UNIVERSITY OF NAIROBISCHOOL OF BUSINESSTHE IMPACT OF MOBILE MONEY SYSTEM INNOVATION ON THE SAVINGS LEVEL OF LOW AND MIDDLE INCOME EARNERS IN KENYABY MASILA JOSHUA MULI D33/32510/2010 VIRGINIA NYAKIO WAIRIMU D33/20134/2009 DECIMA AKOTH OYUKE D33/32014/2010| MUTINDA ELIZABETH MUMBUA D33/32196/2010|
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A Research Project Submitted in Partial Fulfillment of the Requirements of the Award of the Degree of Bachelor of Commerce

2013
Table of Contents

INTRODUCTION 2
1.1 Background of the study 2
1.2 Problem statement 4
1.3 Objectives of the study 6
1.4 Significance of the study 6
LITERATURE REVIEW 7
2.1 Introduction 7
2.2.2 Buffer stock model 10
2.2.3 Institutional theories 10
2.3.1 Income and savings 11
2.3.2 Reasons for savings 12
2.3.3 Precautionary/emergency reasons 12
2.3.4 Household reasons: 13
2.3.6 The need to save 15
2.3.7 The population structure 16
Methodological review 20
2.6 Summary 21
RESEARCH METHODOLOGY 22
3.1 Introduction 22
3.2 Research Design 22
3.3 Research population 22
3.4 Data Collection 23
3.5 Validity test and reliability test 23
3.6 Data analysis and Presentation 24
DATA ANALYSIS & PRESENTATION OF FINDINGS 26
4.1 Introduction 26
SUMMARY, CONCLUSION AND RECOMMENDATIONS 35
5.1 Summary 35
5.2 Conclusion 36
5.3 Policy Recommendations………………………………………………………………………….37
5.4 Limitations of the study ………………………………………………………………………… 38
5.5 Suggestions for further studies …………………………………………………………. 38
REFERENCES …………………………………………………………………………….. 40
APPENDICES ………………………………………………………………………..……. 42
Appendix 1: Introductory Letter …………………………………….………………..……..42
Appendix 2: Questionnaire …………………………………………………………..…….. 45

CHAPTER ONE INTRODUCTION

1.1 Background of the study

The financial institutional environment in Kenya over the past one and a half decades has seen enormous changes, from using the ‘traditional’ systems to being highly digitalized. This has seen the recent full adoption of the E-Poch system by the Central Depository and Settlement Corporation. Banks being the largest percentage of financial institutions in Kenya have embraced the digital migration with nearly all of the 42 registered banks in Kenya offering their services through a digital way e.g. Internet banking or mobile banking. The common examples in the Kenyan case are Kenya Commercial Bank, M-Banking, National bank with SIMple banking, Equity bank with Eazzy 247. These changes point to the financial practice being digitalized from the traditional paper finance to digital electronic finance and with this transition the form in which money is carried becomes an important factor as well.
Mobile money is a growing trend in Kenya and is seen to change the form in which money is handled from physical money to an electric form. It began in 2007 and now in 2013 it has 20 million users (more than half of the Kenyan population) this has an impact on the population and how they handle money as well as financial institutions that provide financial services and products.

In the late 90s, mobile money simply meant the ability of money being transferred from one point to another, for example, money sent through registered postal mails. In the early 21st century, the definition of mobile money changed to the services offered by the brick and mortar institutions through the usage of vans carrying cash. Today, mobile money has evolved to the ease of making payments, accessing one’s bank account and even making other monetary transactions using one’s mobile phone. Until 1998, the Kenya Posts and Telecommunications Corporation (KPTC) was a monopoly providing all telecommunication services; it was established after the East African Community broke up in 1977. In 1998, Kenya’s Parliament enacted the Kenya Communications Act (KCA 2008) to regulate the communications sector. Although the KCA did not allow a monopoly—or even a duopoly—on telecommunication operations, the government granted Telkom an exclusive license for five years up to June 2004, to allow Telkom to adjust to a competitive business environment. Telkom was responsible for all local access, national telephone services, Internet backbone networks, and very small aperture terminals (VSATs) as well as all international gateway services. Today, it is still the only national fixed telecommunications services operator. In September 2007, Telkom was also granted a mobile license and began offering those services using code division multiple access (CDMA) 2000 technology.

Mobile phone services in Kenya have operated as a duopoly with Safaricom and the current Airtel taking the lead since 2000. The original intention of the KCA—to liberalize telecommunications in Kenya—has largely been met. Growth was tremendous: from 17,000 mobile subscribers in 1999 to 11.3 million by December 2007. In December 2007, France Telecom acquired 50% of Telkom Kenya and proceeded to launch its Orange brand in Kenya in September 2008. Now called Telkom Orange, it has rolled out and aggressively marketed its mobile services, which run on GSM (global system for mobile communication) technology. In November 2008 Econet was launched, bringing to four the total number of operators. The World Bank’s Report on Kenya's mobile revolution and the promise of mobile savings 2012 (Gabriel Demombynes and Aaron Thegeya, 2012) indicates that less than 3% of Kenyan households owned a telephone at the close of the 1990s; an estimate of 1 in 1000 Kenyan adults had mobile phone service and at the end of 2011 93% of Kenyan households owned a mobile phone. Currently, it’s estimated that the number of mobile handsets in use stand at 29 million in a country of 40 million citizens meaning that the mobile phone is an all inclusive platform that can be maintained by all tiers of the economy, that is, the upper, middle and low income earners.

The widely used mobile financial platform that has facilitated transfer of money, payments as well as savings is the M-Pesa, a product of Safaricom Ltd, with over 8.5 million registered users by 2009, and more than USD 3.7 billion( that’s 10 % of Kenya’s GDP) being transferred via the system since its inception in March 2007 ( Safaricom 2007). This explosive growth in users was also mirrored in the immense growth of M-pesa agents country wide from approximately 450 in mid 2007 to 18,000 by April 2010 (Safaricom 2009 and Vaughan 2007). This is contrasted by the country’s 491 commercial bank branches, 500 Post Bank branches and 352 ATMs (Mas and Ng’weno, 2009). This is a clear indication of the relevance of ICT in financial inclusion and specifically, M-Pesa. Other mobile money systems available include the Airtel Money services, Airtel’s Kopa Chapaa which is a savings and loan facility and Safaricom’s M-Shwari that’s similar to Airtel’s Kopa Chapaa.

1.2 Problem statement

The financial sector in Kenya has been largely impacted by the rise and development of mobile money systems. These systems which run on mobile phone platforms have seen a large uptake within the region currently having more than thirteen million users and transacting over ten percent of the country’s Gross Domestic Product. By providing financial inclusion to market segments that were ignored by traditional banks(low income earners) and a cheaper means of transacting money across large distances these systems have largely impacted the way money is handled in Kenya and provided an avenue for innovation to provide even more services to the marginalized and unbanked. The high convenience offered by these systems and their features is what contributes to their uptake while their ability to store money has enabled them to also act as a saving avenue. These systems can maintain a deposit of money for as long as the user wants and provide access to other saving platforms such as banks and Insurance plans. They are also versatile to allow for the provider to adjust them to provide other services such as saving and transaction payment, for example, M-PESA and M-SHWARI. As a result of their high uptake and use, their ability to maintain a deposit for a time period, their provision of access to other financial products as well as their versatility Mobile money systems have a high potential to increase the level of savings among low and middle income earners.
Kibet et al (2009) found that household savings was the second most regular expenditure item among entrepreneurs and teachers while being the fifth most regular item among farmer households, being more regular than50% of the items within the household expenditure, while they also found that household savings were insensitive to interest rates. This indicates that mobile money systems which provide safer saving alternatives compared to existent methods e.g. “pillow case savings” while having little or no interest rate can increase savings among their users. Austrian and Ngurukie (2009) in their Youth-Inclusive Financial Services Case Study Series 2009, found that the girls in their target group would save if an appropriately designed saving account was available which had features such as easy access and confidentiality, these are key features of Mobile money systems pointing to the fact that savings would actually increase with the use of these systems. Anjana and Tyler (2012) find that mobile money systems have had positive influence in savings by providing a platform directly to save, providing access to saving products and as well pushing banks and other saving service providers to provide services to all market segments. Demombynes and Thegeya (2012) find that holding other characteristics constant those who are registered for M-PESA are 32% more likely to report having some savings. On the contrary, Mbiti and Weil (2011) found little evidence that people use their M-PESA accounts as a place to store wealth, pointing to little evidence that it affected savings and if it did whether positively or negatively.
Recent studies on Mobile money systems and their effects in Kenya include Mbiti and Weil’s (2011) Mobile Banking: the impact of M-PESA in Kenya, Anjana and Tyler’s (2012) savings for the poor while their findings show significant effects of Mobile money systems on savings these studies have very broad objectives .This study seeks to find out the particular effect of Mobile money systems on savings while focusing on a diverse sample of the Kenyan population within the low and middle income range as well as filling the knowledge gap on what can be done to increase the savings of the study group.

