Why Does M-PESA Lift Kenyans Out of Poverty?

Sometimes it’s the simple things in life that make a difference.

New research in Kenya has found that access to mobile money via an M-PESA account, which allows monetary value to be stored on a mobile phone and sent to others, can lift families out of poverty. Access to M-PESA increased consumption levels over a six-year period, enabling an estimated 186,000 families, or as many as 2 percent of Kenyan households, to move out of poverty. The impact on female-headed households was more than twice the average measured, the research found.

What’s interesting about these findings is that putting a very basic financial service into the hands of poor people, one that simply allows you to move money easily and cheaply from one person to another via mobile phone, is what made the difference. It wasn’t higher level financial products, such as a loan or micro-insurance that changed their lives. It was the ease of sending and receiving money.

“It tells you that payments matter,” said Billy Jack, Georgetown University professor of economics, who conducted the study with Tavneet Suri, of Massachusetts Institute of Technology. Their research, “The Long-Run Poverty and Gender Impacts of Mobile Money,” was published in Science magazine in December.

“Being connected by mobile phone, moving money around in a more efficient way than before, getting a text message to verify the amount is very powerful,” Jack said in presenting the research at a CGAP roundtable this month.

But it’s about more than just the mobile phone. M-PESA, which is used by 96 percent of Kenyans, is so successful thanks in large part to its dense network of agents, who cover a large swathe of the country bringing mobile money within reach of the majority of the population. The network of 110,000 agents is 40 times the number of ATMs and enables a son living in the city to deposit money in Nairobi and then transfer it to his mother in the village, who can then withdraw the funds from her nearby agent. It replaces costly and unsafe courier services, and it has an economic impact.

The researchers surveyed between 1,608 and 3,000 Kenyan households over a six-year period and compared how households that saw a sharp increase in the density of M-PESA agents soon after its launch in 2007 fared versus those without such easy access to mobile money. The surveys were conducted between 2008 and 2014, during which time the M-PESA agent network expanded dramatically in Kenya.

The researchers found that the households whose access to M-PESA agents expanded early on fared better and received more remittances from a larger network of people than the control group. For example, when households faced an economic shock, there was a 12 percent difference in per capita consumption between the two groups, with consumption rising for those households near to an M-PESA agent.

There also was a gender effect. In households with access to mobile money, women were more likely to move out of agriculture into businesses, suggesting a more efficient and productive allocation of labor. In female-headed households with easy access to M-PESA, per capita consumption was higher than for comparable male-headed households.

Precisely why this gender effect happens, the research does not show. But Jack said the surveys did reveal that households with easy access to M-PESA saved 22 percent more money than those without.

So the game changer in Kenya appears to be the combination of a mobile phone and proximity to an agent in enabling mobile money to improve lives. Whether the results are peculiar to Kenya or would hold in other countries is not addressed in this study. Perhaps you would find similar effects in other countries with easy access to payment services, be it by mobile phone, cards or over-the-counter transactions.

But Jack said he thinks that the mobile phone itself is a critical part of the equation. The device is easy to use and puts basic financial services at the fingertips of Kenyans at low cost, and it builds customers’ trust in the financial service by instantly sending them text messages to confirm transactions. He was unsure that proximity to an agent was enough to explain the results.

Importantly, what the study provides is evidence for the power of linking households and especially women to a simple payment service. “Perhaps what this means is that basic financial inclusion in itself reduces poverty and could improve the efficacy of other anti-poverty programs,” Jack said.

Or, as the study concludes, while mobile phone use correlates very well with economic development, perhaps it is mobile money that causes it.