Reviewed by Dave Birch, Consult Hyperion
The M-PESA mobile money transfer scheme in Kenya is an astonishing success, a business school case study for the next generation and what futurologists will almost certainly see as a “weak signal for change” to a new monetary order. The scheme, which allows people to deposit and withdraw cash from accounts associated with their mobile phone numbers has something like 16 million users (more than two-thirds of the adult population) and 30,000+ agents. It is so important that its origins and trajectory need to be recorded and reported, so I was delighted to see this latest addition to the cannon. In “Money, Real Quick – The story of M-PESA”, Tonny Omwansa and Nicholas Sullivan tell the story of the scheme. It’s a super read, explaining the history and the people involved, and is packed with potted case studies the clearly illustrate the impact of M-PESA on Kenya and on Kenyans.
The first hero of the story (in my eyes, anyway) is Nick Hughes. Nick was then Head of Social Enterprise at Vodafone (which owned 40% of Kenya’s Safaricom). Nick had had the idea of using mobile phones to make the distribution of microfinance loans in Africa more efficient and he submitted a proposal to the UK Department for International Development (DFID) for matching funding. This was granted back in 2003, and M-PESA was born. Nick then brought in “UK-based consultants” to develop the idea. Modesty forbids me from mentioning who these midwives to monetary revolution were (oh, all right then, it was Consult Hyperion).
The second hero of the story is Susie Lonie, also from Vodafone. Susie had been working on mobile commerce in the UK, and in 2005 she was sent to Nairobi to get the M-PESA pilot up and running. She combined first-class project management skills with real vision, and together with Nick steered the system from a pilot that could so easily have run out of control, such was the popularity of the system once it launched, to the launch of a genuinely new national payments scheme in 2007.
(I should say, incidentally, that it isn’t only me who sees Nick and Susie as heroes. In 2010, “The Economist” magazine gave them its Social and Economic Innovation award.)
When the system went live it was immediately apparent that the market was using it in ways that had not been part of the original business model. At that time, the very forward-looking CEO of Safaricom, Michael Joseph, realised that something big was going on and drove the team on to scale. Within a year, they had two million subscribers and were handling $1.5 million per day and he turned his attention to developing the agent network. Safaricom already had agents, of course, because they used them to sell airtime, but Michael realised that they needed to increase the size of the network substantially, and quickly. I won’t distract the reader with it here, but I strongly recommend anyone interested in the topic to read how this was done and the issues that needed to be managed: agent incentives, float management, trading and so forth. Suffice to say that becoming an M-PESA agent became an attractive proposition.
Despite being very familiar with the M-PESA story there were section of this book which introduced me to new and fascinating aspects of the scheme’s growth and development. The section on the impact on the poor, and the dynamics in the Kibera slum, should be required reading for anyone interested in the topic. For instance: the average M-PESA balance has gone up fivefold since 2008. The poor are clearly using the service as an alternative to the mattress or the tin under the bed. Even with the M-PESA fees, mobile money is more cost-effective than cash. The authors correctly note that cash is the enemy of the poor. By giving them an alternative, M-PESA changed their lives for the better.
Central to the story is the relationship between the telecommunications sector and the financial sector. The authors note that “Commercial banks have finally decided to expand their borders beyond branches by hiring agents. But that was only after they tried, and failed, to shut down M-PESA”. This is why, for me, the most interesting part of the story comes once M-PESA reached five million subscribers (more than all 43 for Kenya’s commercial banks combined) back in 2008. At that time the acting Finance Minister said he was not sure that M-PESA would “end up well”. There was more than a suspicion that the worries were not around consumer safety and protection but the Kenya Banker’s Association concerns about competition. In the unrest that had followed the previous year’s elections, many consumers had withdrawn money from commercial banks and deposited with M-PESA, which they judged to be less risky.
Michael Joseph was always admirably clear on the key issue. M-PESA was not a bank, it was a payment system, and should be regulated as such. What’s more, the figures showed very clearly that despite the vast number of transactions flowing through M-PESA, the total amount of money was still inconsequential compared to daly inter-bank settlement. Starting in 2007, the commercial banks began to offer new services over the M-PESA network, thereby demonstrating that mobile money could lead to financial inclusion. As the banks began to offer more services, and became part of the M-PESA ecosystem as savings accounts and super agents, it seems to me that the whole financial sector was invigorated. Dynamic partnerships (such as the one with Equity Bank that led to M-KESHO savings accounts) delivered products that simply would not exist in a “traditional” bank environment. These included pensions, micro insurance, “layaway” and more. In essence, as Omwansa and Sullivan say, a new financial sector emerged.
This is the most important lesson from this excellent book. By allowing the non-bank to build a payment system more suited to the 21st century, the banks benefited. Together, the new financial sector that they developed has given Kenya an incredible platform for innovation and development.