90% of businesses in West Africa work in the so-called informal economy. These activities bring revenues to families and provide jobs for the overgrowing unemployed youth. Since banks demand high-transparency and heavy surety, only around 10-15% people in West Africa have a bank account. The high costs and fees displayed for opening an account, running a transaction or securing a loan also stop them for accessing financial services. As a result to store their funds most people turn them into solid assets as soon as possible, at the expense of future savings opportunities.

Operating only with cash, imply dealing with most transactions in person. Consequently there is a huge trust issue. An affordable escrow solution for instance would provide huge relief to small businesses securing new partnerships. Corruption and tax evasion are also the consequence of such opaque and porous system.

Regarding funding, rotating savings and credit associations (i.e. tontines) fill the banking gap. Yet these informal associations are inherently small-scaled and face trust issues. Most funding relies on family and close friends. Money sent from family living abroad (i.e. remittances) has to be converted and channelled through a trusted network. Most funds are sent through Western Union, Money Graham and such companies charging around 10%. Since Senegal’s remittances represented 10% of GDP in 2010, this means at least 1% of GDP is spent in transfer fees.

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A small-value electronic payment system (transfer money, pay bills, pay salaries, etc.) launched by Safaricom, the first Kenyan provider of mobile phone.

  1. How does it work?

  • To deposit money, the customer needs to open an M-PESA account at an agent location. Only requires a valid ID. Recipients need not be registered.

  • M-PESA allows user to exchange cash for “e-float” and vice-versa. Requirement: a valid identification document. M-PESA account can be credited at an agent’s place (a shop for example). Cash is withdrawn the same way

  • His identity and the amount are logged in a book (signed by the customer). M-PESA agent enters the client phone number in his phone (+ the amount received). The customer receives a confirmation text when the transaction has been effective. Deposits are free of charge

  • Withdrawal: the customer shows ID and the transaction is logged. He tells the agent how much cash he wants. He selects the menu “withdraw cash” on his phone, enters the amount, the fee and the agent number. The agent receives a text indicating that the transaction is complete and he gives the requested amount of cash. Money can be withdrawn at an agent location or at an ATM (only available to M-PESA registered customers)

  • Finally, M-PESA account owner use it to transfer “e-float” from his phone to another people’s phone. Each person receive a text message stating that the money has been transferred (via phone number). The fee to send money to non-registered users is higher but the non-registered recipients are not charged to withdraw. The recipient is charged s/he withdraws the fund?! The non-recipient user receives a text message containing a M-PESA voucher number

  • Every agent possesses a Log book in which every transaction is registered and signed by the customer

  • All M-PESA e-float is backed 100% by deposits held at three commercial banks in Kenya

  • Originally, transfers of e-float sent from one user to another were expected to reflect unrequited remittances, but nowadays, while remittances are still a very important use of M-PESA, e-float transfer are often used to pay directly for goods and services (from electricity bills to taxi-cab fares).

  • Used to save money despite the fact that the system does not provide interest (3/4 M-PESA users).


  1. Lessons, results and incentives

  • Main lesson: “the need for a low-cost transactional platform that enables low-income customers to meet a range of payment needs” (source: World Bank)

  • Results:

– From 2007 to 2009: 9 million of users (40% adult population)

– US$3.7 billion have been transferred from 2007 to 2009 (equivalent to 10% of Kenya’s GDP)

– 450 to 18,000 locations from 2007 to 2010 (by contrast, Kenya has only 491 bank branches, 500 postbank branches and 352 ATMs)

– 70% of users are registered. 90% of transactions are conducted by registered users

– Kenya, Tanzania, Afghanistan, South Africa, India and Easter Europe

– It enabled people to save money, small businesses to expand and grow and to increase the circulation of money

  • Incentives :

– Affordable. When compared with Western Union, the total net tariffs for sending money is cheapest when the recipient is registered and are fairly competitive when the recipient is non-registered.

– Danger to carry cash (thieves)

– Banks are not trusted because of ethnic disputes

– Safaricom monopole in the mobile phone business? (They launched a training campaign to recruit a lot of agents)

– in the 1990’s, the African continent was unconnected, today over 60% of the population on the continent have mobile phone coverage + 10 times more mobile phones in use than landline ones.

– small money transaction

  1. Origins

  • Air time credit swapping (air time as a currency). Phone companies have long allowed individuals to purchase air-time and to send this credit to other users. It was then possible for the recipient to exchange the received air-time to a local broker in return for cash. This was the procedure that Safaricom wanted to formalised. But the experience went a little further after the test phase.

  • designed to allow micro-loans repayments by phone

  • 10 times more mobile phone users than landline phone ones

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M-PESA: A Kenyan Success Story

Since 2007 M-PESA enables Kenyan to deposit, withdraw and transfer money using their mobile phone.

From the 1990’s onward, the mobile phone technology was quickly diffused on the African continent and now over 60% of the population have mobile coverage. The mobile phone is an eminent and helpful feature of the African day-to-day life where the current state of infrastructure severely hinders communications.

Phone companies have long allowed individuals to send purchased air-time credit to other users. The next logical step occurred when people started to exchange the received air-time to local brokers in return for cash: air time became an informal currency.

