Take the example of Mwaka Howaida. He is a bar owner who runs his bar in Meru, a small town nearly 100 miles away from the nearest trading centre Nyeri.
Whenever Mwaka needs his beer stock to be replenished, his supplier insists that payment in full is either made in advance, or paid in cash at the time of delivery . Mwaka does not have a bank account. And the fact that the limited reach of law and order in Kenya means that making cash payments for deliveries isn't a smart alternative. Lorry driver-highway robberies are rampant. So up to now, the only option available to Mwaka was a day-long bus ride (with cash) to Nyeri where he could pay his supplier in advance (and lose a day's revenue in the process).
Now however, Mwaka pays on delivery through a few simple menu instructions on his mobile phone. He has recently opened an M-PESA account for free with his nearest Safaricom dealer. And whenever he needs to pay his supplier, he deposits cash in his airtime account, which is very similar to topping up his prepaid mobile phone card, and keys in an SMS text message instructing MPESA to transfer money to his supplier's M-PESA account. This secured real-time fund transfer costs Mwaka less than a dollar.
Derived from the Swahili word pesa, which means cash, M-PESA is a mobile-payment scheme run by the UK-based telecom giant Vodafone, and Safaricom, one of Kenya's leading telecom operator -- in which where Vodafone holds stake -- with the backing of the British government's Department for International Development.
"The product concept is very simple," says Nick Hughes, the executive at Vodafone who was principal implementer of M-PESA. A customer can use his or her mobile phone to move money quickly, securely, and across great distances, directly to another mobile phone user, which makes "M-PESA service is fast, secure, and very cost-effective," says Hughes.
But those are not the only features that make this service attractive to the Kenyans. Its biggest attraction is that it is aimed at mobile customers who do not have a bank account, typically because they do not have access to a bank, or because they do not have sufficient income to justify a bank account. "The system provides money transfers [just] as banks do in the developed world," says Hughes.
Small wonder then that M-PESA "is opening up new opportunities all over Kenya," says Hughes. Safaricom, the sole operator of M-PESA claims that, since its launch in February last year, the system has already registered over 200,000 customers and "keeps growing" with the growth of mobile phones in Kenya.
Like most of Africa, mobile phone growth in Kenya, has been remarkable. According to Financial Sector Deepening (FSD) Trust, established to support the development of financial markets in Kenya, even though just 19% of the adult Kenyans own bank accounts, over 54% of the adult -- including even the rural poor -- own mobile phones. In June 1999 Kenya had just 15,000 mobile subscribers. But today, according to statistics from the Communication Commission of Kenya, there are more 8 million subscribers out of a population
of 36 million.
But besides person-to-person money transfers or a general-purpose cash-replacement service, M-PESA has found other beneficial uses too. According to reports, another major use of the system is that it is supporting the distribution of microfinance loans and collection of repayments on those loans.
Microfinance lenders say that their customers, especially those in remote rural areas, benefit directly from the access to financial services and products without costly and time-consuming travel. These customers are often entrepreneurs, existing small businesses or farmers and access to financial services this way "is improving the general level of productivity for all members of the community." Lenders are benefiting too by extending their services to customers they could not reach using conventional marketing techniques.
M-PESA developers say that it has created a novel financial system, including clearing and settlement and this is why a few other money transfer organizations, particularly the government-owned Postal Corporation -- a market leader with a huge branch-network -- already see it as competition. Still, the Kenyan central bank tolerates it, because reportedly, M-PESA neither pays interest on the money deposited by its customers, nor invests the float.
According to Nick Hughes, the success of M-PESA in Kenya strongly suggests that the service could prove to be an ideal money transfer solution for millions of people in the developing world. "Getting cash into the hands of people who can use it is limited on the supply-side rather than demand-side; there is no shortage of funds, but it's the ability to move money from the sender to the receiver that is the stumbling block", he says.
After all in developing countries, the biggest issue is how create a safe, secure, effective, and most importantly cheap money transfer system where infrastructure is poorly developed and where very few people have or even want bank accounts. The World Bank says nearly 200 million migrant workers in developing countries remit over $200 billion each year much of which travel through grey channels.
In that environment then, "M-PESA has just taken the important first step," says Hughes. "We have since identified a plethora of new ways M-PESA can be used in Kenya and elsewhere," and pilot projects are already brewing in new markets.
Indrajit Basu is the international correspondent for Government Technology's Digital Communities.
