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M-Pesa: mobile money transfer solution

M-Pesa is an example of alternative to easier access to financial services and safer money transfer

Photo of André Fernandes

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M-Pesa (mobile + "Pesa", money in swahili) is a mobile banking and transfer money app by SMS, founded in 2007. It 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 

In Kenya, 73% of the population use mobile phone (which means 32.850.000 citizens), while 30 million Kenyans don't have any bank account. Bank agencies and financial services concentrate in the central neighbourhoods of urban areas, far away from many botton-of-pyramid consumers who live in peripherical zones and rural areas. Moreover, access to transportation to urban areas and bureaucracies make the process complicated and costlier.

It's interesting to notice how in many developing countries is so much easier to buy a mobile than open a bank account. Why not optimize the access to financial services through mobile? That's the essence of M-Pesa.

According to the information publically available, M-Pesa has a total of 3,6 million clients, totalizing a total of US$ 245 million in financial transactions.

How M-Pesa works?

As described in picture attached, M-Pesa works throughout the partnership between Safaricom and Vodafone. It makes possible to open a bank account linked to the mobile number, accessed via an app installed in the client's SIM card.

The client goes to a Vodafone outlet or to a corner store, where he/she exchanges money for electronic credits (e-floats as nominated by Safaricom), and these credits can be transferred to other Vodafone clients by mobile. The store receives a service charge from Safaricom for each conversion money-electronic credits.    

The client withdraws money by visiting another agent, who checks that he/she has sufficient funds before debiting his/her account and handing over the cash.  It's also possible to transfer money to others using a menu on the phone. Cash can thus be sent one place to another more quickly, safely and easily than taking bundles of money in person, or asking others to carry it. This is particularly useful in a country 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.

What was important to suceed?

Mobile-money schemes in other countries, meanwhile, have been held up by opposition from banks and regulators and concerns over money-laundering. Dozens of mobile-money systems have been launched, so why has Kenya’s been the most successful? 

It had several factors in its favour, including the exceptionally high cost of sending money by other methods; the dominant market position of Safaricom; the regulator's initial decision to allow the scheme to proceed on an experimental basis, without formal approval; a clear and effective marketing campaign (“Send money home”); inefficient system to move cash around behind the scenes; and, most intriguingly, the post-election violence in the country in early 2008. M-PESA was used to transfer money to people trapped in Nairobi's slums at the time, and some Kenyans regarded M-PESA as a safer place to store their money than the banks, which were entangled in ethnic disputes. Having established a base of initial users, M-PESA then benefitted from network effects: the more people who used it, the more it made sense for others to sign up for it.  

From the case of M-Pesa in Kenya, comes the question: how to engage banks and regulators to implement a financial system more accessible to the low-income citizens? What other alternatives are there? 


Artemisia Brasil: article describing how Safaricom create a social impacting business using its mobile services (in Portuguese)

Why does Kenya lead the world in mobile money?: article posted on The Economist website


Vodafone m-Pesa: Vodafone portal for the m-Pesa in India 

The World Factbook


Join the conversation:

Photo of Meena Kadri

Awesome summary of this game-changing process, Andre. And I've always found it fascinating that it grew out of grassroots practices: (See Sent section at 6.3) What other current, local practices could we build upon for our upcoming Ideas phase?

Photo of Kristian

I really like the idea that the continual rise in mobile is driving these sorts of opportunities in communities. Again from Vodafone I stumbled across this project recently; A clever campaign on their part but perhaps also raises interesting questions around whether mobile can influence how we even interpret currency in communities?

Photo of André Fernandes

Hi Christian, great the idea your posted about the small change in Egypt! really useful and practical, who would deny an extra credit on mobile? I remember when I lived in Egypt 2 years ago it was possible to charge small amounts like some 5 Egyptian pounds (less than 1 dollar). Although is cheap to charge a mobile in Egypt,if we consider the prices in dollar, it's not the same for many Egyptians who earn no more than 200-250 dollars a month. Then, get 10 or 20 dollar in small changes along a month for mobile credits is a cool idea.

Photo of André Fernandes

@Kristian, check this post: Why don't you write about Fakka?

Photo of Kristian

Thanks Andre, I'm gonna check this out!

Photo of Maddie Wiener

Hey Kristian - I Just checked out Vodafone and "Fakka". Sounds so interesting! Such a great way for local communities to work together and create a sustainable tool that helps them save money. You should totally share this during the Ideas phase, which is open until April 28th. I would love to learn more about it and also figure out a way to scale this idea to other communities. What do you think? Hope to see you there!

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