1.3 Objectives of the study

The broad objective of this study is to establish the impact of innovations in mobile money systems on savings. The study will be carried through the following specific objectives:
1. To determine whether mobile money systems have been effective and efficient in enabling users to save/use formal methods of saving.
2. To determine whether mobile money systems in current use can be improved to help achieve higher savings/use of formal saving methods.

1.4 Significance of the study

This study will benefit the following groups and users;
1. Banks and financial institutions; by enabling these bodies that provide saving products to better understand the effects of Mobile Money Systems on savings and how to better use the systems to increase the use of their products as well as the number of savers who save with them.
2. Regulators; by enabling the regulators to understand the full potential of these systems as savings platforms and to enable them to formulate better policy in order to increase the use of these systems as saving products.
3. Mobile money system service providers; by enabling the service providers of these systems to understand how users use these systems to save and enable them to make necessary adjustments to allow for more use of the systems, more savings on their systems as well as more innovations focused on financial inclusion.
4. Other researchers and academicians; by filling a data gap existent on the savings within the region and providing recommendations for further research to enable further research in the area to be done and the generation of knowledge previously unavailable.

CHAPTER TWO LITERATURE REVIEW

2.1 Introduction

Jenkins (2008) simply defined Mobile Money as money that can be accessed and used via mobile phone. While Heyer and Mas (2010) defined mobile money as having the following three elements electronic stored value linked to a user’s mobile phone, mobile phone software that allows users to manage their accounts and a network of agents where users can exchange between cash and electronic value. For this study we shall adopt the following definition; Mobile money is the electronic money that’s accessible through one’s mobile phone and can be used to make transfers, payments, and purchases as well as stored in form of savings. Mobile money systems can be defined as financial platforms offered by communication service providers on mobile phones for their consumers to utilize in their day to day financial undertakings such as paying bills, buying airtime, making payments and provision of basic banking facilities. Savings can be defined as part of disposable income that is not consumed. The current study aims to look at innovation in the mobile money sector and its effect on formal savings within the Kenyan region.
2.2 Theories on savings
2.2.1 Neoclassical model
Neoclassical economic theories of saving view individuals as rational beings who seek to maximize pleasure and minimize pain, and individual utility is assumed to be a function of consumption. Neoclassical economic research on saving and asset accumulation includes: the life cycle hypothesis (LCH) (Ando and Modigliani 1963; Modigliani and Ando 1957; Modigliani and Brumberg 1954) and the permanent income hypothesis (PIH) (Friedman 1957). Both of these theories assume that individuals and households are concerned about long-term consumption opportunities and therefore explain saving and consumption in terms of expected future income. These models assume that saving is a way to “smooth” consumption in the face of income fluctuations. Since consumption is determined by anticipated lifetime resources (rather than only current resources), saving over short periods of time (e.g., a year) is expected to reflect departures of current income from average lifetime resources.

2.2.1.1 Life cycle theory

The life cycle hypothesis (LCH) posits that consumption and saving will reflect an individual’s age or stage in the life cycle.
Since retirement, for most people, is likely to be the most substantial and enduring “income fluctuation,” this model emphasizes saving for retirement as a primary motivation for deferred consumption. Young households are expected to have negative saving since they typically have relatively low earnings and incur debt for education, the purchase of homes, and other expenses. In the middle period of the life cycle, saving is likely to be positive because individuals pay their debts and begin to save for retirement. Upon retirement, “dis-saving” is expected to occur again. Thus, differences in consumption and saving among households are believed to be partly the product of age differences, and the pattern of saving and “dis-saving” creates an inverted U-shaped pattern (“hump saving,” according to Harrod, 1948) across age categories and/or over time (Ando & Modigliani, 1963; Modigliani & Ando, 1957; Modigliani & Brumberg, 1954). In the Kenya national bureau of statistics 2005 the portion of population aged [0-14 years] is 41.9%, [15-64 years] 54.2 %, 65years and above 3.6%.this shows the highest portion of the population is in the middle period of the life cycle, according to Harod 1948 at this stage the saving curve will be climbing till the optimum when they retire and start to eat into their savings.

2.2.1.2 Permanent income hypothesis

Like the life cycle hypothesis, the permanent income hypothesis (PIH) assumes that long-term income is the primary determinant of consumption. The PIH, however, assumes that life is indefinitely long and therefore focuses on permanent and transitory income rather than life resources and current income. In this model, permanent income refers to the present value of lifetime income, and transitory income refers to the difference between measured income and permanent income. Friedman argues that permanent consumption will be proportional to permanent income, this means that temporary income will most probably be saved.
Households will plan to spend in an average period a fraction (equal to one or slightly less) of their average lifetime income. He further assumed that both permanent and transitory consumption are independent of transitory income and that transitory consumption in any period is independent of permanent income, thus household consumption will respond to changes in permanent but not transitory income. To smooth out consumption the households consume permanent income and will save the transitional income for when there is a fluctuation in income. In Kenya, employment in small and medium enterprises has been estimated to account for more than 20% of adult employment and for 12-14% of national GDP (Lisa Daniels and Donald Mead, 1998). Being that majority of households in Kenya is involved in SME employment whose income is unpredictable will save part of their income in anticipation of a fluctuation of income.

2.2.2 Buffer stock model “Buffer-stock” models (e.g., Carroll 1997; Carroll and Samwick 1997; Deaton 1991) emphasize a precautionary motive for saving, particularly for younger households and for households facing greater income uncertainty. These households are expected to accumulate small stocks of assets (buffer stocks) to smooth consumption in the face of short-term income fluctuations and liquidity constraints. The pattern of asset accumulation predicted by buffer-stock models is very different than the inverted U-shape predicted by the LCH.
2.2.3 Institutional theories

Institutional theories of saving are grounded in the notion that individual and household saving is shaped by the institutional processes through which saving occurs. Institutional processes are part of a larger body of institutional theory emphasizing that societal institutions shape, and give meaning to, individual behavior (see, e.g., Gordon, 1980; Neale, 1987). Sherraden (1991) has proposed a theory of welfare based on assets which emphasizes the role of institutions in asset accumulation. According to Sherraden, “asset accumulations are primarily the result of institutionalized mechanisms involving explicit connections, rules, incentives, and subsidies” (p. 116). He emphasizes the subsidies provided through housing- and retirement-related tax benefits, including deductions for home mortgage interest and property taxes, deferment and exclusion of capital gains on sales of principal residences, exclusions for employment-sponsored pension contributions and earnings, deferments for Individual Retirement Accounts and employer contributions to employee pension plans. Sherraden claims that it is rational for individuals who have access to these institutions to accumulate assets

