MOBILE MONEY-TRANSFERS SCHEME “M-PESA” AND ITS IMPACTS IN KENYA AND AFRICA AS A WHOLE.
As the developed world begins to rebuild the recently collapsed global financial system, the financial architecture in parts of the developing world is being rapidly transformed. As the costs of mobile phone technology have fallen, and as the technology has been adapted to support financial services, mobile banking innovations have begun to spread across and within poor countries. The low cost, and the widespread unmet demand for financial services, as captured by low rates of bank access, means that mobile banking has the potential to reach remote corners of the socio‐economic, as well as geographic, spectrum.
‘Think of the developing world, and the first thing that springs to mind probably isn't cutting edge technology’, Mobile phone technology has reduced communication costs in many parts of the developing world from prohibitive levels to amounts that are, in comparison, virtually trivial. Nowhere has this transformation been as acute as in sub-Saharan Africa, where networks of both fixed line communication and physical transportation infrastructure are often inadequate, unreliable, and dilapidated. While mobile phone calling rates remain high by world standards, the technology has allowed millions of Africans to leap‐frog the land‐line en route to 21st century connectivity.
‘The success of the technology lies in necessity’, (Seema Desai), Early on in this revolution, cell phone users figured out that they could effectively transfer money across wide distances. Mobile money transfer allows those without a bank account to transfer funds as quickly and easily as sending a text message. Phone companies have long allowed individuals to purchase “air‐time” and to send this credit to other users. It was a small step for the recipient user to on‐sell the received air‐time to a local broker in return for cash, or indeed for goods and services, thus effecting a transfer of purchasing power from the initial sender to the recipient. Kenya has been leading the way with an innovative mobile phone technology that has transformed the lives of millions of people and businesses in east and central Africa. In March 2007, the leading cell phone company in Kenya, Safaricom, formalized this procedure with the launch of M‐PESA. M-Pesa (M for mobile and Pesa is Swahili for money) is a mobile-phone based money transfer and micro financing service. Currently the most developed mobile payment system in the world, M‐PESA allows individuals to deposit, send, and withdraw funds using their cell phone. Currently most people in Kenya and East Africa can pay their bills, do shopping and also do Bank transactions using this service. M‐PESA has grown rapidly, currently reaching approximately 60 percent of Kenya’s adult population, and is widely viewed as a success story which has been emulated across the developing world.
M-PESA has since been extended to offer loans and savings products, and can also be used to disburse salaries or pay bills, which saves users further time and money. In addition, the availability of a reliable mobile-payments platform has spawned a host of start-ups in Kenya and east Africa, whose business models build on M-PESA’s foundations. M-PESA is starting to do well in other countries, including Tanzania and Afghanistan, and last month it was launched in India. At the same time, operators in some other countries are doing an increasingly good job of imitating it. Which means it should eventually be possible for other countries to follow Kenya's pioneering example.
The scheme was originally designed as a system to allow microfinance-loan repayments to be made by phone, reducing the costs associated with handling cash and thus making possible lower interest rates. But after pilot testing it was broadened to become a general money-transfer scheme which is now helping people in east Africa expand in terms of business ventures. Cash can thus be sent one place to another more quickly, safely and easily than taking bundles of in person, or asking others to carry it for you. This is particularly useful where many workers in cities send money back home to their families in rural villages. Electronic transfers save people time, freeing them to do other more productive things instead. Dozens of mobile-money systems have since been launched, but has Kenya’s been the most successful exceptionally because of its low cost compared to high cost of sending money by other methods;
“Kenya did not pioneer mobile money transfer, but it showed the world how to do it right.”