M-Pesa in its current form was launched in Kenya in April 2007, and it revolutionised the financial services landscape.
Development finance and corporate banks alike have long wrestled with the issue of banking the unbanked in the developing world, which would encourage broad-based socio-economic development on the one hand, and on the other, greater product distribution for the private sector banking institutions.
However, bringing greater financial inclusion to the bottom of the pyramid no longer means universal branch bank account ownership. Nowhere is this more evident than in Africa, particularly in one of the continent’s emerging fintech hubs, Kenya.
M-Pesa, whose name derives from the Swahili word for money ‘pesa’ and ‘m’ for mobile, began as a concept piloted by British telecom giant Vodafone as a corporate social responsibility (CSR) initiative in partnership with local service provider Safaricom. It was partly funded by DFID in Kenya in an attempt to facilitate financial access for micro-lenders and their clients. Pilot studies revealed that the application was in fact being used for general money transfers, and the application was redesigned. Essentially, Safaricom subscribers who also register with M-Pesa can transfer money between cell phone users, even if neither of them has a bank account. M-Pesa in its current form was launched in Kenya in April 2007, and it revolutionised the financial services landscape.
In 2006, before M-Pesa was launched, 25% of Kenyans had access to banking products. By 2014, this figure had jumped to 68%. Almost half of these users do not have a formal bank account, indeed, formal banking sector inclusion in Kenya remains as low at 23%. However, the M-Pesa platform performs the essential financial transactions: deposit and withdraw money, transfer money to other M-Pesa users and non-users, pay bills and purchase airtime. M-Pesa agents are as ubiquitous pavement airtime kiosks, whose owners have been duly trained and are incentivised by clipping a commission per M-Pesa transaction. This is the kind of distribution network that most ATM-driven banks can only dream about.
This context is not unique to Kenya. Small wonder that Sub-Saharan Africa is a global leader in the use of mobile money technology. On an average, 16% of the adult population actively use a mobile money product in the region; the global average is two percent. Of the 18 countries in the world that have more mobile money accounts than bank accounts, only one, Paraguay, is not in Africa. Here’s why.
On an average, 16% of the adult population in Sub-Saharan Africa actively use a mobile money product; the global average is two percent.
On an average, 16% of the adult population in Sub-Saharan Africa actively use a mobile money product; the global average is two percent.
Visiting a physical bank branch can be time-consuming and expensive, in terms of transport costs to get there. Even with geographic access to a bank branch, the vast majority of the unbanked is not deemed to earn enough to warrant a bank account. However, in Kenya today, 43% of the population have a mobile phone — this figure jumps to 83% if one considers only Kenyans over 15 years of age. This immediately renders so-called mobile money products almost universally accessible. By way of example, Kenya today accounts for some 26.7 million M-Pesa accounts (and 33 million mobile phones), and has more active mobile money accounts than adults in its population.
There have been some surprisingly positive side effects in terms of financial empowerment of communities in rural areas, particularly women. According to one study, M-Pesa’s accessibility as a means of storing money greatly enabled women to save, as they would formerly have had to spend time and money to travel considerable distances to deposit money or access their savings. It kept funds safe from casual spending, either by themselves, or their husbands. This in turn increased community’s trust of and respect for them, as they were no longer forced to buy on credit. For many women, it created financial independence and privacy, as social conventions dictated that they had previously to rely on male relatives for access to funds.
According to one study, M-Pesa’s accessibility as a means of storing money greatly enabled women to save, as they would formerly have had to spend time and money to travel considerable distances to deposit money or access their savings.
According to one study, M-Pesa’s accessibility as a means of storing money greatly enabled women to save, as they would formerly have had to spend time and money to travel considerable distances to deposit money or access their savings.
It is no coincidence that M-Pesa’s wildly successful tagline was simply “Send Money Home.” Before the launch of M-Pesa, more than a quarter of Kenya’s population, usually rural women, were reliant on remittances for income, and 75% of the remittance providers would send cash informally, via travelling family members on public transport. By eliminating the time, cost and risk involved in this process, some estimates put the increase to household income that mobile money has facilitated at between five percent and 30%.
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