Exploring the usage and impact of “transformational” mobile financial services: the case of M-PESA in Kenya

Abstract

Since its introduction in March of 2007, the M-PESA application has grown rapidly, acquiring a user base of over seven million and an agent network of over ten thousand. Because of its rapid growth, the application has received a significant amount of attention. There have been assertions that it can engender transformational benefits by providing the unbanked with new opportunities to access financial services. There is, however, very little discussion of what these transformational benefits are and how they are brought about. This paper will contribute to filling this gap in the literature. It draws on ethnographic fieldwork conducted over fourteen months in two locations – an informal settlement near Nairobi and a farming village in Western Kenya. It will show that the M-PESA application was utilized for the cultivation of livelihood strategies. Such strategies helped residents to cope with (temporarily adjust) and recover from (longer-term shifts in livelihood strategies) stresses and shocks. It will also explain the outcomes resulting from these strategies. In particular, it will show how M-PESA was utilized for the solicitation and accumulation of financial assets and the maintenance of social networks. Attention will also be given to some of the negative outcomes, or unintended consequences, that were generated through usage.

Keywords:

• M-PESA
• mobile financial services
• livelihoods
• impact
• transformational technologies
• urban–rural relations

Acknowledgements

I would like to extend my gratitude to Microsoft Research and the University of Edinburgh for providing the funding for the research, to the African Centre of Technology Studies (ACTS) for providing institutional support in Kenya, to Safaricom for facilitating access to the M-PESA agents, to the numerous informants in the research sites, and to my research assistant in Kibera. A special thanks to Dr James Smith, Dr Jonathan Donner and the anonymous reviewers for providing valuable feedback on drafts of the paper.

Notes

1. The term mobile financial service is used here to describe the range of financial services that are offered via the mobile platform. A variety of other terms is used within the literature to describe these services. This includes m-banking, m-payments, m-transactions, and mobile money. For a summary of these terms see Donner, “M-Banking.”

2. This is in a country of 38 million. It is estimated that Safaricom has over 80% of the market share. See Okoth, “Rival Networks.”

3. Based on exchange rate in July 2009 (1 GBP = 125 KES).

4. The contributors to this debate are as follows: Porteous, “The Enabling Environment for Mobile Banking”; Donner and Tellez, “Mobile Banking and Economic Development”; Lyman, Pickens and Porteous, “Regulating Transformational Branchless Banking”; Mas and Kumar, “Banking on Mobiles”; Vodafone, “The Transformational Potential.”

5. Vodafone, “The Transformational Potential.”

6. For a summary of the livelihoods literature see: Arun, Heeks and Morgan, “Researching ICT-Based Enterprise”; Chapman, Slaymaker and Young, “Livelihoods Approaches”; Chambers and Conway, “Sustainable Rural Livelihoods”; DFID, “Sustainable Livelihood Guidance Sheets”; Duncombe, “Using the Livelihoods Framework”; Radoki, “A Livelihoods Approach.”

7. This point was made by Jonathan Donner in a review of the literature on mobile phones. See Donner, “Research Approaches to Mobile Use.”

8. For a description of impacts generated through usage see: Abraham, “Mobile Phones and Economic Development”; Aker, “Does Digital Divide or Provide?”; Aminuzzaman, Baldersheim and Jamil, “Talking Back!”; Molony, “The Role of Mobile Phones.”

9. Hughes and Lonie, “M-PESA”

10. The pilot was led by mostly by Vodafone, which owns nearly 40% of Safaricom. However, a variety of other players were also involved. This includes a research institution called MicroSave, and an IT consultancy company called Sagentia. There were some staff members from Safaricom involved in the pilot. A dedicated team was not assigned to M-PESA until the application was launched.

11. See FSD Kenya, “Financial Access in Kenya” for a summary of the money transfer channels used for domestic remittances.”

12. M-PESA was launched without the MFI. Hughes and Lonie explained that the processes of the M-PESA system were not compatible with those of the MFI. Furthermore, some clients were not attending the weekly meetings because they could repay the loan via mobile phone. This was not compatible with the group lending structure. See Hughes and Lonie, “M-PESA.”

13. It costs another 25 KES to withdraw the money if the recipient is registered. The total cost of the transaction in this case is 55 KES. If the recipient is not registered the withdrawal is free for the recipient. The cost for the sender, however, increases. It costs 75 KES for the sender to transfer money to a non-registered recipient.

14. Bus companies are not licensed to transfer money in Kenya. As such, most senders enclose the money in envelopes or parcels and do not declare that they are sending cash. Although there is some risk of loss and theft, this method of money transfer is popular among low-income constituents because it is reported as reliable. These companies also have extensive reach into the rural areas. See FSD Kenya, “Financial Access in Kenya.”

15. Rice, “Kenya Sets World First with Money Transfers by Mobile.”

16. Safaricom, “Results for the Six Month Period”; Okoth, “Rival Networks.”

17. FSD Kenya, “Financial Access in Kenya.”

18. Swart, “Words Are a Place to Stand.”

19. The majority of interviewees asserted that they came from Western Kenya. The finding that Kibera is dominated by the Luo and Luhya has also been noted by Ishihara, “The Informal Economy of Kibera Slums.”

20. Ilako and Kimura, “Provision of ARVs.”

21. Ishihara, “The Informal Economy of Kibera Slums.”

22. For a summary of the crises in Kibera see Osborn, “Fuelling the Flames.”

23. Although 25 diaries were handed out, only 14 were used in the final analysis. Some of the participants dropped out because they found the diaries too time consuming. Others were asked to leave either because they had incomplete diaries or because they failed to attend the weekly meetings. Compensation was provided to those who completed the diaries.

24. Each of the participants was asked to make daily entries detailing their financial practices for the period of one month. These entries were made in two columns: money in and money out. They were also asked to maintain a balance in the two columns. This facilitated the analysis of not only expenditure but also savings patterns. A series of in-depth interviews and weekly meetings took place during the month. Through such meetings additional information about the participants was collected.

25. BBC News, “Kenyan Police.”

26. The merry-go-round, also known as a ROSCA, is an informal savings group. Members meet regularly and make small contributions into a collective pot. Some, or all, of the money in the pot is then given to one of the members. The meeting process is repeated until all members have had the chance to receive the pot. For a more detailed description of ROSCAs in Kenya see: Anderson, Baland and Moene, “Sustainability and Organizational Design”; Besley, Coate and Loury, “Rotating Savings and Credit Associations.”

27. Geschiere and Gugler, “The Urban–Rural Connection”; Owuor, “Urban Households”; Ross and Weisner, “The Rural-Urban Migrant Network.”

28. Hoddinott, “A Model of Migration and Remittances.”

29. Owuor, “Urban Households.”

30. Gugler, “The Son of the Hawk”; Ross and Weisner, “The Rural–Urban Migrant Network.” Agesa, “One Family, Two Households”; Baker, “Rural-Urban Links and Economics Differentiation in Northwest Tanzania.”

31. Porteous, “The Enabling Environment”; Donner and Tellez, “Mobile Banking”; Lyman, Pickens and Porteous, “Regulating Transformational Branchless Banking”; Mas and Kumar, “Banking on Mobiles”

32. Sidorenko and Findlay, “The Digital Divide”; Liebowitz and Margolis, “Network Externality” for an explanation of the network effect.

33. Goodman, “Linking Mobile Phone Ownership”; Goodman and Walia, “Airtime Transfer Services in Egypt.”