Before mobile banking, if Kenyans wanted to send money, they would have to put the cash in an envelope which they then entrust with someone to physically deliver to the recipient. This system is slow, expensive and not to mention potentially highly risky.
But with no landline infrastructure telecommunications, and directly transacting at a bank branch meant traveling many miles to the nearest large city, physical delivery was often the only choice.
However, once mobile technology came along, it truly changed the game. In Kenya, only 1% of the population have a landline, whilst more than 70% now have access to a mobile phone. If you ask these users the one app they all have on their phones, “M-Pesa”, they would all say.
A total game changer
M-Pesa (pesa is Swahili for money) is pretty much everything you’d want from a bank. Users can deposit money into into an account stored on their cell phone, and then send text messages to transfer money between each other. This cash can be paid to sellers of goods and services, pay for bills or the amount can be withdrawn from a network of available M-Pesa agents.
Launched in 2007, M-Pesa grew very quickly, amassing 17 million subscribers in Kenya alone by end 2011. For the 11 months to November 2014, M-Pesa transactions of 2.1 Trillion Kenyan Shillings ($23 billion) were completed. .
Without the prior communications infrastructure, Kenya was the perfect market for M-Pesa to grow. It has since shaped the Kenya’s banking and telecoms industries, bought financial inclusion to nearly 20 million people, and helped business owners set up thousands of small enterprises.
It was clear early on that M-Pesa has had a great impact on Kenyan’s personal finance, but MIT economist Tavneet Suri wanted to quantify exactly how much of an impact. So while M-Pesa was still being rolled out, a team began a survey to track wealth, to determine whether mobile banking was affecting people’s economic health over time.
Taking data between 2008 and 2014, the team found some astonishing results. Mobile banking made a big impact against poverty. This was particularly obvious in households led by women.
Compared to women-led households in areas without M-Pesa’s network of agents, women-led households in areas with a large number of agents managed to save 22% more of income over years of the study. This is whilst buying 18.5% more basic goods.
Amongst the extremely impoverished – those who live on less than $1.25 a day – almost 1 in every 10 found M-Pesa helped them rise up the ladder of wealth. This has been noted to being a lot better than some aid programs.
The data really shows that simply giving people an app that can store and send money, has a significant effect in reducing poverty. And it has also changed the mobile and banking landscapes in Kenya forever.
Originally, competitor banks lobbied the Kenyan government to regulate M-Pesa like a bank, but have since had to change their own business models to grab a piece of M-Pesa’s market. Many bank’s and telecoms companies have offer services with transaction fees even lower than M-Pesa’s. This is only good for the economy of Kenya – as more players enter the market, wealth becomes even more accessible. Innovation and entrepreneurship will prosper, making a self-reinforcing feedback effect into the economy.
Whilst M-Pesa cannot cannot replace all of your financial needs – for example only relatively small amounts of money can be stored in the accounts, and small businesses cannot get loans – it has empowered individuals in holding their own financial freedom. It’s effect on the lowest levels of wealth has been life-changing. It is not the only answer, but mobile banking shows the way forward in building a poverty-free world.