2.2.4 Behavioral theories
They also respond in predictable ways to changes in incentives. From this perspective, there are two broad determinants of individual behavior: opportunities (or constraints) and individual preferences (Pollak 1998).These choices are generally believed to be the product of stable, autonomous individual “preferences” and the individual’s opportunity set. An individual’ saving behavior is expected to reflect her preferences for present versus deferred consumption and her income and wealth

2.3 Empirical studies
In developing countries savings for individuals and households has been seen as an important and key component towards achieving development goals and freedom from credit constraints. Savings by households and individuals is done for various reasons and is seen to serve various purposes. (Daniel Schneider and Peter Trufano 2005) suggest that savings addresses two main functions (for an individual): moving money through space & time and risk management. Moving money across time because it reduces consumption today to consume more tomorrow or consume when it’s necessary. By saving it also engages one in risk management to protect one’s self from emergencies and risk. There are many factors that affect savings and reasons for saving and in this section will survey the studies on these factors and reasons.
2.3.1 Income and savings

Friend and Schor (1959) and Projector (1968) found a link between household saving rate and current income levels. Projector and Weiss (1966) confirm this association in their later studies finding that households with higher income levels saved more wealth compared to households with lower incomes Being a developing country, Kenya can be categorized as a low income country with a majority of its citizens earning income from small scale businesses (World Bank, 2004). In Kenya, employment in small and medium enterprises has been estimated to account for more than 20% of adult employment and for 12-14% of national GDP (Lisa Daniels and Donald Mead, 1998). Many of the citizens do not have access to adequate financial services with which to use even to do basic activities such as save money particularly since vast majority of the poor still lack access to formal banking services of any kind (Banerjee and Duflo, 2007). This means that there could be low savings in the country caused by low income and low financial inclusion. Karen Ellis et al (2010) in her study found that not having enough money was the highest ranked reason for not saving by respondents from Tanzania and Kenya. Hence saving among low income earners would be enhanced if financial products offered would allow for low money levels of entry. According to a study carried out by the Central Bank of Kenya and Financial Sector Deepening (FSD & CBK, “Financial Inclusion in Kenya”, 2011) the largest supply side barrier to opening a savings account was the large amount of money needed hence showing that it was not only necessary to make formal saving products available but to avail them at a reasonable costs as well.
M-SHWARI has no opening charges (Safaricom 2012) and compared to other bank saving accounts it has no minimum deposit while with a low balance of as little as three hundred shillings one can borrow as much as two thousand shillings as loans(observation). M-PESA also has no opening charges. These are as a result seen as instruments and products that allow low income earners to store money effectively and at minimal costs which could point to higher savings within an environment whose majority is middle and low income earners such as Kenya.
2.3.2 Reasons for savings

According to a study carried out by the Central Bank of Kenya and Financial Sector Deepening (FSD & CBK, “Financial Inclusion in Kenya”, 2011) it was found that 65.5% of the respondents saved mainly for household needs and 45.2% saved mainly for emergencies (this can be viewed as a representative of Kenya). In low income households, Anjana Ravi and Eric Tyler (2012) also found that the highest number of respondents saved for ordinary household needs, followed by emergency reasons then education. Hence household needs and emergencies can be seen as the largest motivator to saving within the low income households coupled with consumption smoothing due to income shocks.

2.3.3 Precautionary/emergency reasons

Individuals and households view saving to maintain a stock (safety stock) for use in case of emergency as a key reason for saving. Carroll and Samwick (1998) found that precautionary savings motives could explain as much as 45% of the wealth of households. Through the use of survey data, economic models and empirical studies Schneider and Trufano (2005) established that there are three motivations for what people save for: emergencies, retirement and bequests. Beverly, Schneider and Trufano (2004) also found that emergency savings was the second most common goal for savings among low income tax filers. This points to emergencies and precautionary measures being among the main reasons for savings especially among low income earners.
2.3.4 Household reasons:

Karen Ellis, et al, (2010) found that in Kenya household needs and day to day expenditure accounted for the highest percentage of reasons to save. Thus, these two reasons point to savings as an actual need that needs liquidity in order to serve its role as an emergency cover and to meet the day to day needs of the saver. Hence savers might actually increase savings if products that possessed the required liquidity were offered. Zollman and Collins (2010) find that customers are choosing between M-PESA and bank; their choices being more of a function of product detail and capability other than the traditional factors previously used.
Many banks and financial institutions offer products that require time to access saved funds, for example, fixed deposit accounts, savings accounts and mutual funds hence not being suitable for a saver who desires liquidity. The other options left to the saving individual are saving in kind, under the pillow and rotating saving and credit associations (ROSCAs) each of which are faced with their own limitations such as safety and very low liquidity. Low liquidity hence makes these options not feasible for a low income individual seeking to save.
M-PESA and its sister product M-SHWARI offered by Safaricom are seen as saving products offer the required liquidity (due to its instantaneous nature) as well safety features that meet the consumer needs. Zollman and Collins (2010) concluded that low uptake of basic financial services is as a result of these basic products not meeting their needs and that M-PESA has had a rapid uptake due to its instantaneous nature, low costs and the ability to start out with small amounts of money to test safety.
2.3.5 Limitations and remedies
Nicket et al (2012) found that in most emerging and developing markets formal financial services providers have had little success in offering services to people with low erratic incomes and this means that less than 30% of the population in Sub-Saharan countries is unbanked, because serving this type of customer is not deemed profitable, hence low supply of financial products to low income earners is a major barrier to saving in developing countries among low income earners.
Anjana Ravi and Eric Tyler (2012) found that lack of somewhere to save is a supply side barrier to saving with the third highest respondent percentage while Nonohan and King (2012) found that the usage of formal financial services was lower in rural areas across 11 sub-Saharan African countries surveyed, with rural penetration rates less than 15 percent in the poorer countries; Kenya, Malawi, Mozambique, Rwanda, Tanzania, Zambia as well as in Nigeria. Micheal King (2012) found that in the sub-Saharan region people living in rural areas accounted for 63 percent of the population meaning that poor access to formal financial services was a hindrance to saving for many. Micheal King(2012) in his study of the Kenyan financial inclusion scenario found a negative relationship between the distance to bank and likelihood of an individual being banked (2006-2009) and that mobile money systems and banking in Kenya was overcoming this distance issue to provide financial services and products to all despite their distance from bank branches. Micheal King (2012) in his study also found that in the period (2006-2008) there was no increase in bank branches to the North of Kenya pointing to large distance between individuals and banks as well as very poor accessibility to the available financial services. This shows that poor infrastructure as well as poor access to financial services is a hindrance to use of the few saving products within the market and hence a hindrance to saving levels. The major reason for low bank branch expansion can be the cost issue associated with branch expansion. Micheal King (2012) in the same study proposes that mobile money systems in Sub-Saharan Africa can help achieve greater financial inclusion by bringing increasingly sophisticated and lower cost services to rural communities, low and middle income earners because of the tantalizing prospect of increase in financial inclusion without the need of building branches (a study carried out by The New American Foundation).
The number of bank branches between 2007 and 2010 grew from 740 to 1016 with that of MFI branches being lower. The number of ATMs grew from 1012 to 1979 within the same period while that of mobile money agents grew from 1012 to 27,622 agents within the same period pointing to the ease and low cost of setting up mobile money agents as compared to bank branches. This indicates that mobile money is solution to banking and providing financial services to the poor.
Dupas Robinson(2009) also found that the main reason for not owning an account was that formal banks have large opening fees and minimum bank balances often as high as Ksh 500 hence high costs of opening and maintaining traditional financial products is also seen as a major hindrance to savings. M-SHWARI is a mobile money system that allows money savings on the mobile phone offered by Safaricom Ltd.The system does not have opening or minimum balances and as a result has seen very high uptake within the Kenyan market, according to data availed by Safaricom as at 27th December 2012 (two months from inception of M-SHWARI). Ksh 967 miliion had been saved using the system.
“According to two separate studies on product development and usage conducted in Coast and Western provinces, one of the most important factors for Kenyans deciding which savings product to use is ease of communication with the service provider.” (Saving For the Poor in Kenya; Anjana Ravi and Eric Tyler) This shows that lack of proper communication, for example, in terms of timeliness, complexity and language used can be a hindrance to the use of financial products, while Zollman and Collins in their study of the Kenyan coast province determined that customers choose financial products out of the products specific ability to meet their needs and their ability to understand these products. M-PESA and M-SHWARI are financial products developed around a communication platform allowing for better and easier communication and higher understandability compared to the other financial products in the markets hence a high probability that customers would employ these products for transactions and savings. Fernando Aportela (1999) found evidence that suggests liquidity and safety may be more important than interest rates when it comes to saving among poor and low income households.

