February 8, 2011
By Jason Deign
A thief who stole a traveler's bus fare may have unwittingly helped spark one of the most important recent developments in Africa's banking system.
The theft in 2006 prompted the victim's wife to send her husband money using a service added almost as an afterthought to a mobile phone microfinance pilot she was taking part in.
And the transaction, plus others like it, led the pilot's authors to create M-pesa, a system now used by more than 13 million Kenyans that has been launched in Afghanistan, India, South Africa, and Tanzania, and prompted a host of other mobile payment plans worldwide.
"During the pilot we were supposed to focus on microfinance but we hatched a plot to launch the peer-to-peer money transfer functionality at the same time, without telling anyone" says Paul Makin, head of mobile money at Consult Hyperion, who helped run the project with Vodafone.
But after seeing how users in the 1000-person pilot used the system, including sending money from one location to another to avoid carrying cash through dangerous neighborhoods, Vodafone decided to drop the microfinance service and focus on transactions.
Even so, when M-pesa launched through Vodafone's Kenyan service provider subsidiary Safaricom in March 2007 its backers had no idea how popular it would become.
"We told the financial regulator we thought we would have a quarter of a million customers after three years," recalls Makin. "He could see the potential so was very supportive. But if he had known it was going to grow as big and as quickly he might have had second thoughts."
"People would disappear for three or four days to take money to their families."
The growthM-pesa transactions are now equivalent to more than 10 percent of Kenya's gross domestic productis perhaps not surprising, however.
In common with other sub-Saharan nations, around 90 percent of the Kenyan population does not have a bank account, and most people who work have to support families who are far away.
Without banks, these workers in the past had to go to painful lengths to get part of their hard-earned cash back to their loved ones. "People would disappear from their jobs for three or four days having just been paid, to take money to their families," Makin says.
In other instances, money would be hidden in books or similar 'gifts' and sent back home care of a bus driver, or a friend or relative would be tasked with carrying the cash. In any event, the likelihood of losses along the way was very high.
In this environment, and given that mobile services have proliferated to the point where there is an airtime vendor on practically any street corner, using mobiles for cash transfers makes a lot of sense.
As the popularity of M-pesa has increased, it has become apparent it can be used for most of the things banks do. People use it to financial products such as M-pesa savings accounts through Kenya's largest banking group, Equity Bank.
They use it to settle utilities payments, reducing the once jaw-dropping queues that used to form to pay electricity bills. They use it to buy insurance and shares.
And, although when it launched M-pesa was no longer linked to microfinance because of technical challenges, these have now been overcome to allow Africans to access microcredit over their mobiles.
The payment system has also had a positive impact on Kenyan society in other ways, however.
Previously, rural families had to wait for a lump sum of cash to come from their working relatives before they could buy most of their food. In response, canny shopkeepers would put their prices up at the end of the month, around payday.
Now those with jobs can send money through M-pesa at any time, so food prices have dropped. Also, rural families get more money overall, since before they would have to wait for cash to be sent to them but now they can phone up the breadwinner and ask for it whenever they want.
The success of M-pesa has spawned a reported 60-plus me-too programs worldwide, including Orange Money, with a million customers in Kenya, Côte d'Ivoire, Madagascar, Mali, Niger, and Senegal, and Monitise, which works with 35 regional banks in Kenya, Tanzania, and Uganda.
However, Makin believes, the concept still has plenty of room for growth. And not necessarily where you would expect it.
Recently in East Yorkshire, United Kingdom, he was struck by the fact that 35 percent of people on his bus probably did not have bank accounts… but all of them had mobiles.
"For a long time I advised Vodafone not to launch it in the U.K.," he says. "But in the last year I have become convinced there is a business case."
Jason Deign is a freelance writer located in Barcelona, Spain