10 Things You Thought You Knew about M-PESA

CGAP provided an update to this article in October 2014. Read 10 Myths About M-PESA: 2014 Update >>  

Few initiatives in microfinance, or for that matter in development, have been as successful as M-PESA: 3 and a half years after launch, over 70% of households in Kenya and more importantly over 50% of the poor, unbanked and rural populations use the service. I am often struck by how many people fail to be inspired, or even doubt M-PESA. Skepticism is often bred from lack of information.

What about you, how much do you really know about how M-PESA actually works? Here are 10 things you may have thought you knew about M-PESA!

1. You thought the funds held in M-PESA were held (and used) by Safaricom

The funds are deposited in several commercial banks, which are prudentially regulated in Kenya. In addition, the funds are held by a Trust and are therefore out of reach from Safaricom, which cannot access or use them. In the unfortunate event of Safaricom going bankrupt, the creditors of Safaricom would not have access to the M-PESA funds. This is a requirement from the Central Bank of Kenya which oversees M-PESA. The funds remain at all times the property of M-PESA users.

2. You thought M-PESA created money outside the banking system

Any amount which goes through M-PESA is 100% backed by the pooled accounts held in commercial banks. In terms of monetary aggregates, the mobile money stored and moved by M-PESA customers is counted as part of M1.

3. You thought M-PESA transactions were not monitored

Each and every transaction done on the M-PESA platform is electronic and can therefore be monitored by Safaricom, which runs its own bank-grade anti-money laundering system. Even a cash-in or a cash-out operation has an electronic leg and is captured by the system. The Central Bank of Kenya gets regular reports on M-PESA transactions, as it does from other payment service providers.

4. You thought M-PESA’s success meant it is now a huge systemic risk

The accumulated balance of all the M-PESA accounts represents just 0.2% of bank deposits by value. M-PESA is far from exerting a systemic risk. In June 2010, M-PESA transactions amounted to about 70% of the volume of electronic transactions in the country but were only 2.3% in value. M-PESA’s success means there is a real need for small electronic transactions and storage of value. It was designed with limits on how much can be transacted (no more than 70,000Ksh leaving the account daily) and stored (maximum account balance is 50,000Ksh). Cash-in, cash-out and P2P transfers are limited to 35,000Ksh per transaction.

5. You thought M-PESA cash merchants held funds belonging to M-PESA or its customers

The M-PESA cash merchants (or ‘agents’ in M-PESA parlance) pre-buy mobile money so that they can sell it against cash to the customers who come to their retail store for cash-in operations. They are investing their own working capital and are not intermediating someone else’s funds. For cash-out operations, they sell their cash and buy mobile money instead. Consequently, the cash and M-PESA balances that cash merchants manage and store are always their own. Cash merchants are mainly super users, who resell their own working capital balances, with no more access to the M-PESA platform than any other customers, except that they have higher transaction limits.

6. You thought M-PESA cash merchants were unsupervised

The M-PESA cash merchants are recruited by Safaricom after a due diligence process and put under specific training. They are regularly monitored and re-trained, and Safaricom aims to visit them on-site every two weeks. The same process is applied to all cash merchants so that any customer anywhere in Kenya has the same experience at any cash merchant.

7. You thought it might be dangerous to let customers use M-PESA unless they went through a financial literacy class

There is of course a risk that the ability to pay more easily than before could be abused (i.e. by loan pushers), but this is not an access issue. Financial literacy efforts related to M-PESA would not be efficient in addressing this problem. It is rather a credit issue (in this example), and consumer protection remedies to mitigate such risks, including through financial education, should target the credit side.

8. You thought M-PESA customers were not identified

To open an M-PESA account, all customers have to identify themselves with an original identification document. Photocopies are not enough. Retailers are specifically trained to perform registrations and can be suspended if they do not identify customers properly. In fact, customers have to show their ID card any time they do a transaction. There is a three-factor authentication (having the SIM card, having your ID, knowing the PIN), which far exceeds what is required by your bank and mine.

9. You thought M-PESA was not really contributing to financial inclusion as it only offers a transactional service

Actually, you’re right on this one, M-PESA does not equate financial inclusion. Poor people need a wide variety of different financial services, including savings, and the ability to transact, no matter how efficiently, is not enough. But let’s be clear about the objective here: it is access. M-PESA is the mechanism through which financial inclusion can be delivered. So it is the means, not the end.

10. You thought criminals could use M-PESA

Correct again: criminals can very well use M-PESA. They can certainly decide to use a payment platform which limits daily transactions, requires identification, monitors any single transaction and knows the localization of the device used for the transaction.