Vaughaun (2007) noted that individuals stored money on M-PESA due to safety considerations. Olga Morawczynski (2011) also found that under representation of financial institutions and money transfer services, which left rural dwellers with the less safe informal saving methods, drove up the adoption of M-PESA since the resource provided the poor with a safer means to store and transfer money. Mbiti and Weil (2011) also find that M-PESA is safer than cash due the use of a secret pin, making it a much safer system compared to the many informal saving systems available, for example pillow case savings or home cash savings. “In January 2009 the Kenyan treasury carried out a survey on M-PESA and concluded that M-PESA was both ‘safe and reliable’” (Nyabiagep 2009). Such findings coupled with the inherent safety of the product increase the likelihood of individuals using mobile money systems to save.

2.3.6 The need to save

Pascaline and Robinson (2012), in their study, observed that women took up accounts that did not pay any interest and charged substantial withdrawal fees leading to a de facto negative interest rate on deposits pointing to a need to save formally even if costs were being incurred. Data from Safaricom Ltd, the company that provides the mobile money system M-SHWARI which allows individuals to save and request for loans on their mobile phones (which is also the company that provides the M-PESA service), shows that within two months of the service being launched Ksh 976 million had been saved. This shows a very high need to save and a high demand of the “right” saving product among individuals in this developing economy.

2.3.7 The population structure

According to a case study of Kenya conducted by Edward Mudibo (2006), 37% of the population is within the age bracket of 10-24 years. The proportion of population aged 0-14 years is 41.9 % while the share of population aged 15-64 years is 54.2%”. Kibet et al (2009) shows that savings diminish with age and that savings by the adult population (especially above 30 years) would be diminishing with age as they grow towards and beyond retirement age. This would in fact mean that a high percentage of the population saves or wants to and is actively seeking ways and products that are adequate to enable them save. According to the data provided by Safaricom ltd within two months of launching the M-SHWARI service 976 million Kenyan shillings had been saved, 90.26% of this amount being contributed by individuals below 40 years of age. This shows that given the ‘right’ product as suggested by Anjana and Eric (2012) many people would actually save. And also points to the potential of money mobile systems as a key saving tool within such a demographic environment where the age is actively seeking to save yet is largely low and low-middle income.

2.4 Contextual review
The financial market in Kenya has experienced an immense transformation in terms of the products and services that financial institutions are providing for its customers. The level of financial inclusion has greatly improved with the poor now enjoying affordable financial services which enable them to save as well as to greatly contribute to the growth of our economy. Not only that, mobile network operators have played a great role in the ensuring that their financial products and services are tailor made to meet the ever changing needs of their esteemed customers as well as keeping abreast with the technological advances in the industry and the stiff competition from other financial service providers. In 2006, the Government of Kenya announced its Vision 2030, a development and growth strategy to transform Kenya into a middle-income country over the next 14 years. A key element of the plan involves financial services sector reform due to the recognition that in order to meet its growth targets, national savings must double to about 30 percent of GDP by 2030.

An analysis of the Kenyan landscape of savings would not be complete without examining the impact and role of mobile money innovations in the financial system, in particular, M-PESA. M-PESA is the fastest growing and most successful mobile payments system not only in Kenya but in the world, and Kenya is considered by many experts as the leading pioneer in the technology for financial inclusion space. However, the question still remains: how exactly have mobile money platforms and more generally the rapid adoption of technology among users and financial institutions changed the savings landscape in Kenya? A journey back to the timeline would aid in answering this question.

Gabriel Demombynes and Aaron Thegeya (2012) findings indicate that 93 percent of Kenyans are mobile phone users and 73 percent are mobile money customers. Additionally, 23 percent use mobile money at least once a day. They classified the term savings into two; Basic mobile savings, which is simply the use of a standard mobile money system such as M-PESA to store funds and Basic integrated mobile savings, which refer to the access to an account via mobile phone that offers financial services beyond basic storage and transfer and may as well pay interest and allow its users to access loan facilities. An example of a basic integrated mobile savings is the use of M-KESHO, a savings and credit product of Safaricom and Equity Bank. Their findings also point out that that Bank-integrated mobile savings approaches have received a great deal of attention as a way to provide banking services to the poor. They have the advantage of offering access to basic banking services without requiring proximity to a physical bank branch. Instead, with a bank-integrated mobile savings account, basic banking services can be accessed via a network of mobile phone agents, which in Kenya outnumber the number of bank branches by a factor of 100 to 1 (Mas and Radcliffe 2010).

Kimenyi and Ndung'u (2009) attribute the rapid growth in mobile money in Kenya to four factors: a conducive legal and tax environment, private-public policy dialogue, strategic and prudent macroeconomic policies, and a guarantee of the existence of a contestable market discouraging dominance by initial entrants. Comninos et al. (2008) argue that the initial success of Kenya‘s mobile money transfer industry can be attributed to the high demand for remittances generated by rural/urban migration, while its rapid scaling is due to the mobile providers‘ growth strategy.

Jack and Suri (2011) reported the results of a 2009 survey of Kenyan households that use M-PESA. They found that M-PESA reached nearly 40 percent of the Kenyan adult population after only two years of operation. While M-PESA was initially adopted mostly by wealthier households, adoption by less wealthy households was also increasing. Jack and Suri also found that there was an increase in the use of M-PESA by the unbanked population. However, their findings suggested that not owning a mobile phone is a major constraint to the adoption of M-PESA. The report also indicated that M-PESA users with a bank account are much more likely to save on M-PESA than M-PESA users without a bank account. The majority of users cite ease of use and safety as the major reasons for saving on M-PESA.

Morawczynski (2009) conducted a qualitative study in Kibera slum in the year 2007. The findings of this study indicated that remittances contributed to the increase in the incomes of rural mobile money transfer recipients. These remittances, in turn, led to higher savings by households.

Participants in a separate qualitative study by Plyler et al. (2010) ranked money circulation as the most important effect of mobile money, and credited mobile money with boosting local consumption. The flow of remittances into rural areas was perceived to have increased local economic activity because M-PESA enabled ―just-in-time remittances that made capital available when it was most needed.

