Mobile Banking Takes Off in Kenya

A new paper by William Jack and Tavneet Suri looks at M-PESA, a mobile-money transfer service in Kenya. Mobile banking has become particularly popular in the developing world, where safe, reliable banking has historically been limited, and often available only to the? wealthy. The authors conclude that M-PESA has been wildly successful in Kenya: “We estimate that M-PESA had reached nearly 40 percent of the adult population after a little more than 2 years of operation, and that now, approaching only the fourth anniversary of its launch, is used by more than two-thirds of households.” Even more interesting: the service is now used by “an ever-broadening cross-section of the population. While it has always been used by a non-negligible share of those with lower economic means, it has quickly expanded its reach into these groups, and is now used by households with a wider range of economic, demographic, and educational characteristics.” M-PESA may offer significant benefits to disadvantaged demographic groups, particularly women, although the authors were unable to explore that question in this paper. “Especially among poorer segments of the population, remittances and transfers received (and sent) via M-PESA are less visible than those transmitted by other means, such as delivery by a friend or relative,” explain Jack and Suri. “Granted this information advantage, recipients could be in a position to keep more of the funds they receive.” In the U.S., meanwhile, mobile banking hasn’t gained much traction yet; but investors are hopeful. [%comments]

Eric M. Jones

My bank sent $2,000 of my money via Western Union to terrorists in the UK (and the funds can't be recovered and the police aren't interested). I wish WE had reliable trustworthy banks like the Kenyans.

Let's face it, trustworthiness of governments or financial institutions is pretty much an obsolete notion.


Would someone tell us what users of mobile banking can do? Does it mean using the phone as a charge card substitute with only authorized vendors? Or can individuals exchange funds with each other directly? Is the mechanism a text message, special app, or point-of-sale-terminal using bluetooth connection to the phone?


@ChuckB Its SIM card embedded, used for person to person transfers, payment of services and goods to registered suppliers, and has been interfaced with conventional banks to enable bank to phone transfers and vice versa.

A. Wilson

I agree with Chuck B., would be nice to get a brief description of what mobile banking is.


@chuckb SMS messages are used to route prepaid funds between individuals with mobiles on the Safaricom network. Funds can be redeemed as cash at safaricom stores which have been set up in almost every village.

M-Pesa is frequently used by men working in cities away from their families. An unintentional consequence of the programme has been a reduction in the number of visits home to rural areas by city workers. It remains to be seen whether this new pattern of behaviour results in lower birth rates in rural areas.


@Woodbine, next, the Catholic church will be lobbying to ban SMS!

Peter M. Zullo

Mobile money benefits disadvantaged groups, like women, by reducing the opportunity cost of banking from remote areas.

Consider the rural mom of 3 whose only bank branch is four hours away. If she wants to deposit or withdraw money in the secure, traditional fashion, she's gotta (1) leave her kids at home unattended, (2) pay the fare to get on a bus and walk a few miles before/after the bus stop to get to the urban bank branch, and (3) forfeit any day wage for the job she probably has.

Instead of that rigmarole, she uses the pay-as-you-go cell phone she already has to transfer funds out of her MPESA account. She then goes to the neighborhood general store, shows them the MPESA text message receipt, and the storekeeper liquifies the withdrawal minus a small % fee. The general store can also act as a deposit branch in the opposite fashion.

What's interesting is when the rural mom and other MPESA users start using mobile money for things other than checking accounts. Services like wage disbursement, loan remittance, goods transactions, and medical payments are interesting ideas that may grab hold in East Africa soon enough. Kenya is a petri dish that emerging businesses in the mobile money industry are flourishing within.