Why has M-PESA become so popular in Kenya?

by Jim Rosenberg: Tuesday, June 17, 2008

Olga Morawczynski is a doctoral candidate at the University of Edinburgh. She has spent over 9 months investigating customer adoption and usage in both urban and rural Kenya. Below are some of her observations from the field.


It is early morning in Bukura, a small village in Western Kenya. The shop-keeper and his wife are preparing to open their small store, which sells household commodities such as flour and cooking oil. They also offer M-PESA services. There is already a queue outside. A group of about twenty villagers are crowding the entrance. “It is always like this,” the shop-keeper complains while pointing to the crowd. “Since we have become M-PESA agents we have no time to rest. This thing has even over-run our other business”. He then holds up a packet of sugar. “We have not sold any sugar in months. They only want M-PESA”. Not just the Bukura agent has seen a great demand for M-PESA services. Since its introduction in March of 2007, the M-PESA application has had great success all over Kenya. There are currently over 2.3 million registered users. Over 18 Billion Ksh had been moved through the system, via person-to-person transfers.

Some of the work that I have been doing makes several arguments as to why M-PESA has become so popular. Firstly, it is the young, male, urban migrants who are driving the uptake of services – customer adoption. These migrants are what innovation researchers call ‘early adopters’ of a technology. They are usually better educated and earn higher incomes than those in the village. Because these migrants are the senders, they can choose the channel for money transfer. They then influence recipients in the rural area—who are usually female, less educated and poorer—to also use M-PESA. This segment is referred to as the ‘technology laggards’. They are usually the last, and often the least likely, to adopt an innovation.

This research also notes some barriers to adoption. Both agents and customers complain of cash float problems, especially in the rural areas. Because the majority of transactions in the village are withdrawals, agents must maintain their cash float. They do this by making frequent trips to the bank. This can be problematic if the agent is not close to an urban centre, where most banks in Kenya are located. An agent in Malaha, a small village in Western Kenya, commented, “almost every day I ride my bicycle to Kakamega to top-up my float. This takes me almost three hours. I have to leave at 6am because I want to be there when the bank opens. I must then come back again and serve my customers”. When asked if there was any other means of transport to Kakamega, the agent shook his head. He said that he was several kilometres away from the main road. He also said that he could not afford to pay the 200 ksh fee for the matatu (shared taxi).

Despite these cash float problems, the majority of customers in both the urban and rural areas assert that they prefer M-PESA over other money transfer services. This means that M-PESA must be offering them some kind of substantial benefit. In Bukura, this benefit comes in the form of savings on transport. Customers do not need to travel into Kakamega, the nearest town, to access the service. One elderly farmer commented that “I can just walk from my shamba (farm) and get money. I don’t have to spend and go into town. If the agent does not have cash today, then I will come back tomorrow. It is cheaper to wait”. Finding strategies to manage the cash float problem will undoubtedly be one of the greatest challenges for Safaricom. For now, however, it seems like customers are willing to accept the inefficiencies of the service. It is, after all, cheaper to wait.

Geography: Africa Kenya

Topic: Agents, Microfinance, Mobile Banking, Remittances

Type:

Comments: Comments and trackbacks are open.

42 Comments RSS 2.0

  1. June 18th, 2008 at 9:57 am, Andrew Ngwena ()

    Great article. I have been to Kenya and seen mpesa in action. I know that it operates in some very rural locations. I am wondering how agents who are very rural, in locations where they cant even ride their bike, manage to get float?

  2. June 18th, 2008 at 10:47 am, Oscar ()

    The thing I’m wondering is that why have other mobile phone operators not followed suit?

    http://blogs.spacelinx.com

  3. June 18th, 2008 at 7:26 pm, Cash4U « Michael Sieburg ()

    [...] under: Development, Sub Saharan Africa, Technology Another mobile technology story- M-PESA is taking off in Kenya. M-PESA is a mobile technology service that allows subscribers to make money transfers. It [...]

  4. June 19th, 2008 at 7:48 am, Olga Morawczynski ()

    Andrew, those agents who cannot access banks find other ways to manage their float. For example, I met agents who only gave out money when someone had made a deposit. Because the deposits in the rural are few, the withdrawals this agent was able to process were also few. Generally speaking, the closer the agent is to the bank, the easier it is for them to operate.

  5. June 25th, 2008 at 12:27 am, Karen Sidler ()

    Has this thing done as well in other countries?

  6. July 26th, 2008 at 6:27 am, Mustafa Rasheed - Mpay Pakistan ()

    Good Article! Yes, the cash availability is a challenge and I think there can be ways to mitigate the liquidity risk. Firstly, the existing data of area-wise cash withdrawals can allow the bank to forecast (keeping in view % growth in transactions)the expected demand for cash. The answers to this problem would lie in the local demographic structure. I think the Bank needs to play a key role in channeling the cash to such locations in a cost effective way. perhaps the number of existing subscribers are enough critical mass to justify such an exercise.