Systems like M-PESA are no more than a transactional and store of value platform, but no less either, and need to be licensed and supervised as such. As they don’t invest the public’s money, they can make do with a lighter regulatory treatment than full banks. Remember, their role is not intermediation, it is access.

Sub-topics: Agent Networks


31 August 2012 Submitted by Peter Wakaba (not verified)

since inception, m-pesa has grown by leaps and bounds and metamorphosised by taking a life of its own. In fact safaricom, the company which runs m-pesa now finds that a good number of the people who use the service are now using it for savings or fund retention over the near to medium term, meaning that far from just access, the service has now introduced the elemt of savings, albeit unofficially.

this has now led safricom to partner with most banks operatin in kenya, but pioneered by the micro finance award winning equity bank to tie savings accounts to m-pesa to enable tranasction between the mobile phone and the bank account. THis however is not just mobile banking, but a situation where the joys and benefits of m-pesa are now upscaled in several ways to work for an incorporated bank account.

this service is now known as M-KESHO.. (mobile tomorrow)

11 October 2012 Submitted by Sunny (not verified)

This is what I thought of M-Pesa, which you have not addressed above:

1. Deposits are not backed by the government. In fact there's fine print in the M-PESA account holder agreement that explicitly says states that Safaricom bears no responsibility or liability for any default or negligence on the part of agents providing M-PESA services. In other words, if your money "disappears", it’s gone. No one is liable, except I suppose the customer. And if you're a low-income customer - that’s a huge risk. Sure this may not have happened (or may have happened), but certainly not clean and transparent.

2. M-Pesa fee structure is not designed to reach the very bottom of the "pyramid".

To be honest, I am struck by your statement that you are surprised that many people are skeptical - and your allusion that those people are ignorant. M-Pesa has been a grand success, no doubt - however, there are lessons to be learnt from that - lessons that can be incorporated into the next big mobile money opportunity. Just because M-Pesa is a success does not mean it’s the perfect model with no scope for improvement. In fact, the success of M-Pesa is unparalled - no other country has seen such uptake. Which indicates that there were certain specific and special factors in play that enabled that kind of success. Perhaps the fact that M-Pesa was able to override regulations? (Did or does the government have stake in M-pesa?). Mobile money pilots in other countries may not be able to do what M-Pesa was able to finagle at time of set up.

If anything, you should listen carefully to those who are skeptical, as it will yield (for you) ideas on how the next mobile money could be better, cleaner, more transparent, and reaches the very bottom of the economic pyramid. Also, I am not sure how far it gets you as a funder - if you brandish off those who have a different view or opinion on matters. They are not ignorant. I am honestly quite struck by those who believe that M-Pesa is the absolutely perfect model and should be replicated around the world as-is.

29 November 2012 Submitted by John Gitau (not verified)

Claire I agree with you to a very large extent, perhaps 90%. Sunny has a point as well. I am financial education practitioner and own a shop that is an agency. So, I can say I am a sub-agent because I work under a dealer. I get 80% commission on Mpesa earnings that the dealer earns from my outlet. I invested Ksh 100,000 at the onset and that is the money that I turn over. Each month, I earn between Ksh 15000 and Ksh 25,000 depending on business and float position. I know that is not a small return on investment. Take the Ksh 25000 against capital of ksh 100,000 and you realiize I earn a gross return of 300% annualized. Not many businesses have such returns. Such returns result from the hefty fees that I as a user of Mpesa pay while withdrawing or depositing. I guess that is what Sunny is referring to as very expensive. And also, Safaricom earns perhaps the highest profits in Kenya. That comes from fees. They should come down. I am ok to earn the regular return of 35% margin annualized if that would mean fees coming down. The new model should come with cheaper rates. Super normal profits tell a lot and scream for consumer protection.

13 July 2013 Submitted by alit asmara jaya (not verified)

Some other thought in my perspective :

1. I thought M-Pesa the only place to learn success in Mobile Money, in fact now there more to learn from other providers which more fit to the condition in each country.

2. I thought the formula for being successful is just like copy and paste for making success in other countries. In fact each Mobile Money provider will have their own business model to make it grows and succecessful.

3. I thought M - Pesa since the beginning of the launch had identified their P2P transaction would make big success as now they have. In fact at the beginning they launched the product was for air time top up before finally they found that P2P is the killer apps.

03 September 2013 Submitted by JohnnyCashless (not verified)

Interesting article. Can M-PESA be used to make purchases over the Internet? If not, do you see a place for Bitcoin to facilitate online/international trade.