Mbiti and Weil (2009) find that the major use of M-PESA is for transfers and that there is relatively little storage of value. At the same time, they also show that a significant number of survey respondents indicate that they use their M-PESA accounts as a vehicle for saving. Mbiti and Weil also find evidence that M-PESA use decreases the use of informal savings mechanisms such as ROSCAs, and increases the probability of being banked Mbiti and Weil (2010) also found some evidence that the growth of M-PESA in communities has been associated with increases in local farm employment.
Safaricom, the leading mobile network in Kenya, launched M-PESA, a mobile money platform that facilitates deposits, withdrawals, balance checks, purchase of payments as well as transfers of money, in March 6th, 2007. Since its inception, M-PESA quickly captured a significant market share for cash transfers, and grew astoundingly quickly, capturing 17 million subscribers by December 2011 in Kenya alone. The growth of the service forced formal banking institutions to take note of the new venture. In December 2008, a group of banks reportedly lobbied the Finance Minister to audit M-PESA, in an effort to at least slow the growth of the service. This plan failed, as the audit found that the service was strong.
Each of the mobile service providers in Kenya currently has a mobile money service. Safaricom‘s M-PESA was introduced in March 2007, Zain‘s Zap (now known as Airtel Money) was initiated in February 2009, yuCash started in December 2009, and Orange‘s Orange Money was launched in November 2010. Despite facing competition, Safaricom is still the leading mobile money service provider, boasting of the majority market share. In last quarter of 2012, Safaricom introduced yet another product for M-PESA customers called M-SHWARI. M-SHWARI is the revolutionary banking product that allows one to save and borrow money through the mobile phone while earning interest on the money saved. With M-SHWARI, one is also entitled to easily accessible and affordable emergency loans and it provides the following: It enables one to open and operate an M-SHWARI bank account through your mobile phone, via M-PESA, without having to visit banks or fill out any forms. It provides one with the ability to move money in and out of your M-SHWARI savings account to your M-PESA account at no charge. It also gives one an opportunity to save as little as Ksh.1 and earns interest on your saving balance. This cash is moved into the savings account via M-PESA. M-SHWARI enables one to access micro credit product (loan) of a minimum of Ksh.100 any time and receive your loan instantly on your M-PESA account
True to its slogan, Lainisha maisha na M-SHWARI, it’s indeed a hassle-free/stress free banking product. By the end of December 2012, just a month since its inception, M-SHWARI had accumulated nearly Sh.1billion in deposits made. Over Sh140 million had also been disbursed by the end of last year through the service. M-SHWARI, a partnership product between Safaricom and Commercial Bank of Africa has so far registered over 1 million users. The banking service based on Mobile money transfer service, M-PESA, is giving local banks a run for their money which had to work for years to reach such levels, now that’s phenomenal. M-SHWARI, makes it possible for customers to save as little as Sh1 and earn interest rate of up to 5 per cent, while eligible borrowers can get as little Sh100 and maximum of Sh20,000 at a one-off processing fee of 7.5 per cent, for a maximum of 30 days. “Indeed, partnerships between banks and the mobile network operators can benefit and transform the lives of Kenyans from all walks of life”, he concluded. But Mshwari’s strong showing has not been without challenges. Since December 2012, it’s been dealing with an ongoing court battle over its ownership with Faulu Kenya, a local microfinance institution, which has claimed that Safaricom stole its concept to develop Mshwari. Faulu offers a similar service called Kopa Chapaa, through which users can get credit, but can’t create savings, on their mobile phone.
Methodological review

In the various studies reviewed above various methodologies of data collection and analysis have been used. Pascaline and Dupas (2009) in their study use sampling in order to collect information which provides conclusive results the only drawback being the limited sample used means that the study results may change should it be done on another sample m group within the same Kenyan region with different characteristics. The solution to this can be to carry out a census study that will collect data from a wide and diverse selection of people in the economy. Anjana and Eric (2012) rely heavily on secondary data to obtain crucial information as relates to M-PESA and its use within the Kenyan region this same strategy is adopted by many scholars who have carried out studies on M-PESA and other mobile money systems within the region.
Hence we will combine the two methodologies to carry out a census study that will be used together with the existent literature in order to achieve the objectives of this study.

2.5 Savings level
The World Bank estimated that for every $100 a Kenyan earned, they saved only $17 and that the saving rate in Kenya at the end of 2012 was 17% and that a new method to boost savings needed to be found. Household savings are important in that they allow households to; cover planned future big expenses, recover from economic shocks better as well as have resources set aside for retirement. Karen, Alberto and Juan-Pablo (2010) report findings showed that 44% of those surveyed in Kenya had at some point used savings to undertake productivity enhancing investment such as education or business .Anjana and Eric (2012) research project results show that 65.5% of respondents saved for ordinary household needs while 29.1% saved for education and 11.1% saved for business expansion .Pointing to the importance of savings in enhancing both the individual lives and micro-economic environment of the savers.

However, how the saving is done is important as well since saving without earning an interest can have an eroding effect on the money caused by inflationary effects, hence methods such as pillow case savings or cash at home savings prove to have a negative interest rate and as well have a negative impact on the economy since it contracts demand for goods at the same time it does not contribute towards investment in factors of production within the economy. Pascaline and Jonathan (2009) report findings suggest that women in rural Kenya face negative private returns on savings done informally possibly because of theft, appropriation by one’s spouse or other relatives. Thus it is important to improve the saving behavior of all levels of the economy (upper, middle and lower income earners) and this can be done by solving the various barriers that hinder savings especially among the middle and lower income earners.

2.6 Summary

In conclusion many studies point to the fact that Mobile Money Systems contribute largely to the adoption of prudent financial behavior and the uptake of financial products. These systems have been able to do this by combating the lack and high cost of the inadequate infrastructure, providing very versatile products that can be used as per customers’ preferences and the increased communication and ease of use of the systems. The adoption of financial products as well as prudent financial behavior such as saving is very important as can be seen in the Kenyan Economic stimulus plan (200-2007), The Kenyan Vision 2030 Roadmap (2010) and also outside the local region in the Abu Dhabi 2030 Economic Vision.
Hence it can be seen that mobile money systems are key and important to economic development having the highest impact among the middle and lower income earners.

CHAPTER THREE
1) RESEARCH METHODOLOGY

3.1 Introduction
This chapter presents the methodological approaches which were used in data collection and the analysis to meet the objectives of the study. Specifically it presents the sources of data, sampling strategies and sample size, study population and unit of analysis, methods of data collection and analysis. The study investigated the impact of mobile money system innovation on the savings level of lower and middle income earners in Kenya.
3.2 Research Design
This research study was basically explanatory in nature. Explanatory research is research conducted in order to explain any behavior in the market that has not been adequately explained. Explanatory research often relies on secondary data such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors. The purpose of this research was to explain the correlation between mobile money innovation and savings level of income earners in Kenya.
3.3 Research population

The population of study consists of employees of one corporate institution and one non-governmental organization. The study however will be limited to the Head Offices. The population includes senior management (10), Middle management (20) and administrative staff (30). The total population therefore is sixty (60).
The study used the sampling method which involved the use of a portion of the population as a sample. A sample is attractive for large populations.

Table 3.1 Target Population
Strata|Target Population|
Senior Management|10|
Middle Management|20|
Administrative Staff|30|
Total|60|

3.4 Data Collection
The researchers used primary sources to collect data. The primary data was collected using Questionnaires. Kirakowski (1998) defines a questionnaire as a method for the elicitation, recording and collection of information. The researchers chose the self-administered questionnaire method for all correspondents as it was inexpensive and allowed the respondents to complete the questionnaire at a convenient time (Kuter and Yilmaz, 2001). Further, Kothari (2003) argues that questionnaires generate data in a very systematic and ordered fashion, and as an alternative to a self-completion questionnaire is a structured interview, where the questionnaire is administered in person or over the telephone. The advantage of using a questionnaire rather than an interview is that you can reach large numbers of people more easily, as you can leave them to fill in the questionnaire and send it back to you.
In order to find the relationship between mobile money innovation and savings level of income earners in Kenya, questionnaires were be used to provide a quantitative method of data gathering - the evidence, data or information you find is expressed in numerical terms.

3.5 Validity test and reliability test
The questionnaire was refined so that respondents had no problem in answering the questions and also for the researcher to record data. In addition, it enabled obtaining some assessment of the questions validity and the likely reliability of the data that was collected. Preliminary analysis using the pilot test was undertaken to ensure that the data collected enable d investigation questions to be easily answered.

3.6 Data analysis and Presentation
The data collected was processed using tables, graphs and pie charts which took into account the totals and percentages of the variables under study. The tables were used to present the data. Computer spread sheets such as excel was used to edit the data for the purposes of accuracy, consistency and completeness as well as computation of the descriptive statistics measures in the final analysis.

