M-PESA: Connecting Urban and Rural Communities

August 12, 2009    

August 12, 2009—In Kenya, there is little doubt that mobile banking has been broadly welcomed by millions of people who use their mobile phones to access financial services that previously were out of reach. However, there are surprisingly little publicly available data on how mobile banking is changing the lives of the nearly 7 million customers who together transfer nearly US$2 million a day through Kenya’s M-PESA service.

New ethnographic research, captured in a CGAP Brief , shows that M-PESA—a service offered by Safaricom, Kenya’s largest mobile service provider—is enabling workers in urban areas to quickly and cheaply send money to their families in rural areas. In addition, more than one-fifth of M-PESA customers in urban areas are storing small amounts of money in their mobile wallet, a use that goes beyond the original marketing pitch of “send money home.”

Rural recipients report that M-PESA is boosting their income, because while M-PESA users are sending smaller amounts at a time, M-PESA’s ease, security, and affordability allows them to send money home more frequently. There are some surprising findings as well, including more social friction between senders and receivers because urban workers no longer need to make the trip back home to hand deliver money.

Interviews, Diaries Provide Insights
The study draws on interviews with 350 people and 21 focus groups in Kibera, a settlement (slum) of more than 1 million on the outskirts of Nairobi, and in Bukura, a farming village in western Kenya. Frequent M-PESA users also recorded their transactions in financial diaries that provided insights into the way they have adapted to branchless banking.

“It is clear from our research that M-PESA is breaking down many barriers to money transfer, in particular by helping cash reach Kenyan rural communities that often struggle to access traditional banking and financial services,” says Olga Morawczynski, who conducted the field research. “Additionally, as M-PESA has grown to critical mass, many rural customers are tapping into a growing network of potential remitters and lenders to effectively increase their incomes.”

“One of the most interesting findings is how many low-income Kenyans are using M-PESA to store money,” says Mark Pickens, co-author of the Brief. One in five M-PESA users say they keep funds in their M-PESA wallet, like a bank account. “This is powerful evidence that Kenyans have more financial needs and are willing to pay when a quality service is made available.”

Better than Cash
Users say they adopted M-PESA because it is cheaper, more accessible, and safer than other money transfer options. The average M-PESA transaction is worth around US$20; so far, more than US$1.7 billion has been transferred through M-PESA since its commercial launch in March 2007.

Cost is a significant attraction for M-PESA users, who find that transactions are 27 percent cheaper than services offered by the postal network, and 68 percent less than sending money by bus companies.

The research shows that M-PESA users fall into two categories—urban senders, who are usually men, and rural recipients, who are mostly women. Their transactions are generally either small, regular transfers that act as income support for rural users and lump sum transfers, which are often used to pay school fees.

Traffic Poses Problems
There are some downsides to M-PESA, however. Urban users say they are sometimes frustrated by failed transactions, which are often the result of network congestion as M-PESA relies on the same technology that supports text messaging. Because it is often difficult to get through to Safaricom’s busy customer support phone number, a failed transaction may require the user to turn to the 10,000-strong agent network, which often struggles to resolve the problem. Rural users complain that agents sometimes lack cash on hand. M-PESA customers whose agents cannot meet their withdrawal requests are often forced to travel to cities to get their money.

Higher Income, Greater Empowerment
On a positive note, users report increases of 5 to 30 percent in their incomes thanks to transfers through M-PESA. By making smaller, but more frequent transfers, urban migrants on average are sending more money home than before. This represents a significant boost for rural recipients, for whom remittances can represent up to 70 percent of their household income.

The research shows M-PESA is also empowering rural women because it makes it easier for them to solicit and receive money from their husbands and other contacts in Kenyan cities. Remittances through M-PESA relieve many women in rural areas of the burden of traveling by bus to cities to recieve money from their husbands, a process that for some could take as long as one week.

One unexpected consequence is that some men working in the cities have cut back on the number of visits to their rural homes—visits they made frequently before M-PESA was available to deliver funds to their wives and relatives. Some wives fear their husbands may leave them for “city wives,” which could lead to a complete stop to remittances or, worse, to competing claims for their homes and land.

Integrating Approaches
Overall, the research points to positive changes in savings behavior as a result of M-PESA. In particular, the financial diaries reveal that many customers are integrating M-PESA with popular savings tools, such as bank accounts and informal savings clubs. The frequent users who kept financial diaries were making, on average, 15 small deposits to their M-PESA accounts each month. Some used these savings to invest in their rural home, for example by purchasing a cow, while others transferred the money into bank accounts to earn interest.

The evidence of higher savings and incomes, combined with greater empowerment of rural women, points to the benefits gained in just two communities in Kenya, but the research represents the beginning of a better understanding, using new data sources, of the impact of branchless banking on the lives of the poor.