17 December 2015 Submitted by Betty (not verified)

Hi!Yes but it depends in which country you are living in in east africa e.g Kenya has some advanced Mpesa technology you can pay for your shopping at the mall with Mpesa,pay meals subscribe to some international services online and buy staff online for a few websites that allow Mpesa payment.

17 September 2013 Submitted by Brad (not verified)

Great post. I regularly talk about the great example set by M-Pesa and the opportunity for similar systems to improve financial inclusion in other emerging markets and this is the best summary that I've seen yet of all the objections I've heard over the years. You've given me some great ideas for a future post on my mobile money blog at

09 May 2015 Submitted by Martina Mutheu (not verified)

Financial inclusion still remains significant in determining the growth of economies.m-pesa provides an excellent platform for effective financial inclusion as a means to the end.But getting the necessary support from m-pesa even to provide swift services to marginalized populations is an uphill task as there rarely exists an avenue for anyone to listen; Centiments echoed by innovators during the March ICT innovation forum at the KICC. If Safaricom really needs to transform lives of poor populations, there is need to set up a special team to be able to listen to innovative products and possible support in terms of using their infrustructure. Majority of the productive Kenyan population financially excluded from tradidional financial services can have access to m-pesa . While these segments may not meet conditions of credit from banks, saving little by little through m-pesa can guarantee reasonable credit after sometime. However this is almost suicidal because the cost of moving stored funds in m-pesa to a ROSCA or even an ASCA is two fold. For example a vegetable vender who decides to save ksh 200 to an ASCA will be chsrged Ksh 22 . When they decide to pull the money back to m-pesa from the ASCA a charge of Ksh 55 will apply plus the 27 ksh withdrawal fee,all these for saving Ksh 200. A blanket tariff is painful to BOP populations and Safaricom needsto consider such cases in order to apply a commenurate tariff to amounts involved.

06 October 2015 Submitted by Derrick Oliver (not verified)

I have used Mpesa for almost 6 years now and the services they give are the best.Instant messages at any place and they notifys their customers when there are technical problems though miminal.God bless you Safaricom;God bless Kenya.

23 November 2015 Submitted by Kuhn Hanguk On... (not verified)

This is very interesting. I just heard of M-Pesa via a television show and had so many questions. As an AML consultant and professional it just did not make sense that you could transmit funds from person to person via mobile phones, but the funds were completely not tied to ant banking system and were totally free of regulations and oversight. If that were true, then where does the money come from and what is drawn against ? Sure, one can open an M-Pesa account on your cell phone with a secure password and then transmit, say, $100. to his brother for a birthday gift. The message transmit the amount from one user to the other. But now, where do you go to turn the digital deposit into a real $ 100. bill ? These deposits have to be secured by some financial institution and have to be real, tangible currency for dispersion, or else the M-Pesa is worthless and not real money. I think the above questions & answers segment has answered my major question ?.....but I have more !

17 December 2015 Submitted by Betty (not verified)

Hi! okay first the sender will get anotification message that the money has been sent succesfully to the receiver. Receiver will also get a notification text on her mobile phone that he/she has received $100 in her phone,he goes to an Mpesa agent with her phone and id card and withdraws the cash the agent gives her 100$ she signs a certain paper and she leaves with a real $100 dollar bill.

19 September 2016 Submitted by LAWRENCE (not verified)

To withdraw, you go to an MPESA Agent, which is a small shop where you withdraw the actual dollar bill. you are given the actual money after you click on withdraw cash on the mpesa menu on your phone. hope I have answered you

15 December 2015 Submitted by Emmanuel Saitoti (not verified)

Mpesa is all you need to have for your day-in, day-out financial transactions. Its easy to use, cheap, convenient, fast and reliable.

08 September 2016 Submitted by Mama Mu (not verified)

Fast Forward to 2016 if Facebook buys Mpesa then we shall have a more accessible option for many on this continent & beyond to transact online. Credit card penetration has grown dismally in most cash based economies so Mpesa could be the link.

05 October 2016 Submitted by Madut Koor (not verified)

As well as Mr Sunny was doubt of financial fraud in the M_PSA system. So I will only gives advice on Technology in most sensitive information financial services has to be innovative products then discovery deteriorating. Whole world is mostly in Africa are much interesting to install M_PSA mobile phone money Banking but due to unclear entities of investment law has make African standby and well worth model is Enterprises resources production of management initiative. To be critic it has been M_PSa in Kenya since 2005 update no extensive knowledge and experience made like ATM in American history is now available everywhere in the world

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