CHAPTER FOUR
1) DATA ANALYSIS & PRESENTATION OF FINDINGS 4.1 Introduction

This chapter entails the presentation of the data collected during this study and its analysis. The chapter is divided into two sections. The first section presents and analyses the data collected while the second section summarizes, Interprets and presents the findings of the data analysis. 60 Questionnaires were distributed to respondents out of which 32 responded and filled the questionnaires. Out of the 32 respondents 30 (93.75%) were saving
4.2 Data presentation
4.2.1 Age Demographics of the respondents
The demographic analysis looked at the age of the respondents and whether they saved or not with an aim of ascertaining whether age has an influence on savings. It also looked at the amounts saved by the various age groups surveyed.

The above data showed that savings was done mostly by the young.

The above data shows that the highest (Kenyan shillings 7,500) and second highest (Kenyan shillings 3,000) mean amounts of savings were saved by a majority of respondents between 20 – 35 years.
4.2.2 Income and level of savings
In this section we analyze the relationship between savings and income.

The above data showed the distribution of the incomes of those respondents who saved. It shows that savings was high among the low end earners of the survey, revealing that savings was not only a rich man’s or high income earners activity rather it was actively done even among lower income earners.

The above analysis revealed that most respondents saved at a median level of 7500 mostly on a monthly level and that most respondents tended to save close to 10% of their income.
4.2.3 Traditional banking and Convenience
This analysis looked at the number of respondents who viewed traditional banking as inconvenient.

The above analysis showed that 63% of our respondents viewed traditional banking as inconvenient while 93.75% of the respondents had bank accounts.

4.2.4 Mobile Money System and convenience
In this section we analyses the proportion of respondents who viewed Mobile Money Systems as convenient.

The above analysis showed that 77% of our respondents viewed Mobile Money Systems as convenient.

4.2.5 Frequency of savings and Mobile Money System convenience
Under this section we review the frequency of saving of those who view Mobile money savings as convenient

The above analysis showed that 78.3% of Mobile Money System users saved with a monthly frequency.

4.2.6 Reasons for saving
Under this section we analysis the various reasons for savings among our respondents.
Reasons for saving|no.|%|Ranking|
Emergency|10|33.33|1|
Household needs|8|26.67|2|
Business|5|16.67|3|
Education|3|10.00|4|
Future security/wealth Accumulation|2|6.67|5|
Others|1|3.33|6|
Retirement|1|3.33|6|
TOTAL|30|100.00| |

Emergency reasons emerged as the highest ranked reason for saving with 33.33% of our respondents citing that as a reason followed by household needs with 26.67% of the respondents citing that as a reason( a total of 60%)

4.2.7 Mobile Money Systems (the specific systems used and their popularity)
This section analyzes the various Money mobile systems used by our respondents and the most popular ones.
MMS|No. of respondents|%|
M-PESA|28|93.33333|
Airtel Money|1|3.333333|
M-banking|1|3.333333|
TOTAL|30|100|

This showed that a majority 98% of the respondents used M-PESA

4.3 Summary and interpretation of findings
Our findings on saving and age depicted that most people who have a high affinity to having a saving culture are below the age of 45 years which constitutes a relatively large proportion of the Kenyan population. It’s at this stage in life where one tends to look into the future for the possibility of having a family, start up a business, advance his level of education as well as save up for retirement. Once at age 45, there develops a negative correlation between one’s age and saving. This shows that once one advances in age he tends to start consuming what he had been saving up in his early stages of life thus a decline in savings. This finding tends to agree with what was found out in a case study of Kenya conducted by Edward Mudibo (2006), where 37% of the population is within the age bracket of 10-24 years. The proportion of population aged 0-14 years is 41.9 % while the share of population aged 15-64 years is 54.2%.This shows that Kenya can be categorized as a country with a high saving need.
Next, we looked at the correlation between one’s income level and savings. Our finding pointed out that those in the low and middle income earning brackets tend to save more as compared to the high income earners. This could be because of the need to secure one’s future in terms of savings and be able to meet one’s short term and long term needs. This finding tends to answer Evans (1969) dilemma of whether relatively wealthy individuals save a greater proportion of their income than do relatively poor individuals. However, Projector and Weiss (1966) tend to disagree to this association in their later studies finding that households with higher income levels saved more wealth compared to households with lower incomes. In addition, economists in previous generations used both theory and empirics to assess whether people with high incomes save more than those with low incomes (for example, Fisher 1930; Keynes 1936; Vickrey 1947; Duesenberry1949; Hicks 1950; Pigou 1951; Friend and Kravis 1957; Modigliani and Ando 1960). In his pioneering work on the permanent income hypothesis, Friedman (1957) argued that the positive correlation between income and saving rates observed in cross-sectional data reflected individuals changing their saving in order to keep consumption smooth in the face of temporarily high or low income. He presented empirical evidence consistent with the proportionality hypothesis that individuals with high permanent income consume the same fraction of income as individuals with low permanent income. Many studies of this hypothesis followed, some supporting Friedman and some not. Evans (1969) summarized the state of knowledge about consumption in 1969, concluding that “it is still an open question whether relatively wealthy individuals save a greater proportion of their income than do relatively poor individuals” (p. 14). In a comprehensive examination of the available results and data, Mayer (1972) disagreed, claiming strong evidence against the proportionality hypothesis. For example, using five-year income and spending measures, he found the elasticity of consumption with respect to permanent income to be significantly below one (0.905) and not much different from the elasticity based on one year of income. Projector and Weiss (1966) confirmed this association in their later studies finding that households with higher income levels saved more wealth compared to households with lower incomes.
Next, we analyzed the views of the respondents with regards to bank accounts and their convenience. 37% of those surveyed said that they viewed bank accounts as convenient stating out reasons such as confidence in the traditional banking services as opposed to mobile money systems while 63% of those surveyed viewed bank accounts as inconvenient because of reasons such as carrying out transactions at one’s convenient time with the aid of just a mobile phone! This pointed to the need of an alternative service that would conveniently offer financial services. 77% of the respondents said that they viewed Mobile Money systems as convenient and 90.6% of the respondents used these systems this showed that Mobile money systems were convenient and can be used to conveniently offer financial solutions to the population. This shows that their savings followed a certain pattern and relied on certain factors and in this particular case time when income was received e.g. salary payment and that these respondents would greatly utilize a money systems that would allow them to access services as and when need arises e.g. when the factors that affected their income occurred. Such systems would have to be highly liquid and that would allow for high accessibility to the money saved.
Reasons for saving were another demographic of saving that we analyzed. We found out that saving up for a rainy day (emergencies) was one of the major reasons for developing the saving culture. 43.34% of the respondents saved up for household needs and education advance purposes. These findings tend to be in agreement with those found out by Karen, Alberto and Juan-Pablo (2010) report findings that showed that 44% of those surveyed in Kenya had at some point used savings to undertake productivity enhancing investment such as education or business. Anjana and Eric (2012) research project results show that 65.5% of respondents saved for ordinary household needs while 29.1% saved for education and 11.1% saved for business expansion
Lastly, our finding on the most popular Mobile Money System (MMS) in use was that M-PESA had a huge chunk of consumers as compared to any other MMS in use. This finding is in agreement with that of Jack and Suri (2011) that showed that M-PESA reached nearly 40 percent of the Kenyan adult population after only two years of operation. While M-PESA was initially adopted mostly by wealthier households, adoption by less wealthy households was also increasing. Jack and Suri also found that there was an increase in the use of M-PESA by the unbanked population. Vaughaun (2007) noted that individuals stored money on M-PESA due to safety considerations. Olga Morawczynski (2011) also found that under representation of financial institutions and money transfer services, which left rural dwellers with the less safe informal saving methods, drove up the adoption of M-PESA since the resource provided the poor with a safer means to store and transfer money. Mbiti and Weil (2011) also found that M-PESA was safer than cash due the use of a secret pin, making it a much safer system compared to the many informal saving systems available, for example pillow case savings or home cash savings. In January 2009 the Kenyan treasury carried out a survey on M-PESA and concluded that M-PESA was both ‘safe and reliable’” (Nyabiagep 2009). Such findings coupled with the inherent safety of the product increase the likelihood of individuals using mobile money systems to save.

