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 subscribers (2004) 2,546,000 Mobile penetration 7.9% Adults with bank accounts 10% Mobile population coverage 70% Internet access 1.3%

Kenya

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, Vodafones Kenyan affiliate, Safaricom, was awarded match funding by the UKs 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 DFIDs 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/socioeconomic_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 persons 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. Mbanking 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 airtime 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
9

Vodafone website: http://www.vodafone.com/start/responsibility/our_social___economic/socioeconomic_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/socioeconomic_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

of cash and improved the security of users money. Lastly, as transactions can be completed 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 systems 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-PESAs 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