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					M-PESA

Mobile phone usage in the developing world

In 2005, there were 1.4 billion mobile phone users in developing markets; the World
Resources Institute estimates that there will be 3 billion by 2010.1 In 2006, the mobile phone
became the first communications technology to have more users in developing countries than
in developed ones.2

In 2004, Africa added almost 15 million new mobile phone subscribers; this was the equivalent
to the total number of fixed and mobile telephone subscribers in the continent in 1996. Some
analysts predict that there will be close to 200 million mobile subscribers in Africa by 2010. 3
By comparison the reach of the retail banking system in most African countries is very low.

Mobile, bank account and internet usage in Kenya in 2004:4

                 No. of mobile     Mobile            Adults with       Mobile            Internet
                 subscribers       penetration       bank              population        access
                 (2004)                              accounts          coverage
Kenya            2,546,000         7.9%              10%               70%               1.3%


In five years, the number of mobile phones in Kenya has grown from one million to 6.5
million; the number of landlines remains at about 300,000, mostly in government offices.
About 80% of Kenyan population is now covered by mobile networks.5

M-PESA pilot programme

In 2004, Vodafone’s Kenyan affiliate, Safaricom, was awarded match funding by the UK’s
Department for International Development to develop services for extending the provision of
micro-finance to the poor in East Africa.6 £910,000 (48%) of funding came from DFID’s
Financial Deepening Challenge Fund and £990,000 (52%) from Vodafone.7

Safaricom partnered with the Commercial Bank of Africa, which provided local banking
services, and micro-finance company, Faulu, which provided local expertise, to design and test
a micro-payment platform called M-PESA.8 M-PESA allows customers to use their phone like a
bank account and debit card. The customer credits their account at their local air-time dealer



1
  Economic empowerment through mobile: The Vodafone CR dialogues, p1
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
2
  Gautam Ivatury and Mark Pickens, ‘Mobile phone banking and low-income customers: evidence from
South Africa’, Vodafone publication,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
3
  David Porteous, ‘The enabling environment for mobile banking in Africa’, Bankable Frontier Associates,
Report commissioned by DFID, May 2006,
http://www.bankablefrontier.com/assets/ee.mobil.banking.report.v3.1.pdf
4
  David Porteous, ‘The enabling environment for mobile banking in Africa’, Bankable Frontier Associates,
Report commissioned by DFID, May 2006,
http://www.bankablefrontier.com/assets/ee.mobil.banking.report.v3.1.pdf
5
  Paul Mason, ‘From Matatu to the Masai via mobile’, BBC News Online, January 2007,
http://news.bbc.co.uk/1/hi/technology/6241603.stm
6
  Vodafone website: http://www.vodafone.com/start/responsibility/our_social___economic/socio-
economic_impact/micro-finance.html
7
  DFID website: http://www.financialdeepening.org/default.asp?id=694&ver=1
8
  ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
and can then transfer the value to another person’s phone or use it to make a loan repayment
or redeem it as cash.9

‘Pesa’ means ‘money’ in Swahili10 and the prefix ‘M-’ refers to the use of a mobile phone to
facilitate banking transactions – a practice which has become known as ‘m-banking’. M-
banking is still at an early stage of development in Africa. Whilst accurate numbers are not
available, it is likely that fewer than a million people in the continent currently make use of the
mobile phones for financial transactions.11 M-banking is designed to bring the economic
advantages of having a bank account to those with small, irregular or cyclical incomes. As we
have seen, mobile phone usage proliferates in contrast to retail banking. For example, in
South Africa and Botswana, one third of people without a bank account own a mobile phone or
have access to one.12

The banking infrastructure is not well developed in Kenya but there is a large network of air-
time dealers, shops and kiosks. It is hoped that M-PESA will therefore increase the number of
locations where cash can be collected and paid in.13

M-PESA was first piloted in 2005 in Kenya. The pilot was used to disburse loans from a Faulu
to its clients and then to collect repayments via designated Safaricom airtime agents. Pooled
M-PESA balances are held at a Kenyan bank.14 Through the pilot, existing microfinance clients
received a cell phone through which they could electronically make payments on their loans.
Several services were available in addition to loan repayments; users were able to deposit or
withdraw cash from authorized M-PESA agents, typically a small store owner. Clients were also
able to make person-to-person money transfers, purchase airtime for re-sale or personal use,
and receive statements.15