2)
CHAPTER FIVE
3) SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary

This study set out to investigate the impact of Mobile Money innovation on the savings level of low and middle income earners in Kenya. Its main objectives were to determine whether Mobile Money Systems have been effective and efficient in enabling users to save and use formal methods of saving and to determine whether Mobile Money Systems in use can be improved to help achieve higher savings and use of formal saving methods. The importance of the study being its contribution to the body of knowledge concerning; the importance and impact of Mobile Money Systems on formal savings level as well providing knowledge key in improving the existent Mobile Money Systems to achieve higher savings levels.

The research drew upon secondary and primary data. The secondary data included information collected on savings and Mobile money systems from company publications as well as reports and studies done in these fields. Primary data was collected by use of a questionnaire from a sample of respondents in various corporate and non-governmental organizations. The data collected was aimed at giving an understanding of how age, income levels, convenience of saving product, frequency of saving affected Mobile Money systems use as saving platforms.

The study findings showed that savings was high among the younger age groups 20-35.who were the highest number when it came to savings and still led when it came to amounts saved. The findings also showed that 98.5% of the respondents saved approximately 10% of their total income showing that saving was a key area in the respondents lifestyle, It also showed that 77% of the savers viewed Mobile Money Systems as convenient compared to 37% who viewed traditional banks as convenient. We also find that a high percentage of savers who used Mobile Money Systems saved on a monthly basis, the main reason for saving was emergencies followed by household needs and that the Mobile Money System that was mostly used was M-PESA.59.3% of the respondents also cited that poor network coverage and delays were a major barrier for using Mobile Money Systems.

5.2 Conclusion
Research findings show that young individuals tend to save more and high amounts compared to older individuals and that Kenya is a country with a majority of young people. The findings also show that a large number of individuals tend to save approximately 10% of their income a substantial amount hence showing that saving was an item of priority. This implies that in such an environment saving products and services are in high demand and that should a convenient and suitable saving product or service be available it would help in increasing individual savings on a macro-level in the economy. The findings also show that among those savers traditional methods of banking and savings were viewed as inconvenient while Mobile Money Systems are viewed as convenient hence a majority were more likely to use Mobile Money systems. The findings also show that even the unbanked in the population could still use Mobile Money Systems pointing to an inclusive characteristic of the Mobile Money systems which enables it to be used as a saving platform even by those who are unbanked. This leads to the conclusion that Mobile Money Systems due to their convenient and inclusive nature positively impact savings and the use of formal saving products.
The findings also show that a most people follow a routine while saving, for example, monthly saving with most having a monthly routine. The findings show that the main reasons for saving are reasons that require the saved money to be easily accessible as and when needed, thus savers would save using services and products that allow then easy access to use their savings as needed, this could explain why many savers used M-PESA primarily a transaction and payment service but did not use the augmented saving service of M-SHWARI offered alongside M-PESA. Findings also revealed that a majority of Money Mobile Systems users used M-PESA which is the Mobile Money System with the highest number of agents in the country pointing to convenience as a key determinant to the Mobile Money System used. Findings also show that many Mobile Money System users were concerned with the delays and network running and security as challenges when using the systems.
The findings lead us to conclude that Mobile Money Systems have a positive impact on savings among middle and low income earners in Kenya. We also conclude that increased Mobile Money Systems efficiency and innovation as well as education on how to utilize and benefit from these systems will lead to a higher positive impact on savings within the Kenyan Financial sector.

5.3 Policy recommendations
The companies that provide Mobile Money Services should expand their network of reach a larger population so as to provide financial services to more people and to increase the level of saving on a larger scale. These companies should also ensure that their systems are secure, efficient and experiencing little or no delays since these are the issues that troubled many users. The companies should also continue innovating and providing more financial products tailored to improve the lives of middle and low income earners, ensuring that these products posses the characteristics that will see a high uptake among the target market. These companies should also develop safe and secure ways to reverse any wrong and mistaken transaction that users of these Mobile Money Systems make while ensuring minimal costs and losses are incurred by the user, since many users cited the lack of a reversal technique for mistakes done on the systems as a major hindrance to using the systems. These companies should also develop techniques to curb the theft that occurs on these systems in order to reduce the loss that might be incurred by the users as well as increase the public’s trust in these systems and possibly increase the use of these systems.
Banks and financial systems should also change their operational policies and adapt to the changing business environment by incorporating the use of these Mobile Money Systems into the services that they provide to their clientele to both increase convenience and utility offered as well as increasing their customer base.
Non-Governmental organizations whose main mission and agenda is the financial inclusion of the Kenyan population as a whole, for example, Financial Sector Deepening (FSD) should undertake extensive education campaigns to ensure people understand the benefits of using such systems and how they can use such systems for savings.
The Kenyan Government should also support the provision of these services by setting up structures, bodies and standards that ensure these services and products are provided in a safe, secure and regulated environment to safeguard the users from unnecessary loss and also to boost their confidence in the use of these products hence boosting their uptake. The Government should also undertake the passing of favorable laws that will provide a suitable environment to boost innovation of Mobile Money Systems and the cheap provision of such service and products e.g. low taxes and levies charged on the use of these products and services and on related or supplementary goods and services.
5.4 Limitations of the study
The limitations faced during the study included; the private nature of the data collected. This study required the collection of individual’s personal details and private data which made many of the respondents hesitant to answer the given questionnaires. This greatly affected the response rate as well as the data collection time
Lack of information regarding savings in East Africa was also a major limitation. It became hard and difficult to obtain detailed information on the saving index of the Kenyan economy as well as per capita savings leading to time delays during the review of the saving environment in the region.
The changing Mobile Money System environment in Kenya is very volatile with new products coming up very quickly and there are also very many systems that can be viewed as Mobile Money Systems in the region requiring criteria to be set in order to be able to select the most relevant systems to be studied and the relevant information to be collected.
Lastly, the study requires a large amount of time in order to track the changes that occur in the use of Mobile Money Systems through time as well as to be able to cover and analyze the many Money Mobile Systems in the Kenyan region and time was limited.

5.5 Suggestions for further studies
Since Mobile Money Systems are relatively new financial products in the financial sector and given their rapid development, there exists a knowledge gap on how these systems affect and interact with other variables in the economy and the financial sector. A study could be done on Mobile Money Systems and their Fiscal Multiplier effect on the economy to look at the true effect that these systems have on the economy. A study could also be conducted on Mobile Money Systems and their potential use as trading currency in the security exchange market. This is because the securities market together with its regulators are digitizing their operations and dematerializing share certificates. it is therefore possible that the trading of shares and securities could largely be affected by Mobile Money Systems once the digitizing process is complete. A study could also be done on savings and how they are affected by efficiency of financial service providers. To be able to understand how efficiency of the products and systems that Financial Institutions provide affect savings and how it can be used as a factor to increase savings in a population with a low saving index.
It would also be very beneficial to study on the effects of financial development and its overall effect towards achieving Vision 2030. To provide an insight into how best to develop the financial environment in Kenya to fast track and aid in the achievement of vision 2030 and provide relevant and vital information to the various stakeholders involved e.g. Financial Service Providers.

