In March 2005, the team now at Iceni but then at Sagentia, were asked by Vodafone to create a platform to try out new ideas for mobile payments for micro-finance in Kenya: A challenging opportunity to make a difference which proved to have massive potential.

We always had a strong vision and great ambition for the project. But, little did we expect, that we would go on to create a new global industry and a service that could truly claim to change the lives of many millions of people for the better.

 

Savings, loans and payment services on a person’s own mobile without a bank account and little money was new. Mobile Banking had been around for 5 years or so in South Africa and elsewhere: Using mobiles to communicate the transfer of remittances similarly in the Philippines.

And so, working with Safaricom and the Micro-Finance Institution Faulu, we set about building the foundations for M-PESA, a service that would be accessible and flexible, whilst remaining both secure and scalable.

• Accessible to those less literate, on low end phones and in rural locations
• Flexible so that we could tailor the service, try out new ideas and adapt
• Secure so that users could trust it with their money and their livelihoods
• Scalable so that there would be no limit how people can use the service  

The basics

You pay money into the system by handing cash to an agent (usually shops and supermarkets of all shapes and sizes), and the system credits the money to your mobile-money account. You also withdraw money by visiting an agent, where the system checks that you have sufficient funds before debiting your account and instructing the agent to hand over your cash.

But mostly, you send and receive money; with other people (anyone with a mobile phone) and with companies (registered utilities, merchants, institutions and other). The money moves securely and at the speed of a mobile message allowing cash to be sent from one person to another and one place to another quickly, easily and safely.

The benefits

Making it easier, quicker and cheaper to transfer money has enormous social and economic benefits.

• Commissions are lower, and recipients no longer have to pay for transport to towns to make withdrawals.  
• Sending money is safer, senders are no longer torn between taking time off to go personally or having to trust other informal and typically highly unreliable methods.
• It has changed the local economy:
  • In rural households using M-PESA, incomes have increased by 5 - 30%.
  • Smaller sums of money are sent home more often. 
  • Pricing of goods that used to fluctuate during the week is now stable. 
  • The women in the household, traditionally the family purse-keepers, now have their own mobile phone. 
  • M-PESA is also used as a form of savings account, even though it does not pay interest. Having even a small cushion of savings to fall back on allows people to deal with the unexpected, such as suddenly having to pay for medical treatment. 
  • Many of those signing up to M-PESA already had bank accounts but needed to send money to family and friends that didn’t. After M-PESA many then closed the bank account that they didn’t want and was costing both them and the bank money they couldn’t afford.
  • It offers  new opportunities:
    • Informal merchant services sprang up almost immediately the service went live, both person to person and online
    • Merchants can now access those within the cash only economy
    • Financial Institutions can offer entry level savings and insurance products such as Equity Bank’s mKesho
    • Aid organisations can try out new ways to disburse aid such as Concern Worldwide’s disbursement of cash to dispossessed people in Kenya
    • NGO can establish programs for economic improvement that are self-sustaining after they leave, such as Grundfos Lifelink’s well digging programme    

What has happened?

M-PESA was launched in Kenya on Safaricom in April 2007 following 2 years of pilot and trial with the micro-finance industry and has since become the most widely adopted mobile-money scheme in the world, spawning a new mobile-payments industry.

The following results are from live operation in Kenya and are drawn from CBK reports and Safaricom’s published results.

M-PESA was launched in Kenya on Safaricom in April 2007, by September 2009:

• Some 40% of all adults were registered for the service
• Reuters estimated that 10% of Kenyan GDP was passing through it with
  • USD $300m /month person-to-person transfers, supported by 
  • USD $650m /month cash deposits and withdrawals. 

• 27 companies used M-PESA for bulk disbursements. 

  • Safaricom itself distributed its dividends to 180,000 of their shareholders via their M-PESA accounts. 

• 75 companies used M-PESA to collect payments from their customers. 

  • The electric utility company had around 20% of their one million customers paying with M-PESA. 
  • Informally, many more small companies use personal M-PESA accounts to receive and make payments, such as internet payments, school bills and salaries for household and farm staff.

By December 2010, Safaricom published:

• Over 13 million registered users
• Over 23,000 Agent sites where M-PESA users can register, cash in and cash out. 

Read “what you don't know about M-PESA” at cgap.org