The Impact of Cell
phones in Kenya
Isaac M. Mbiti
Southern Methodist University
Cell phone Growth
Rapid growth in cell phone usage in SSA
Number of cell phone users grew from
about 7.5 Million in 1999 to almost 77
million in 2004. (ITU)
Average annual increase of 58% over that
period
Mobile Phone vs. Fixed Lines in Kenya
Mobile
Fixed Line
Mobile Growth in Kenya
The rapid growth in cell phone subscribers
continued
45% growth from 6.48 Million in June 2006 to
9.30 million in June 2007
Fixed line subscription has actually decrease
from 320,000 in 2001 to approx 290,000 in
2006
Mobile Companies in Kenya
3 Main Providers
Safaricom (GSM)- largest operator
Celtel (GSM)
Telkom Kenya (CDMA network)- new service
rolled out in the past year
Population density and Network
Coverage
80% of Kenya’s
population is covered
by the network
96% of Uganda’s
population is covered
50% of Tanzania’s
Population is covered
Source: GSM Association
Population density and Network Coverage Across Africa
Source: GSM Association
Success:
Network
Coverage Vs.
Night lights
data
GIS work by Adam Storeygard
Factors Associated With The Rapid Growth of
Mobile Phones
According to Vodafone (2005) some of the main
factors are:
Lower installation costs. (up to 6x lower)
Use of appropriate business model
Use of pre-paid model
Rollout requirements (in some cases)
Uganda, S. Africa, Ghana have specific requirements
for rolling out services to rural and low income areas
Low provision of fixed lines
Economic Research on the Impact of Mobile Phones
Small literature on the effects of mobile
phones
Effects of cell phones on economic growth
Effects on cell phones on price dispersion
Aker (2007), grain markets in Niger
Jensen (2007), fish markets in Kerala, India
Reductions due a reduction in search costs
Outline of Talk
Other Effects of Mobile Phones
Politics
Entrepreneurs and Small businesses
Job Search
Banking and Remittances
Politics
Campaigning:
Used to organize and rally supporters
Nefarious activities:
Rumor spreading e.g. “Raila Odinga in Jail”
Hate SMS (text messages) e.g." Eradicate
the “foreigners” from our land ”
Peace efforts:
Safaricom sent out mass SMS to all
subscribers urging them to refrain from
violence.
Entrepreneurship
Selling Airtime:
Buying wholesale prepaid airtime cards for
resale
Buying and loading phone with a large
amount of airtime and re-selling it (Arunga
and Kahora, 2007)
Informal businesses that charge cell
phone batteries.
Mainly use car batteries and solar panels
Community phones
Business
Anecdotes suggest cell phones have
enhanced the productivity of business
Arunga and Kahora (2007) investigate the
effect of cell phones on businesses in
different sectors.
Businesses
Matatu (minibus):
Owners better able to manage fleet. Esp. when
drivers had phones.
Enabled better monitoring and management
Quick response to crises e.g. breakdowns, bribing police
Restaurant owner:
Cellphone allowed owner to order supplies of fish by
phone saving on travel costs.
Owner reports that pre cell phone profit margins were
20-35% vs. 47-60% post cell phone.
Repairmen and casual Laborers
Pre-cell phone electricians, plumbers etc would
wait at hardware stores
Casual laborers would loiter outside a factory all
day in hope of work
Cell phone allows them to distribute their phone
number and enables them to be “on call”
Plumber interviewed by Arunga and Kahora
(2007) reports that his business grew by 50%
due to cell phones
Cell phones reduce search costs in labor mkt
Need a Painter?
Impacts on Mobile phones in Small
Business
Samuel et al (2005) reports that prior to
acquiring a mobile phone 27% of business in
Egypt and 15% in S. Africa had no access to a
telephone
Their survey data from Egypt and S. Africa
shows that between 60-70% of businesses felt
that mobile phones:
Increasesrevenues and profits
Reduced travel time and costs
Mobiles and Banking
“the challenge is not getting the unbanked
to the Bank but getting the Bank to the
unbanked” Brian Richardson CEO- Wizzit
Overview of Banking Sector in Kenya
FSD 2006 survey shows:
38% of respondents did not use any type of
banking service
35% used informal services e.g. ROSCA’s
26% used formal institutions.
Reasons for not Banking
The FSD (2006) survey reported some of the major
reasons that people for not having a bank account:
Cost
23% stated they could not afford a bank account
CBK (2007) survey shows for banks with national
coverage
Avg. cost of operating a checking account was about $17/ mo
Avg. cost of operating a savings account was about $8/ mo
Avg. min balance on savings account was about $15 / mo
Reasons for not Banking
The FSD (2006) survey reported some of the major
reasons that people for not having a bank account:
Convenience:
There are 44 banks with 443 bank branches,
and about 600 ATM’s in Kenya
Approx 45% of these located in Nairobi alone
68% reported that the nearest bank was very
far away.