A team of developers working for Vodafone, the British multinational telecommunications company decided to formalise this “air time credit swapping”. In Kenya, they used Safaricom, a local mobile network operator they own, to launch M-PESA in 2007. It was baptised thus because the Swahili word “pesa” means “money” in English.

Three basic services

At the beginning, M-PESA provided three basic services: to deposit, to withdraw and to transfer money using their mobile phone. In order to enjoy these services, people need to go to an M-PESA agent location where they can create a virtual wallet. The registration is free and the client is only required to show a valid identity document.

To deposit cash on his “wallet”, the client gives the agent his phone number and the money. The transaction is processed by the agent. The cash is exchanged for M-PESA virtual money called “e-float” and the client receives a confirmation via a text message on his phone. To withdraw cash, the client needs to select this option on his phone and enter the agent number. The agent waits until he receives confirmation via a text message before handing the requested amount of money to the client.

M-PESA also allows users to send money to other people’s phones (both M-PESA users and unregistered users). Unregistered recipients receive a text message containing an M-PESA voucher number they can use to withdraw cash at an agent location. Every transactions are logged in a book possessed by the agent and signed by the client who must show a valid identity document in order to proceed. All deposits are free but withdrawals and transfers are charged. Transactions with unregistered users are more expensive.

An on-going success story

Simple, practical and useful, M-PESA rapid growth can only be described as a success. In two years (from 2007 to 2009) more than 7 million of people used M-PESA among which more than 70% were registered users. In 2009, an average of US$1.96 million was transferred through M-PESA every day, mostly in small amounts. The success can also be measured by the number of agents: 18,000 in 2010 (they were 450 in 2007).

The system is still growing in terms of services and territories. First, M-PESA provides new services to its customers such as directly buying goods, paying bills, paying salaries, and so on using only their mobile phone. Cash-less transactions, while still less numerous, are becoming more important in the overall system. They can also withdraw money from selected ATMs. Besides, 75% of users declared in a survey that they also use it to save money despite the fact that the system does not provide interest.

Secondly, M-PESA has been launched in other countries such as Tanzania (2008), South Africa (2010), India (2013) and Romania (2014). In 2014, M-PESA was present in 10 countries. It has attracted a lot of attention from journalists, scholars and industrialists. The world has its gaze turned toward the M-PESA experiment, trying to analyse the phenomenon and dissect the reasons behind this success.

The reasons behind the success

Many factors explain this on-going success. First of all, M-PESA provides a service very much needed. Indeed, people living in the country-side depend on the money sent by the members of their family that live in the city to get by. Before M-PESA, some people use to go down the country to visit their family and bring them some money. However, Kenya is a country plagued with armed violence and it is safer not to carry cash while commuting.

Secondly, the service can be used by a wide range of people. It is affordable, it is less expensive than Western Union or commercial banks and the minimum amount required to deposit, withdraw or transfer is very low (US$0.10). It also managed to build trust among its customers by launching a campaign to recruit a wide network of agents such as local merchants who beneficiated from the popular mistrust towards commercial bankers due to ethnic disputes. The customers’s trust is reinforced by the fact that M-PESA e-float is backed 100% by deposits held at three commercial banks in Kenya

Last but not least, Safaricom was the Kenyan first mobile provider before M-PESA was launched.

Looking back at the M-PESA success story is a very interesting journey providing us with insight on many issues such as how to formalise informal economy habits, how to provide a low-cost transactional platform to low-income customers and how virtual money can play a significant part role in all this.




  • M-PESA


  • Safaricom


  • Vodafone


Online articles

JACK, W. and SURI, T. “Mobile money: the economics of M-PESA”. Working paper 16721. National Bureau of Economic Research. January 2011.


MBITI, I. and WEIL, D. N. “Mobile banking: the impact of M-PESA in Kenya”. Working Paper 17129. National Bureau of Economic Research. June 2011.


MAS, I. and RADCLIFFE D. “Mobile payments go viral: M-PESA in Kenya”. Bill and Melinda Gates Foundation. March 2010.


Further reading

GOLDSTUCK, A. “Vodacom re-launches M-Pesa (again)”. Mail & Guardian. August 4, 2014.


HEINRICH, E. “The apparent M-Pesa monopoly may be set to crumble”. Fortune. June 27, 2014.


HUGHES, N. and LONIE, S. “M-PESA: Mobile money for the ‘unbanked’.” Innovations. Winter & Spring 2007.


MAS, I. and MORAWCZYNSKI, O. “Designing mobile money services”. Innovations. Spring 2009.


MBOGO, M. “The impact of mobile payments on the success and growth of micro-business: the case of M-Pesa in Kenya”. The Journal of Language, Technology & Entrepreneurship in Africa, Vol. 2. No. 1. 2010.


MORAWCZYNSKI, O. and PICKENS, M. “Poor people using mobile financial services: observations on customer usage and impact from M-PESA”. The Consultative Group to Assist the Poor. August 2009.


PLYLER, M., HAAS, S. and NAGARAJAN, G. “Community level economic effects of M-PESA in Kenya: Initial findings (executive summary)”. Iris Center, University of Maryland College Park. March 30, 2010.


STANDAGE, T. “Why does Kenya lead the world in mobile money?” The Economist. May 27, 2013.


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