**1. Introduction**

Digital financial services, and more importantly mobile money, have become an important financial innovation to advance financial inclusion in developing and emerging economies. The advent of digital financial services has provided those who are marginalized, traditionally financially excluded, and occupying the lower rungs of a socio-economic status ladder, with an opportunity to partake in the formal financial system. Increased financial inclusion has become possible due to deliberate policy interventions, the growing availability of mobile phones (including smartphones), and internet connectivity in developing and emerging economies (Chamboko et al. 2018). Individuals can remotely access financial services through their phones and hence enjoy improved convenience, improved accessibility, and reduced costs of using financial services (Chamboko et al. 2020).

A growing body of literature also reports a positive and significant impact of digital financial services on household welfare outcomes. Digital financial services facilitate a stable path of consumption amidst financial and income shocks (Suri and Jack 2016) and increase per capita consumption levels, thereby reducing poverty levels in the long run (Munyegera and Matsumoto 2016; Suri and Jack 2016). Wieser et al. (2019) show that digital financial services increase the likelihood of poor rural households to send and receive peer-to-peer cash transfers, reduce the cost of remittances, reduce food insecurity,

**Citation:** Chamboko, Richard, and Sevias Guvuriro. 2021. The Role of Betting on Digital Credit Repayment, Coping Mechanisms and Welfare Outcomes: Evidence from Kenya. *International Journal of Financial Studies* 9: 10. https://doi.org/ 10.3390/ijfs9010010

Received: 7 August 2020 Accepted: 18 November 2020 Published: 1 February 2021

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and increase non-farm self-employment. Msulwa et al. (2020) also show that access to formal financial services such as savings, credit, and insurance has a positive and significant impact on consumers' asset holding.

In the Kenyan financial market, the availability of financial services through mobile money services is widely celebrated as it has led to the growth of financial inclusion from 26.7% (2006) to 82.9% (2019) (Central Bank of Kenya et al. 2019). With increased access to digital credit in Kenya, consumers can conveniently access loans on their digital platforms, particularly mobile phones, and can use the same channels to make payments and store value. About thirty-four percent of the mobile-phone-owning Kenyan adult population (77% of the adult population) had once taken a loan through a mobile phone (Gubbins and Totolo 2018). Importantly, the number of digital loans has surpassed that of traditional loans at a ratio of about 10:1 by 2018 (MicroSave Consulting 2019).

While digital financial services have improved the lives of Kenyans, the rise in digital credit provisioning has nonetheless facilitated access to cash that can be used for betting. Gambling in Kenya takes on various forms, including sports betting (e.g., SportPesa, Betin, and Betway), casinos, pool games, bingo, phone-in-talk shows, scratch cards, and lotteries. The most common are sports betting, where bettors wager money on an outcome of an uncertain sports event with the hope of winning more money (Prasad and Jiriwal 2019; Williams et al. 2017). King et al. (2014); Gainsbury et al. (2013) and Gainsbury et al. (2012) pointed out that increased access to mobile devices (smartphones and tablets) has made some gambling activities an "anytime, anywhere" activity. A GeoPoll survey shows a startling prevalence of betting in Kenya, estimating that about 57% of the adult population (above 16 years) have participated in betting in the past, with a high prevalence among smartphone owners (Roxana 2019). Kisambe (2017) reports that Kenya (76%) leads in Sub-Saharan Africa in terms of youth gamblers, and among these youth gamblers, 96% use their mobile phones. The Kenyan FinAccess Household Survey of 2019 reports a conservative 1.9% prevalence of self-reported betting activities among mobile money users in Kenya. It is however important to highlight that the FinAccess survey could be understating the betting level in Kenya since it is an adult survey, which does not report underage bettors. In addition, the 2019 FinAccess Household Survey shows that among those who indulge in betting, 22.6% bet daily, 51.7% bet weekly, 6.9% bet monthly, and 17.1% bet intermittently, especially when there are big prizes to be won. Furthermore, close to 20% of the Kenyan adult population holds the opinion that betting is a good source of income (Central Bank of Kenya et al. 2019), and Schmidt (2020) reports that many Kenyans see gambling as a legitimate activity to earn a living in an economy unresponsive to their employment demands.

The Kenyan government recognizes the potential danger that is posed by gambling in an inadequately regulated environment. The growing prevalence of betting and more so the frequency of betting among bettors can potentially have harmful effects. The government of Kenya has recently raised taxes for betting, lottery, and gaming and for companies running prize competitions from around 10% to 20%, but this has faced resistance, resulting in some of the major companies in this business closing their operations in Kenya. Continued pressure on the government resulted in outright cancellation of the tax as gazetted and signed in the 2020 Finance Bill (iGaming Business 2020).

