Mobile Banking in KenyaFor the past 18 years, mobile banking in Kenya has helped thousands of people gain control over their money while reducing the country’s poverty rates. The phone-based mobile money service named M-PESA, started by Vodafone in cooperation with Safaricom, has expanded financial inclusivity by allowing access to financial services for even the unbanked through the convenience of a mobile phone. According to the Vodafone website, “M-PESA offers a safe, fast and low-cost way to pay, receive, transfer and store money.” Through local M-PESA agents, individuals are able to withdraw, send or deposit cash, negating the need to visit a bank that may be located far away from a community.

More than Mobile Banking

One of the main benefits of M-PESA is that a bank account is not necessary for using its services. This is a significant advantage to impoverished people in rural, remote areas who cannot afford hefty bank fees, do not earn enough to warrant the opening of a bank account, do not have the formal documentation necessary to open a bank account or simply reside too far away from a bank, making bank services costly and inconvenient.

M-PESA transaction fees are low and M-PESA resolves the need for individuals to travel long distances with physical cash to give to another, which could also be potentially dangerous. With many M-PESA agents, typically local small businesses or vendors, situated across Kenya, individuals can easily transact whenever necessary.

M-PESA was officially launched in Kenya in 2005, and by 2016, Kenya had 40,000 M-PESA agents operating in the country and more than 20 million M-PESA users in a country of 47 million people at the time. A study published in 2016 by Georgetown economics professor Billy Jack, and a colleague at MIT, Tavneet Suri, highlights the impacts of M-PESA on poverty in Kenya. The researchers conclude that between 2008 and 2014, MPESA “increased per capita consumption levels and lifted 194,000 households, or 2% of Kenyan households, out of poverty.”

Statistics from the World Bank confirm the poverty reduction progress during this period. The percentage of Kenyans living under the poverty line dropped from 46.8% to 36.1% over a period of one decade ranging from 2005 to 2015. Kenya’s rural areas noted the most significant decrease as poverty declined from around 50% in 2006 to about 38.8% in 2016, marking a decrease greater than 10%.

Empowering Women

The study by Jack and Suri states, “The impacts, which are more pronounced for female-headed households, appear to be driven by changes in financial behavior — in particular, increased financial resilience and saving — and labor market outcomes, such as occupational choice, especially for women, who moved out of agriculture and into business.”

In the report, Suri mentions that the service helped about 185,000 female farmers move out of farming jobs and into business or retail, giving them a more secure income considering the volatility of the agricultural industry due to changing weather patterns.

Other Issues Impacting Kenya

Despite mobile banking in Kenya bringing poverty rates down, Kenya is currently grappling with the impact of severe droughts, and this is affecting the financial and food security of farming families.

A press release by the International Rescue Committee in February 2023 highlights that the current drought in Kenya has the potential to leave 5.3 million Kenyans facing acute food insecurity from March to June 2023. The report notes that 2.4 million livestock have died due to recent droughts, putting pastoralist families out of work and diminishing their food security.

A United States Agency for International Development (USAID) press release in February 2023 reports that the Horn of Africa has experienced a fifth failed rainy season and Kenya’s cumulative rainfall is now 70% lower than the country’s 30-year average. On top of previous aid measures, USAID intervened in February 2023 with a provision of more than $126 million in emergency food aid to cover the needs of about 1.3 million Kenyans in drought-affected areas.

People will receive food aid in the form of physical food items or cash-based assistance, depending on whether or not local markets are operational. Cash-based assistance will not only allow families to purchase food items according to their needs and preferences but will also help boost local economies as local vendors will see an increase in sales.

Looking Ahead

In spite of the challenges posed by drought and food insecurity, mobile banking in Kenya, particularly through the M-PESA service, has made significant strides in reducing poverty rates and empowering marginalized communities. By providing easy access to financial services and enabling secure transactions, M-PESA has helped lift thousands of households out of poverty and fostered financial resilience, particularly among women. As Kenya continues to tackle the impact of droughts, ongoing support from organizations like USAID will help alleviate food insecurity and further boost local economies through cash-based assistance programs.

– Samuel Kalantzis
Photo: Pixabay

Kenyan mobile money system M-Pesa Reduces Poverty in Kenya
Experts argue that expanding access to financial systems and services are an indispensable component of reducing poverty. However, Kenya offers only limited access to banking services outside of central cities. Fixed-line telephones are largely unavailable, and minimum fees for banking services pose an impediment to the rural poor and can deter use. Due to these facts, many rural and poor Kenyan households traditionally lacked access to proper finance-management resources. However, mobile money transfer service, M-Pesa, now provides Kenyans with an alternative to traditional banking. Mobile money reduces poverty in Kenya by creating a simple and accessible resource for individuals and families to manage their finances. In under a decade, the expansion of M-Pesa’s simple SMS-based system changed household finance so drastically that nearly 200,000 Kenyans—around 2% of the population—were able to break out of poverty.

Establishing Financial Resilience

M-Pesa allows individuals to send and receive payments via text, as well as deposit and withdraw cash from M-Pesa agents stationed in villages. With 110,000 agents located throughout the country, M-Pesa helps Keynan households overcome the country’s lack of accessible financial services. Now, there are 40 times more M-Pesa agents stationed throughout Kenya than ATMs. Users can easily and inexpensively store savings by depositing cash into their mobile phones via M-Pesa agents. Increased access to savings helps Kenyan households weather unexpected economic hurdles. One study found that following a financial shock, the per-capita spending of households using M-Pesa was 12% higher than households that didn’t use M-Pesa. The discrepancy is likely due to the increased saving capabilities of M-Pesa users.

Long-Term Implications for Poverty in Kenya

An MIT study in 2016 examined the long-term effects of using M-Pesa’s service. They found that between the years 2008-2016, per capita consumption of goods increased by approximately 18.5%. The mean of the households in the study spent $2.50 per day, which is well above the $1.25 or even the $2.00 per day that constitutes extreme and general poverty. According to the study, M-Pesa directly helped as many as 194,000 Kenyan households escape poverty between 2008 and 2016.

Financial Independence for Women

Additionally, the MIT study found that M-Pesa helps Kenyan households run by women in particular. Between 2008 and 2016, the savings of women-headed households using M-Pesa grew by 22% compared to those who did not. Furthermore, nearly 185,000 Kenyan women using M-Pesa could switch from subsistence farming to more economically productive activities, such as sales or business. This economic freedom came regardless of whether their home had a female or male head. For households with two incomes, M-Pesa gives women the ability to store savings, allowing Kenyan women to gain newfound financial independence and opportunity for their own economic pursuits.

More Resources from M-Pesa

Since MIT’s 2016 study, M-Pesa has increased the number of Kenyans with access to formal financial services from 75% to 83% in 2019. Along with personal banking, M-Pesa helps Kenyan households with a wide array of financial services. These include taking out loans, actively managing savings and collaborating with local banks. With the introduction of M-Pesa, the number of bank accounts held by Kenyans grew from 14% in 2007 to 41% by 2019. Largely due to this mobile money service, Kenya is now ranked third in the continent in citizen access to financial service, behind only South Africa and Seychelles. Researchers hope that M-Pesa’s success in Kenya will encourage further study of how mobile money reduces poverty in other countries.

 – Alexandra Black
Photo: Flickr