  7. July 30th, 2008 at 10:55 am, Digital Currency and Mobile Payments Offer Benefits For Millions of User : DGC Blog ()

    [...] article is from the CGAP web site. They are a “..the leading independent resource for objective information, expert opinion, [...]

  8. July 31st, 2008 at 3:29 am, M-PESA, A Roaring Success « Alternative marketing thinking ()

    [...] from the University of Edinburgh who spent 9 months studying customer adoption and usage in Kenya made some interesting observations on the Safaricom run venture. She sights one of the main reasons for M-Pesa’s popularity as the [...]

  9. August 1st, 2008 at 4:35 pm, Gates Foundation gets into Microsavings « The Social Ecosystem ()

    [...] is more important when you are making less than $4 a day. In the words of a Kenyan customer in an article on M-Pesa “It is cheaper to [...]

  10. August 18th, 2008 at 12:40 pm, Kate ()

    The best rural solution will ultimately be cashless. If the rural agent who needs to distribute funds can do so directly - or better yet, if funds can go directly to the mobile phone for example, then no need to travel distances to bank for cash. Pay the shopkeepers for goods with transfers… etc. With mobile penetration as high and growing ever so rapidly, this will be more feasible each day.

  11. August 26th, 2008 at 1:51 am, Jayesh Sharma ()

    Hi Jim,
    Has there been a study by CGAP that can quantify this initiative in terms for IFI ( Index of Financial Inclusion). Can we reasonably state that Kenya has moved up the Index of FI because of the increased reach brought about by the service or increase in number of consumer storing value per 1000 persons. It would help to compare those numbers prior to m-PESA and post M-pesa. Please direct me to any such existing research already done.
    Best Regards
    Jayesh Sharma

  12. September 2nd, 2008 at 3:01 am, Tonny Omwansa ()

    The latest development is that Safaricom, the company behind M-Pesa will include a menu to allow customers to purchase items in stores. Merchants will have M-Pesa merchant accounts. Its also now possible to have the phone communicate with an ATM and money be withdrawn from the ATM as opposed to an agent. meaning the ATM becomes the Agent. This could partly solve the float money issues. Many things are spinning off this: M-Commerce, cross boarder transactions etc. There are challenges in regulation, but the innovations have really gone fast.

    Rgds,
    Tonny Omwansa
    Nairobi, Kenya

  13. September 16th, 2008 at 2:55 am, Who is using mobile phones for development « talk-share-learn ()

    [...] is a very popular service offered in Kenya to send money in an instant transaction via SMS. Every subscriber while depositing [...]

  14. September 27th, 2008 at 4:29 am, Mark Smith ()

    They have also partnered with Paynet, a company which manages ATM machines in Kenya. These ATM machines are now acting as 24 hour agents. Customers can go there to withdraw money by entering the agent number of the ATM.

  15. October 4th, 2008 at 5:31 pm, Rue du Monde » Blog Archive » MPesa ()

    [...] Kenianen kopen een kaart bij Mpesa, waarmee ze hun mobiele telefoon kunnen opladen. Niet met beltegoed, maar als een soort chipknip. [...]

  16. October 15th, 2008 at 7:44 am, Jessen opiyo ()

    This is the best thing that has happened to kenyans in a long time,now transfering funds is now really “under your fingertips”

  17. October 17th, 2008 at 7:43 am, Amos ()

    M-Pesa service is mostly and widely used in the urban area more than in the rural areas. People have opted to have money in their M-Pesa account rather than in the banks.

    People preffer having money in their phone due to several factors but mostly is due to the ease of carrying liquid cash to for their day to day business. Businessman are paying their bills using M-Pesa.

    For instance a supplier will be paid down payment before supplying and when he make his supplies he will be paid the other payment.

    Theirfore, Mostly M-Pesa have changed the lifestyle of the urban dwellers in terms of cash handling.

    A student at the university of Nairobi receive his up keep money through M-Pesa from the rural area.

    The only time when the their is a transaction in the rural areas is when the parents or the relatives are receiving money from their relatives in the urban areas.

    The bigger percentage of M-Pesa operate inthe urban centre than in the rural areas.

    The latest of M-Pesa is the payment of premiums. They are working with Old Mutual.

    Regards

  18. October 19th, 2008 at 3:45 am, Munashe ()

    I think it has become so popular for it provides a very fundamentall service which is very economical and useful to the local people. it saves them money which could otherwise have gone to waste

  19. October 24th, 2008 at 4:19 am, Harry ()

    As far as I understand Vodaphone has not extended the application to other countries in Africa. Why is that?

  20. October 24th, 2008 at 12:07 pm, Mark Smith ()

    They have extended to Tanzania a few months back. It is just not doing as well there.

  21. October 29th, 2008 at 5:55 pm, M-PESA, why it works « Design in Africa ()

    [...] Research done by Olga Morawczynski shows that migrant workers are the early adopters who influence other people to use the service.  [...]

  22. November 27th, 2008 at 6:08 am, Andrew Webber ()

    M-PESA will soon have competition with other mobile operators. They will introduce their m-banking products soon. Zain has already announced the launch of zap money, their product. We will see how M-PESA responds.