REFERENCES
Agency, Central Intelligence. (2012, March 22). The World Factbook — Kenya. Retrieved April 2012, from Central Intelligence Agency: https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html

Austrian, Karen and Ngurukie, Corrinne. (2009, September). Safe and Smart Savings Products for Vulnerable Adolescent Girls in Kenya & Uganda. Retrieved April 2012, from Making Cents International: http://www.makingcents.com/pdfs/resources/caseStudy10/PopulationCouncilMicrosave_CaseStudyNo%203_September2009.pdf

Beck, Thorsten. (2011, July). FinAccess 2009: Trends, Analysis, and Policy Conclusions. Retrieved April 2012, from Financial Inclusion in Kenya: http://www.fsdkenya.org/finaccess/documents/11-06-27_finaccess_09_results_analysis.pdf

Capital Markets Authority, e. a. (2011, October). Financial Sector Stability Report. Retrieved April 2012, from Central Bank of Kenya: http://www.centralbank.go.ke/downloads/publications/Key%20Financial%20Sector%20Stability/Kenya%20Financial%20Sector%20Stability%20Report%202010.pdf

Dupas, Pascaline et al. (2012, February 6). Challenges in Banking the Rural Poor: Evidence from Kenya’s Western Province.Retrieved April 2012, from Innovations for Poverty Action, Stanford University, UCLA, & UCSC: http://www.stanford.edu/~pdupas/Challenges_DupasEtAl2011.pdf

Financial Sector Deepening, Central Bank of Kenya (2011, July). Financial Inclusion in Kenya: Survey Results and Analysis from FinAccess2009. Retrieved April 2012, from http://www.fsdkenya.org/finaccess/documents/11-06-27_finaccess_09_results_analysis.pdf

Government of Kenya. (2007). Vision 2030. Retrieved April 2012, from http://www.ku.ac.ke/images/stories/docs/kenya_vision_2030_abridged_version.pdf

Government of Kenya. (2008). First Medium Term Plan (2008-2012). Retrieved April 2012, from International Monetary Fund Poverty Reduction Strategy Papers: http://www.imf.org/external/pubs/ft/scr/2010/cr10224.pdf

Jack, William and Suri, Tavneet. (2011, January). Mobile Money: The Economics of M-PESA. Retrieved April 2012, from Georgetown University & MIT Sloan: http://www9.georgetown.edu/faculty/wgj/papers/Jack_Suri-Economics-of-MPESA.pdf

Safaricom. (2011, April). M-PESA Customer and Agent Numbers. Retrieved April 2012, from Safaricom: http://www.safaricom.co.ke/fileadmin/M-PESA/Documents/statistics/M-PESA_Statistics_-_2.pdf

Zollman, Julie and Collins, Daryl. (2010, December). Financial Capability: Are we Missing the Mark? Retrieved April 2012,from FSD Insights: http://www.bankablefrontier.com/assets/pdfs/BFA-FSD-InsightsBranchlessBanking.pdf

Mas, Ignacio and Morwczynski, Olga. (2009, Spring). Designing Mobile Money Services: Lessons from M-PESA. Retrieved April 2012, from Innovations, Vol 4 Issue 2, MIT Press: http://www.bankablefrontier.com/assets/pdfs/INNOVATIONSMpesa%20Service%20Design.pdf

Ndii, David. (2011, July). Financial Inclusion in Kenya: Recent Developments from Kenya. Retrieved April 2012, from Financial Inclusion in Kenya: http://www.fsdkenya.org/finaccess/documents/11-06-27_finaccess_09_results_analysis.pdf

APPENDICES
Appendix 1: Introductory Letter REF: UON/CHSS/SOB/6/1081 UNIVERSITY OF NAIROBI
COLLEGE OF HUMANITIES AND SOCIAL SCIENCES SCHOOL OF BUSINESS

Telephone: 020 2057163/4 Ext 316 P.O. Box 30197
Telegrams: “Varsity” Nairobi Nairobi, KENYA
Telex: 22095 Varsity
29TH July, 2013
TO WHOM IT MAY CONCERN
Dear Sir/Madam,
INTRODUCTORY LETTER
1. OYUKE DECIMA AKOTH D33/32014/2010
2. MASILA JOSHUA MULI D33/32510/2010
3. NYAKIO VIRGINIA D33/20134/2009
4. MUTINDA ELIZABETH MUMBUA D33/32196/2010
The above named are bona fide students at the School of Business, University of Nairobi. They would like to carry out a research on ‘Topic: The Impact of Mobile Money Systems on Savings Levels of Middle and Low Income Earners in Kenya” in your organization.
We request your organization to assist the students with necessary data which forms an integral part of their research project.
The information and data required is needed for academic purposes only and will be treated in Strict-Confidence. A copy of the research project will be made available to your organization/ firm upon request.
Your co-operation will be highly appreciated.
Thank you.
ERIC CHESONI
FOR: DEAN, SCHOOL OF BUSINESS
EC

Appendix 2: Questionnaire
SURVEY ON THE UTILISATION OF MOBILE MONEY SYSTEMS IN KENYA
This questionnaire is provided to collect data on the implementation and application of Mobile banking savings in Kenya.
Kindly complete the questionnaire with precision and give any relevant information that you may deem necessary for this study.
Any information given will be highly confidential and used for purposes of the study only.
PART A: GENERAL QUESTIONS
SECTION 1(Tick inside the bracket)
Name of the respondent: …………………………………………………………………………
Gender of the respondent: ……………………………………………………………………….
Age bracket of the respondent (in years): [ ] 20-25 [ ] 26-35 [ ] 36-45 [ ] above 45 years
Area of work (e.g Company Name): ………………………………………………….
Industry of work: ………………………………………………………………………
Profession: ……………………………………………………………………………..
Position held: …………………………………………………………………………..

SECTION 2
Q1. Do you save? [ ] Yes [ ] No
If yes, for how long have you been saving? [ ] 10 years [ ] 5 years [ ] 3 years [ ] 1 year
Q2. How frequently do you save?
[ ] every 6 months [ ] every 4 months [ ] every 2 months [ ] monthly [ ] weekly [ ] daily
Q3. How much do you save within the above specified period?(in Kenya shillings)
[ ] 5,000-10,000 [ ] 1,000-5,000 [ ] 500-1,000 [ ] below 500
Q4. Why do you save?
[ ] Household needs
[ ] Emergencies (e.g. medical, social needs)
[ ] Business
[ ] Education
[ ] Others (Please specify) ………………………………………………………………………………………………………
Q5. What is your monthly income range? ( in Kenya Shillings)
[ ] 0-10,000 [ ] 10,001-50,000 [ ] 50,001-100,000 [ ] 100,001-250,000 [ ] 250,001 and above

PART B: SPECIFIC QUESTIONS
Q1. Are you aware of any of the Mobile Money Systems (MMS) available in the market?
[ ] Yes [ ] No
If yes, which one(s) are you conversant with? …………………………………………………………………………………………
Q2. Do you use any of these MMS products? (e.g. M-banking, Yu-cash, M-pesa, Airtel money)
[ ] Yes [ ] No
If yes, which one?
[ ] M-banking [ ]M-PESA [ ] Airtel Money [ ] Orange Money [ ] Yu-Cash [ ]M-shwari
Q3. Do you have a bank account?
[ ] Yes [ ] No
If yes, please state with which bank. ……………………………………………………………………………………………….
Q4. Do you think it’s an inconvenience to transact with your account manually?
[ ] Yes [ ] No
Q5. Do you view Mobile Money Systems as a convenient alternative to traditional banking?
[ ] Yes [ ] No
Please explain your answer. ……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
Q6. Do you save using M-Shwari?
[ ] Yes [ ] No
If yes, does earning interest on savings influence your decision to save?
[ ] Yes [ ] No
Q7. Have you ever faced any challenge(s) in using the mobile money system platform?
[ ] Yes [ ] No
If yes, please explain. ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
Q8. How can the mobile money platform that you utilize be improved for better service delivery?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
Q9. Have you noticed any change(s) in the usage of the mobile money system of your choice over the past 2 years?
[ ] Yes [ ] No
Q10. How has/ have these changes influenced your saving decision?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………