Mobile Phones Move Money in Kenya


Safaricom
A Safaricom representative speaks with customers about M-PESA, an innovative, mobile-phone-based money transfer system that launched in Kenya in 2007.

More than almost any other recent technology, the mobile phone has penetrated the developing world and sparked innovation. And in Kenya, where more than three-quarters of the population owns a mobile phone, it helps power the economy. This is due in large part to a revolutionary money transfer system called M-PESA.

Bank branches don’t exist in many parts of rural Kenya. So, people had to make long, expensive trips to the city and wait in line for hours for banking services. In 2007, the Kenyan mobile phone operator Safaricom created M-PESA, allowing people to transfer money electronically over their mobile phones. M-PESA now has 14 million customers in Kenya, who in 2010 used the service to move roughly $U.S.8 billion. Over 23,000 small retailers have signed up to be M-PESA agents (compare this to Kenya’s roughly 840 bank branches). At these shops, customers can exchange cash for “e-float,” or virtual currency, and vice versa. The e-float is credited to their mobile-money accounts and can be transferred via cell phone to other users. Today, Kenyans use M-PESA to pay for everything from cab rides to electricity.

M-PESA has also provided the groundwork for further innovation. Take, for example, crop insurance. Insurance against extreme weather is mandatory in the United States but virtually nonexistent in Africa. If an African smallholder’s crops fail (due to too little or too much rain), she has no safety net and will have no seed for the next planting season. But today, Kilimo Salama (“safe farming” in Swahili) insures 22,000 Kenyan farmers. Instead of using insurance agents, the company uses cell phones to sign up farmers and uses M-PESA to pay out claims. This reduces the company’s transaction costs, one of the main obstacles to the development of microinsurance in the developing world.

There has been one small but critical hitch to the cell phone’s spread in Kenya: how do you charge a mobile phone in rural villages that lack wall sockets or even electricity itself? To solve this problem, students at the University of Nairobi have recently invented a smart charger that uses the energy generated from bicycling to charge a mobile phone. The device can charge a phone in just one hour’s worth of pedaling and costs about 350 Kenyan shillings, or U.S.$4. In the past, people in rural areas had to pay about U.S.$1 each time they charged their phones, usually at small shops equipped with solar panels.