It takes me quite a bit of effort to start reading an e-book, but yesterday I read Money, Real Quick by Tonny Omwansa and Nicholas Sullivan, and am very glad I overcame my reluctance. It’s a great overview of the M-PESA phenomenon. It sets out very clearly the reasons the mobile transactions scheme has been such a phenomenal success, the kind of amazing effects it is having on Kenya and the other countries where it’s now been launched, and also the challenges facing the service as it grows. I highly recommend this for anyone interested in either the specifics of mobile transactions or broader issues of economic development.
As the book says, “E-money is flying around the country, over the heads of lions and elephants.” Kenya, like other low income countries, is a cash-based economy. This presents special problems for poor people. They are highly vulnerable to theft, can’t save easily – banks and ATMs are few in number and too expensive for small transactions. There are problems I’d never thought of – rats eating notes stashed under a mattress; the temptation of bars passed on the way home with a bit of cash in hand. M-PESA has changed all that. It had 8 million subscribers by the end of 2009 and 15 million – nearly 70% of the adult population – by the start of 2012. Although 60% of Kenya’s electronic transactions are through M-PESA, they account for only 2.5% of the total value, and the balance in all M-PESA accounts combined is just 0.2% of total bank deposits. The system generates millions of very small transactions. It is, as the book says, “A financial tool for the masses.”
This is amazing. Exclusion from formal financial services is one of the barriers keeping people in poverty – they can’t save, can’t keep money securely, have to spend a lot of time and risk a lot of money in making transactions. (See one of the best books on this, Portfolios of the Poor.) The authors of Money, Real Quick write: “Maybe the formal financial sector will never provide what the poor need; maybe they will craft their own quasi-formal, technology-based, shadow banking system.”
The book describes some of the effects of M-PESA in expanding people’s opportunities. There is a living to be made as an agent for the scheme. Small businesses are able to develop a financial track record that qualifies them for loans or working capital. Farmers can pay into a savings scheme to acquire specific types of irrigation equipment. There is even a scheme allowing people in Kibera, the notorious slum, to invest in the stock market via a mutual fund. There is an M-PESA based pension scheme. It is hard to be sure how far the effects of M-PESA reach, but the book suggests they go quite a long way to explaining the economy’s recent success and the burst of innovation and entrepreneurship around Nairobi and other cities.
There are some challenges. The banks were, unsurprisingly, alarmed although the Kenyan authorities seem to have responded to their lobbying with a robust evidence-based assessment, and dismissed the claim that M-PESA had an unfair advantage. But its operator, Safaricom, has a very high market share and there are competition issues – other entrants are now active in the market. This includes other big multinationals. A deeper challenge is the question of what will move low income countries beyond cash – and whether m-transactions schemes can work as well in other countries.
I worked on a report on mobile transactions in general commissioned by Vodafone at the time of M-PESA’s commercial launch, The Transformational Potential of M-Transactions – it can be downloaded here (scroll all the way down to Paper number 6) and I think is still a good overview of the challenges and potential. Dave Birch of Consult Hyperion was involved in the early days too. Money, real quick, is another area of mobile where an important business model innovation has come from Africa (the first and most important was the idea of pre-paid cards). Kenya is way ahead of the UK and US here. The story is an amazing one, well worth reading if you don’t know it.