoring incentives to the specific needs of targeted firms and highlight the potential of innovative financial products in reducing informality, offering valuable insights for both researchers and policymakers.