Cell Phones and Banking in Kenya – Some Good News fromr the Communications Technology Revolution

An Unexpected Solution to an Intractable Problem

A money economy is necessary for a strong, growing prosperous economy.  Those of us in the developed world do not give much thought to this statement.  Western civilization has had “money” for centuries, the barter economy having been left behind eons (whatever they are) ago.

Transferring payments from one party to another in a commercial exchange in the U.S. and Europe and many other countries is automatic.  The process requires no thought, in fact in the last 25 years it has moved from physical to electronic.  The process does though require a highly developed banking system.  No banks, no highly developed payments transfer system, no highly developed economy.

This is what many nations in Africa had experienced, until the introduction of cell phones.  While we in the U.S. use the phones for communications and entertainment, applications have been developed to use the phones as a virtual banking system.  What started out as a payments processing application has given cell phone users a banking system without banks.  In Kenya it is wide spread, and critical for that nation’s economy.



Alissa Everett for Bloomberg Businessweek

More than 14 million Kenyans have a phone-transfer account



Githua, 33, found another way to manage his cash: He uses his account with M-PESA, a service that lets people transfer money with their mobile phones. Githua doesn’t use it that way, though. He loads up his account and lets it sit in his “digital wallet” until he’s ready to use it. This simple trick keeps his savings beyond the reach of thieves

As anyone who has ever worked extensively with low income people knows, they are not stupid, they are not lazy and they are not unmotivated.  What many lack are tools of life.

In 2006 researchers in Kenya, Uganda, and Congo noticed that prepaid mobile phone customers had built their own informal money-transfer system, buying minutes in one location and texting them to another, where they were redeemed for cash. Jan Chipchase, at the time a researcher for Nokia (NOK), was one of the first to notice. “I couldn’t have designed something as elegant,” he says. Safaricom, Kenya’s largest mobile network, worked with its parent company, Vodafone (VOD), to develop a commercial transfer system. In 2007 that was launched as M-PESA. More than 14 million Kenyans, about 70 percent of the country’s adults, have an account, with which they can pay bills or send cash by texting

The system allows for cost effective management of small sums.

A 2011 study by the Financial Services Assessment project at the University of Maryland found the median M-PESA user kept a balance of $3.68, and that a quarter of respondents left a balance after receiving a transfer

And before anyone laughs, please note that a couple of dollars can be a huge amount to people who live on a couple of dollars a day. The value of an efficient way to conduct small commercial transactions, priceless.