  23. December 1st, 2008 at 5:42 am, kosty ()

    i would like to know whether the possibility of cloning SIM cards is a problem as far as M PESA security is concerned.

  24. December 4th, 2008 at 5:52 am, Karen Widley ()

    It would not be worth it to clone SIM cards. The money in the M-PESA account is too small for that effort. Also, you need a PIN to access that cash.

  25. December 6th, 2008 at 2:50 am, Eric Kotonya ()

    Kenya is primarily an agro-based economy, with most production still rural based. The real value to rural Kenya will be realised when Safaricom activates M-PESA’s corporate features and allows B2C and B2B transactions.

    There are 2 new options on the M-PESA SIM menu - PAY BILL and BUY GOODS. Does anyone have insights into how Safaricom intends to roll these out?

  26. December 9th, 2008 at 5:09 am, Mark Smith ()

    Another exciting development….Vodafone has partnered with Western Union. They are piloting money transfers from the UK to Kenya.

  27. December 14th, 2008 at 5:50 am, Eric Kotonya ()

    The Voda-Western Union transfers face one major issue - M-PESA transfers can be done without ever identifying the recipient.

    This can be done by buying a non-registered SIM card in Nairobi, receiving M-PESA and cashing out at an ATM, all without having to produce a name or identification document.

    It will be interesting to see how Vodafone and anti-money laundering authorities resolve this.

  28. January 13th, 2009 at 10:17 am, Mark Smith ()

    Looks like M-PESA has registered 5 million customers!

    http://www.bdafrica.com/index.php?option=com_content&task=view&id=12219&Itemid=5812

  29. January 28th, 2009 at 3:40 pm, Quick Links - Black Looks ()

    [...] M-Pesa is a phone banking system that has become popular in Kenya especially in rural areas. Since its introduction in March of 2007, the M-PESA application has had great success all over Kenya. There are currently over 2.3 million registered users. Over 18 Billion Ksh had been moved through the system, via person-to-person transfers. [...]

  30. February 3rd, 2009 at 12:15 pm, axmed sh ()

    i would like to understand more about m\pesa because nowadays our company starting this form please sent me more about this

  31. February 6th, 2009 at 5:42 am, A. Richards ()

    Ther is also some new competition soon coming into the market to challenge M-PESA. Orange and Zain will both launch something soon.

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  33. March 4th, 2009 at 1:51 pm, fred ()

    we have an issue with network coverage in some parts of kenya it would be good if network coverage in kenya is improved also in rural areas to ensure that when someone is sent money through m-pesa he or she is able to collect it at the nearest shopping center rather than again travelling for a long distance because of network issue

  34. March 28th, 2009 at 5:22 am, timothy ()

    all those i know use mpesa but i would like to understand the challenges of marketing mpesa

  35. April 6th, 2009 at 11:32 am, Jennie ()

    I would also be interested to learn more about the marketing challenges- specifically marketing to the “receivers” of funds. I am familiar with marketing efforts to the “senders”- those living in the U.K. and sending money back home. But, how do you market to those living in Kenya to take advantage of this exciting new technology? What types of mediums would help communicate this product to Kenyans?

  36. April 11th, 2009 at 11:33 am, datuk ()

    Better if able to send money to non safaricom users. Surely safaricom could not be the sole telco in Kenya, business will ‘boom’.

  37. May 17th, 2009 at 11:59 pm, Ngetha ()

    @timothy

    The greatest challenge as far as marketing, I see falls on the agent’s model, while they (Safaricom) actively advertise through various channels, the agents have troubles of float / cash at times.

    Recently Safaricom have partnered with KCB (Kenya Commercial Bank) to allow their agents to get cash from there as well, an addition to the Commercial Bank of Africa.

    @datuk

    While you cant send money to non safaricom users, there are ways around it, seeing that 70% of the market is held by safaricom, there is definitely someone you know on Safaricom, so you can still use it by proxy. Alternatively use Zain’s Zap

  38. May 18th, 2009 at 3:07 pm, korir ()

    I did not basically understood all about the bussiness of upesa operate in our rural areas, is it possible to make some one to operate with empesa

  39. May 20th, 2009 at 1:34 am, Andrew Ngwena ()

    Will the KCB partnership make cash more available in the rural areas?

  40. May 30th, 2009 at 2:38 pm, Day 81: Ars Electronica Symposium Examines Cloud Intelligence | 80+1 - A Journey Around the World ()

    [...] to the cloud. Welcome to new the social ecology of the 21st century. Welcome to mobile banking from a New York taxi cab direct to rural Kenya. Welcome to the wild wondrous web of blogs, [...]

  41. June 16th, 2009 at 12:48 pm, Jennifer Johnston ()

    Hi,

    Does anyone know what the M-PESA agents get for doing the transations? Are they paid by Safari com?

  42. June 16th, 2009 at 1:00 pm, Jim Rosenberg ()

    Hi Jennifer, try this: http://www.cgap.org/p/site/c/template.rc/1.26.5205/ for more about MPESA’s agents and compensation issues.

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