20% reported the nearest trading center was very
far
27% reported that nearest high school was very far
Mobiles and Banking
“the challenge is not getting the unbanked
to the Bank but getting the Bank to the
unbanked” Brian Richardson CEO- Wizzit
How could this be achieved?
Focus on the effects of a mobile money
transfer service in Kenya: M-Pesa
M-pesa is a service of Safaricom
Provides very simple banking services to
mobile customers on Safaricom network.
Uses:
Deposit Money
Withdraw Money
Transfer Money
Buy Safaricom airtime
Charged on a per transaction basis.
No interest earned on deposits.
M-Pesa
Free to register
No minimum balance is required
Max. account balance is about $700
Maximum daily transaction value is $1000
Transaction cost
No charge to deposit money
$0.3 to withdraw money
$2.50 to send $ 100 to a non user
$1.10 to send $100 to a user
$5.70 to send $500 (max transfer) to non
user
Adoption of M-Pesa
Adoption rate has exceeded expectations
According to Vaughn (2007) In the first 3
months:
111,000 registrations
450 service points (compared to 443 banks, 600
ATM's and 350 western union outlets)
Approx $6 million transferred person to person. (avg
transfer about $45)
According to Safaricom (2007), by the end of
November:
1.1Million registered
Almost 1,400 service points (agents)
Cumulative total $87 Million had been transferred
$24 Million transferred in November alone
Why has the adoption been
phenomenal?
Predominant use of M-Pesa has been in
person to person transfers. (domestic
remittances)
Especiallyfor migrants to urban areas
FSD survey shows that 16% of respondents
had sent money and the same percentage
had received money domestically
Pre M-Pesa Remittance Delivery Methods
Received Sent (%) Reported
(%) Most Risky
Sent with 55.8 50.4 50.4%
Friend/Family
by bus/matatu 21.6 29.4 25%
Western union 18.2 28.5 1.7%
etc.
Check 8.9 9.7 2.4%
Directly into 4.4 5.5 0.8%
bank account
Source: FSD 2006
M-Pesa and Remittance
Ethnographic work by (Morawcynzski 2008)
respondents reported the following
advantages of M-Pesa
Cheaper
Safer/ more reliable
Quicker
More coverage- (lots of M-pesa agents)
Costs of Other Money Transfer
Services
To send $100 it costs about:
$15 via western union
$6 via postal money order
$12 via Moneygram
$2-3 via Akamba bus (0-10kg parcel)
$20 wire transfer
Compared with:
$2.50 via M-pesa
Sources: Kabbucho et al 2003, internet
Commercial uses of M-pesa
Vaughn (2007) reports that M-pesa is being
used by companies to pay workers esp. casual
laborers. (e.g. Safaricom)
Transportation sector has adopted this heavily.
Allowsmanagers to send money to drives in case of
breakdown.
Williams and Torma (2007) report that M-pesa is
being widely adopted in procurement of goods.
Rather than cash on delivery, it is now M-pesa on
delivery
Other uses of M-pesa
Deposits
Vaughn (2007) shows that many users are
using M-Pesa to store money safely
Personal safety
Bank too far
Bank closed before M-Pesa shop
Morawczynski (2008) found that some
respondents put money in different accounts
to minimize risk of losing money in event of a
bank collapse
Other uses of M-Pesa
Purchasing Airtime:
Users can purchase airtime at any time.
Morawczynski found that users in Kibera were fond
of this as they didn’t not have to leave their homes
at night to get airtime.
During first week of post-election violence there
was a shortage of airtime due to logistical
disruptions. Those with money in M-pesa accounts
were the only ones with uninterrupted access to
airtime.
Reported Drawbacks
Morawczynski (2008) shows:
Users found that the system could be slow
during peak text messaging times
One user didn’t use it because she wanted
to send goods rather than money
Herrelatives were in debt and any money
sent would go to debtors
The Future of M-Pesa
International transfers
Testing is currently underway for UK Kenya
Linking M-Pesa to banks
Linking M-Pesa to companies (e.g.
utilities)
Research Questions
What is the effect of M-pesa on the previously
unbanked?
What is the effect on rural receiving community?
What is the effect of M-Pesa on banking sector?
Transfer services?
What is the effect on the telecommunication
sector?
Main Competitor and new entrants?
Concluding Remarks
“I think it’s time that we recognized that for
the majority of the world’s population, and
for the foreseeable future, the cell phone is
the computer”
Paul Mason, BBC News 2007
Remitting Airtime?/ Airtime as
currency?
Prior to introduction of M-Pesa there was
anecdotal evidence of people using airtime
balance transfer system:
To make purchases
To remit funds to rural areas
Limitations of this:
For balance transfers/purchases: who bears
the burden of the taxes? (taxes on airtime are
about 28%)