During the trial period, there was a transaction rate of approximately 0.6 per cent per day and
it was thought this would rise as customers become more accustomed to the features. The
average transaction value was USD$14.30 and the average cash deposit was USD$19.60. The
average transfer between users was US$4.50 and the average cash withdrawal was
UDS$3.80.16

Vodafone recorded that the M-PESA pilot showed some promising results. The system reduced
the time it took to repay the Faulu loans as the transaction and the confirmation of payment is
instant. This saved time and money by reducing users visits to the bank and was an added
convenience. Secondly, the scheme meant there was no need to carry around large amounts
of cash and improved the security of users’ money. Lastly, as transactions can be completed



9
  Vodafone website: http://www.vodafone.com/start/responsibility/our_social___economic/socio-
economic_impact/micro-finance.html
10
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
11
   David Porteous, ‘The enabling environment for mobile banking in Africa’, Bankable Frontier Associates,
Report commissioned by DFID, May 2006,
http://www.bankablefrontier.com/assets/ee.mobil.banking.report.v3.1.pdf
12
   Gautam Ivatury and Mark Pickens, ‘Mobile phone banking and low-income customers: evidence from
South Africa’, Vodafone publication,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
13
   Vodafone website: http://www.vodafone.com/start/responsibility/our_social___economic/socio-
economic_impact/micro-finance.html
14
   David Porteous, ‘The enabling environment for mobile banking in Africa’, Bankable Frontier Associates,
Report commissioned by DFID, May 2006,
http://www.bankablefrontier.com/assets/ee.mobil.banking.report.v3.1.pdf
15
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
16
   ‘Micro-payment systems and their application to mobile networks’, an infoDev Report, January 2006,
http://www.infodev.org/files/3014_file_infoDev.Report_m_Commerce_January.2006.pdf
during a longer business day with greater convenience, the system has encouraged and
enabled more prompt and regular loan repayment.17

However, users were slow to adopt other available services beyond loan repayment, indicating
a lingering lack of familiarity and trust of the technology. M-PESA places a limit on the total
amount that could be withdrawn at any one time; clients were required to seek out multiple
agents for large transactions. The number and availability of agents available during the pilot
was limited and it slowed the system’s adoption, although recruiting new agents proved not to
be a problem.18

In commercial use, the programme plans to target the 200,000 – 300,000 users of
microfinance services in Kenya. It will also seek to become the platform of choice for the $500
million in remittances that are received annually in the country. M-PESA’s potential partners
include banks, SMEs, agricultural companies and other businesses where moving to a cashless
system adds value.19 For example, customers of the Matatu minibuses in Mombassa will soon
be able to pay for they journeys via the M-PESA system.20 The Kenyan roll-out may be
followed by expansion into Tanzania and other African markets. 21

The commercial version of M-PESA was launched in early 2007.22 Vodafone also announced a
joint venture with Citibank in February 2007 to extend the M-PESA scheme worldwide.
Vodafone customers in the UK will be the first to use the service to send money to Kenya on a
trial basis and there are plans to launch commercially with a focus on Eastern European and
Asian markets, such as Poland and India, in the future. It is hoped that the scheme will tap
into the world-wide remittances market which consists of around 191 million migrants and has
a value of an estimated $268 billion.23




17
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
18
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
19
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
20
   Paul Mason, ‘From Matatu to the Masai via mobile’, BBC News Online, January 2007,
http://news.bbc.co.uk/1/hi/technology/6241603.stm
21
   ‘Economic empowerment through mobile’, The Vodafone CR Dialogues,
http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.74986.File.tmp/VF_CR_Dialogue_
3_Economic_Empowerment.pdf
22
   DFID website: http://www.financialdeepening.org/default.asp?id=711&ver=1
23
   Vodafone press release:
http://www.vodafone.com/start/media_relations/news/group_press_releases/2007/vodafone_and_citigrou
p.html

				
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