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Closing Case: Send Money Home—M-Pesa and the Kenya Experience 377

From 2011 to 2014, the number of “unbanked” adults In the past a number of countries have sought to address
declined an astounding 20% to two billion (World Bank either directly or indirectly the issues and inefficiencies in
2015). The drop was not the result of declines in the number global and domestic remittances. