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M-PESA’s Impact on Kenyan Economy:

Processing 90 Percent of All Mobile Money Transactions in Kenya

Geoffrey Muchoki*

I. Introduction

M-PESA, (“m” for mobile, and pesa for “money” in Kiswahili) is a mobile money transfer system operated by Safaricom, Kenya’s largest mobile phone services provider. Other than M-PESA money transfer services, Safaricom’s customers benefit from its mobile and voice, SMS, data, and internet services. Mobile money enables individuals to transfer money through the Short Messaging Service (SMS).

M-PESA is advertised as a faster, easier and safer way of sending and receiving money from person to person, referred to as P2P. The service has electronic accounts where customers can save their money and withdraw at their convenience from M-PESA agents. Deposits are made in the form of ‘hard’ cash at the location of M-PESA agents. Besides making currency deposits and withdrawals, customers can also pay bills using the paybill function, as well as send and receive money.

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According to Al-alak and Tarabieh (2011)[1], innovation-performance relationship is context dependent and factors such as the type of innovation, the cultural context and age of the firm affect the impact of innovation on organizational performance to a large extent. Chuhan-Pole and Angwafo (2011)[2] define M-PESA as a small-value electronic payment and store-of-value system in Kenya accessible from ordinary mobile phones. These authors note that the system processes more transactions domestically than Western Union does globally. According to them, M-PESA’s market success is the result of the interplay of three factors: pre-existing country conditions that made Kenya a conducive environment for successful mobile money deployment; a clever service design that facilitated rapid adoption and early capturing of network effects; and a business execution strategy that helped M-PESA rapidly reach a critical mass of customers.

Out of all Safaricom’s products, M-PESA is arguably the one that has had the greatest impact on Kenyan economy. From a relatively simple solution, launched in 2007, which allowed individuals to transfer cash to one another, M-PESA has grown into a sophisticated system with a number of functions catering to a wide range of needs and services, and accounting for 90 percent of all mobile money transactions in Kenya.

In just 10 years of operation, M-PESA has expanded to 10 countries with over 30 million active customers.[3] The number of transactions per month continues to rise with the rising mobile services coverage by Safaricom. From its launch, Safaricom has undergone a remarkable rapid growth within its market, covering most of the geographical regions in Kenya as the main mobile phone money transfer service. According to research conducted by Kimenyi and Ndung’u (2009)[4], the service attracted over 250,000 customers four months after its launched, yet this was expected to be achieved after one year from its launch. This was a clear indication that the service had the potential to attract a larger number of customers in its prospective years within a short period in the market.

II. Observations on Usage of M-PESA

There are two types of users: urban senders, who are mostly men, and rural recipients, who are mostly women.

The World Bank found in a 2010 survey that in Kibera (the largest informal settlement in Kenya), a majority of customers are young men. Customers deposit money into M-PESA and transfer money to their rural relatives. In Bukura (a rural setting in Kakamega County), a majority of customers are women and retirees. They use M-PESA to withdraw money sent to them by relatives in the city. Most transfers fall into two categories:

  • recurrent transfers that function as income support for the recipient and;
  • transfers used to address lump sum needs, such as the purchase of farm inputs. Recurrent transfers are more frequent (once per month or more) and smaller in value than lump sum transfers. The most common reason for a lump sum transfer is to pay school fees.

Urban users adopted M-PESA because it is cheaper, easier to access, and safer than other money transfer options. Urban users usually persuade rural recipients to also register with the service.

Most users in Kibera say they chose M-PESA because of cost, accessibility and safety. The main money transfer system was the postal office money transfer order service which was slow and inconvenient. The post office offered a variety of different money transfer products including instant money transfer (posta-pay) and money orders which would be delivered to the post office closest to the recipient.

Urban users say they prefer M-PESA because it is faster (the transfer occurs almost instantaneously), easier to access (there is a wide agent network), and safer (they don’t have to travel with money). In the rural areas, a majority of users say their relatives in urban areas asked them to sign up and use M-PESA. The price structure is designed so that it is cheaper to send money to a registered user. If the recipient is not registered, Safaricom charges a higher fee which the sender must pay.

Since its inception, there has been a tremendous shift of preference from the other platforms to M-PESA which has led to reduction of prices by the other platforms with the threat of obsolescence. Effectively, customers incur less as money transfer fees therefore saving more.

In Kenya, approximately 70 percent of people earning less than 3 $ a day do not have bank accounts and the poor face enough cost barriers to financial inclusion. It is thus evident that mobile money solutions contribute to financial inclusion and economic growth if well implemented.

Barriers to usage for urban users include failed transactions and inability to get help from Safaricom. For rural users, barriers include cash float shortages.  

Because M-PESA uses the same data channel as text messages, it often becomes congested at peak texting times. As a result, some transactions fail. These transactions either are not processed in the system, or they are processed but the confirmation SMS is not sent. This is a common source of customer dissatisfaction. When this happens, the agent calls Safaricom’s customer support for the customer. However, because of the high volume of calls, it can take agents several hours to get through. This sometimes makes failed transactions difficult to resolve.

In rural areas the most common complaint is related to the cash float of agents. The M-PESA system depends on banks for its liquidity. To process withdrawals, agents have to maintain their cash float by making regular trips to the bank. These trips are often costly and time consuming for rural agents because most banks are located in urban centers. Some agents minimize their costs by stocking up on cash less frequently. This constrains the efficiency of M-PESA and forces some customers to travel to cities to make withdrawals.

Although person-to-person transfers dominate M-PESA use, urban customers also use M-PESA to store money. Nearly a third of banked customers in urban settlements keep a balance in their M-PESA account.

They say they prefer M-PESA because it is easily accessible. There are no banks within the informal settlement, but there are many M-PESA agents. This means that M-PESA customers do not need to travel to access their cash. Note that money stored in M-PESA and a bank have different purposes. Most use M-PESA for daily consumption. Some also use it to accumulate “small money” into a lump sum. In this case, “small money” refers to deposits ranging from 100 Ksh (US$1.30) to 1,000 Ksh (US$13.00), or approximately one week’s wages. In some cases, this money is remitted back to the rural home. In others, it is kept for an “emergency” or unexpected event such as a funeral. Customers use their bank account mostly for long-term savings. Because M-PESA is not designed as a savings mechanism, no interest is gained on the money stored. This discourages many banked users from keeping larger amounts of money in M-PESA.

Many use M-PESA as a substitute for informal methods of savings, especially keeping money at home. Most say they prefer to store money with M-PESA because it is safer. They do not need to worry about household members finding, and stealing, their money. Many of the unbanked further note that they keep money in M-PESA because they trust Safaricom, whereas they feel that money stored in a bank is at a high risk of being lost. Not surprisingly, those who use M-PESA for daily consumption usually store less than those who use it to accumulate “small money.”

III. Observations on Impact of M-PESA

1. Increase in Frequency of Transactions.

The dramatic adoption of M-PESA, expanding the market share of Safaricom is explained vividly by Chandy et al. (2013)[5]. The authors recount that within the first month of adoption, 20,000 customers signed up, exceeding the expectations of all involved. Within one year, M-PESA had more than 2 million customers. Within three years there were almost 10 million customers – some 50 percent of Kenya’s adult population then.

It has been estimated that more than 70 percent of the Kenyan GDP flowed through M-PESA as at June 2018.[6]

Before adopting M-PESA, most users sent money home once a month or once every two months. Users explained that they made more frequent transfers because M-PESA is cheap and easily accessible. Money can be sent from anywhere, and at any time, as long as a balance is maintained in the account. As one urban user notes, “M-PESA never closes.”

2. The Income of Rural Recipients Increased by Up to 30 Percent Since They Started Using M-PESA.

In a 2011 survey by the World Bank, seventy respondents were asked whether household income had changed since they adopted M-PESA.[7] Fifty-four rural respondents (77 percent) note an income increase since adopting M-PESA. For 38 respondents, this increase is 5-30 percent of household income. Such an increase is the result of money being sent more frequently. By breaking up their transfers, urban migrants end up remitting more money back home. Also, rural recipients save money when retrieving cash. They no longer need to pay for transport costs to urban centers, where most of the money transfer services are located. Instead, they make the withdrawal directly from M-PESA agents near them. Such an increase is vitally important for the rural recipients, who depend heavily on remittances for their livelihoods. The financial diaries reveal that such remittances constitute as much as 70 percent of rural household income.

3. M-PESA Empowers Rural Women by Making It Easier for Them to Solicit Funds From Their Husbands and Other Contacts in the City.

The mobile phone, in conjunction with M-PESA, is a powerful tool for mobilizing remittances. Before these technologies were introduced, rural women had to travel to the city or post office by bus to get money. They then had to travel back to the village. This process could take over a week. Now they can use a mobile phone to request a remittance and receive it at a nearby agent, making it easier for rural women to solicit funds from their husbands in the city. It is also easier for them to solicit cash from other contacts when their husbands refuse to make the transfers. This has increased the financial autonomy of the women and has made them less dependent on their husbands for their livelihoods.

It has been further suggested in the Science journal article “The long-run poverty and gender impacts of mobile money“, Suri and Jack (2016)[8], that access and use of M-PESA has lifted an astounding 2 percent of households out of poverty.

From their research, the households led by women were most affected by this owing to their new-found ability to exhibit more financial resilience and to save money by using the service.

4. M-PESA Has Made It Easy Sending of Money to Users in Kenya From Their Families Living Abroad.

Transfer of money through M-PESA to M-PESA and other financial service providers like Skrill and PayPal is now not foreign in the economic space. These transactions are conducted at a small fee, making M-PESA one of the cheapest ways to send money to Kenya.

The feedback on this by users has been overwhelming with many users attributing their investments and growth to the service and more particularly, to the funds transferred to them by their kin living abroad.

5. Users Are Integrating M-PESA Into Their Savings Portfolio. As a Result, Savings Patterns are Changing.

The financial updates reveal that M-PESA is being used in conjunction with popular savings mechanisms, including having a bank savings account, using informal savings clubs[9], and keeping money at home. M-PESA users spread out their savings across all of these mechanisms to decrease the risk of money being “wiped out” if one mechanism fails. When M-PESA became available, users began to make frequent deposits of “small money” into their M-PESA accounts. The financial updates reveal that users make, on average, 15 of these deposits per month.

Courtesy of the success of M-PESA, the M-PESA Foundation Academy[10] has been established is the premier’s contribution to the education sector. According to the company, education is one of the interventions for which the Social Return on Investment is highest, amplifying the value created by this investment.

IV. Conclusion

Rapid adoption and frequent use of M-PESA engendered a variety of positive outcomes, as well as unintended consequences. Specific design elements of the M-PESA system shape these impacts. Most important, by allowing money to flow electronically rather than physically, M-PESA lessens, and in some cases eliminates, many of the spatial and temporal barriers to money transfer. This releases money flows in Kenya and allows such flows to penetrate rural areas where cash is difficult to access. Also, as M-PESA reached a critical mass of users, network effects began to develop. Each new M-PESA user has the potential to tap into an extensive network of potential remitters and lenders. Many of the rural residents quickly realized this potential and used this network to increase their income inflows.

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* Geoffrey Muchoki is an Advocate of the High Court of Kenya who practices Commercial Law, International Economic Law, Intellectual Property Law and Property Law. When not practising law, he is probably interacting with young entrepreneurs or somewhere on a beach.


[1]  Basheer Abbas Al-alaak & Saeed A. Tarabieh (2011) “Gaining competitive advantage and organizational performance through customer orientation, innovation differentiation and market differentiation”.

[2]  YES AFRICA CAN: SUCCESS STORIES FROM A DYNAMIC CONTINENT, P. Chuhan-Pole and M. Angwafo, eds., World Bank, August 2011. Available at https://ssrn.com/abstract=1593388

(last accessed on 23 October 2018).

[3]  Available at https://www.safaricom.co.ke/about/media-center/publications/press-release/release/337 (last accessed on 23 October 2018); Market Place Africa by CNN available at https://edition.cnn.com/2017/02/21/africa/mpesa-10th-anniversary/index.html (last accessed on 23 October 2018).

[4]  Mwangi S. Kimenyi & CBK Governor Njuguna Ndu’ngu (2009) “EXPANDING THE FINANCIAL SERVICES FRONTIER: Lessons from mobile phone banking in Kenya”, available at https://www.brookings.edu/wp-content/uploads/2016/06/1016_mobile_phone_kenya_kimenyi.pdf (last accessed on 23 October 2018).

[5]  L. Chandy, K. Dervis, S. Rocker “Clicks into bricks, technology into transformation, and the fight against poverty” (2012), available at https://millercox.com/wordpress/wp-content/uploads/2013/05/Aspen12_report.pdf (last accessed on 23 October 2018).

[6]  “M-PESA business could power GDP” The Star Newspaper 11 May 2018, available at https://www.the-star.co.ke/news/2018/05/10/m-pesa-business-could-power-gdp_c1756317 (last accessed on 23 October 2018).

[7]Ignacio Mas and Dan Radcliffe “Mobile payments go viral: M-PESA in Kenya” (2011).

[8]  Suri/Jack, “The long-run poverty and gender impacts of mobile money“, 9 December 2016, http://science.sciencemag.org/content/354/6317/1288 (last accessed 22 October 2018).

[9]  Ignacio Mas and Dan Radcliffe “Mobile payments go viral: M-PESA in Kenya” (2011).

[10]  https://mpesafoundationacademy.ac.ke (last accessed on 23 October 2018).

Titelbild: © Jezper via Adobe Stock, #42874084