Despite gambling in general being a widely studied area, particularly in developed countries, little is known about betting, an activity gamblers engage in, and its interaction with financial innovations such as digital financial services, especially in developing and emerging economies. This study thus contributes to the literature by exploring the role of betting on digital credit repayment, coping mechanisms, and welfare outcomes in Kenya (a digitized African society). We first investigate if bettors are more likely to be financially distressed as illustrated by late repayments, having multiple loans due, failing to make all payments, and receiving reminders to repay loans. Secondly, we evaluate the possibility of bettors engaging in welfare-undermining coping strategies such as the selling of assets and borrowing to repay loans. Finally, we investigate the potential impact of betting on food and medical uptake by bettors. As far as our search is concerned, this is the first peer-reviewed paper to study the relationships between digital financial services, betting, and welfare outcomes in the form of foregoing food and medical uptake in a developing country setting.

The rest of the paper is structured as follows. Section 2 provides brief literature on gambling and new financial technology. Section 3 discusses the data and measurements and methods employed in this paper, whilst Section 4 presents results and discusses the findings of the study. Section 5 concludes.

#### **2. Gambling and New Financial Technology**

Two important theories are key in explaining gambling, i.e., the theory of planned behavior (Ajzen 2011; McEachan et al. 2011) and the habitual behavior theory (Van Rooij et al. 2017). The intention to engage in a behavior (gambling) depends on beliefs about and attitudes towards the behavior, perceived social and subjective norms surrounding the behavior, and the extent to which people perceive to have behavioral control over their own behavior (Van Rooij et al. 2017). With new financial technology that is accessible with any mobile phone, behavioral intentions and actual behavior in gambling are brought close to each other. Moreover, Van Rooij et al. (2017) argue that with online gambling, the thresholds for digitally accessing content are very low and costs of initiation quite low, so the role of habitual behavior hypothetically becomes larger.

As the literature suggests, gambling has undesirable and unavoidable effects. It is addictive and becomes compulsive. Compulsiveness is explained by both the strength model (Baumeister et al. 2007) and the process model (Inzlicht et al. 2014), leading to impulsive choices being pursued. In Kenya, the absence of regulations that, for instance, allow gamblers to impose time limits, spending limits, and placing themselves in exclusion limits paves the way for this compulsiveness. Gambling is also associated with a greater degree of delay discounting i.e., growing impatience, especially as the gambling habit becomes strong (Orford 2011). Self-control and exercise of willpower are overridden. In fact, the capacity to favor abstract and distal goals when they are threatened by competing concrete and proximal goals (Baumeister et al. 2007; Fujita 2011) diminishes in compulsive gambling. Gambling effects are substantial in digital gambling because the breadth involvement and depth involvement (LaPlante et al. 2014) are quite high due to the accessibility of the addictive object. In other words, the gambler has access to gambling opportunities on the device readily available, allowing for between-session and within-session chasing of gambling (Nigro et al. 2019; Sacco et al. 2011).

Brevers et al. (2018) discuss satisfaction derived by gamblers from online gambling, now with new financial technology as ready-to-consume rewards redefining humans' selfcontrol abilities. However, rewards from gambling are very unlikely, such that Jerome Cardano (1525) wrote " ... The greatest advantage of gambling comes from not playing at all. There are so many difficulties and so many possibilities of loss that there is nothing better than not to play at all" (cited in Orford 2011, p. 50). Clinical case studies across the world, surveys of Gamblers Anonymous members, and in-depth interview studies suggest "indebtedness, stealing, deceiving and lying, arguments, violence and the breakdown of relationships, as well as personal depression and suicidal feelings" (Orford 2011) as some of the effects of gambling. Håkansson and Widinghoff (2020) find that over-indebtedness is associated with combined online casino gambling and sports betting, expected overindebtedness is associated with online gambling, and problem gambling is associated with a history of having borrowed money for gambling. Problem gambling also leads to psychological distress via a direct pathway, i.e., problem gambling is included as a predictor in the model, and via an indirect pathway, i.e., debts accumulated as a result of problem gambling drive psychological distress (Oksanen et al. 2018). Thus, the spread of digital gambling in Kenya, a developing economy with a youthful and mostly unemployed population and a non-banking adult population in need of financial inclusion, is an issue that requires policy intervention. Hence this paper's aim to explore the potential role of betting on financial distress, coping strategies, and the welfare of bettors.
