Mobile money in Kenya: Everything you need to know

Mobile money in Kenya
A Safaricom employee registers a customer for M-Pesa in Nairobi. PHOTO/REUTERS
For the first time, Africa, a continent always perceived as trailing behind the rest of the globe in terms of innovations is leading the way worldwide in mobile money invention, uptake and growth.

Mobile money refers to electronic money transactions or services conducted through mobile devices where users can deposit, transfer, withdraw, pay for goods and services and conduct mobile banking activities such as depositing, withdrawal and confirmation of balance from their bank accounts.

The first mobile money transfer service in Africa, M-Pesa, was launched in Kenya in 2007 by Safaricom as an avenue where micro-finance borrowers could easily receive and repay loans through the company’s airtime retailers.

During M-PESA’s piloting, Safaricom discovered that it could be used to send money from one subscriber to another and the idea of making it an avenue where its users could send remittances home was born.

This came barely five years after a research conducted in 2002 by commonwealth telecommunications organisation found that Kenyans were using airtime as a form of money transfer. People were sending airtime to friends and relatives who would later resell it to obtain cash.

The researchers approached Vodafone (a British telco with a 40 per cent stake holding in Safaricom) who were hatching plans on how to support banking and micro-finance using mobile devices and discussed how a money transfer system could be created in Kenya.

Economic Survey 2016
Soon after, M-pesa was launched. The service has since grown tremendously and is currently the leading mobile money platform in the world in terms of number of transactions and regular users.

According to Kenya Bureau of Statistics Economic Survey 2016, M-Pesa transactions in 2015 totalled up to US$28 billion equivalent to about 44 per cent of the country’s GDP of US$63.4 billion.

The mobile money transfer service continues to exhibit great potential for growth with transactions for the first three quarters of 2016 adding up to US$25 billion.

Mobile banking has rapidly altered the saving culture in Kenya by offering those at the bottom of the economic pyramid access to financial services, something that was previously a reserve of the well to do in the society.

The entry into the market of low cost mobile phones in the past decade has increased their penetration and use among the population with 89 per cent of all Kenyans above 15 years old owning a device.

This has spurred growth in mobile money services uptake among the unbanked people bolstered by their significantly lower costs compared to banks and other financial institutions since physical infrastructure is not needed.

According to a recently published study, mobile money has lifted 194,000 households, especially those headed by women, out of extreme poverty characterized by surviving on less than 1.25 dollars a day.

In addition the report indicated that as M-Pesa spread in their local area, an estimated 185,000 women changed their occupation from farming to retail business.

While the introduction of micro finance institutions failed to reduce poverty in many households as initially intended, financial inclusion by mobile money transfer services seems to have cracked the quagmire by allowing its users to better manage the financial resources they already have instead of going into debt.

In addition, the ease of sending money over huge distances has boosted financial resilience by allowing users to get instant cushioning during negative economic shocks hence avoiding extreme poverty.

Job creation
Mobile money in Kenya has been instrumental in job creation, providing a source of employment for thousands of the enlisted mobile money agents and other numerous business ventures built around the service.

It has also largely contributed in reducing crime in a mostly cash-based population. The risks involved in cash handling by individuals and businesses as well as in sending money over long distances, previously commonly done through public transport vehicles, have been averted by mobile money.

Though the banking sector was initially against the mobile money transfer initiative by Safaricom and lodged a formal petition with the regulators to try and muzzle it, major banks have now embraced the concept and have integrated it into their formal banking operations by forming strategic partnerships with mobile service providers.

Customers are now able to deposit or withdraw money to or from their bank accounts, perform account-to-account transfers and check account balance from mobile money platforms.

This has enabled the banks to reach out to customers who were previously hindered by distance due to limited infrastructure in terms of bank branches.

Over the years other platforms have come up in Kenya but M-Pesa remains the crowd favourite with 84 per cent of all transactions, while Airtel Money, Equitel Money, Orange Money, Mobikash and yuCash among others share the remaining 16 per cent of registered users.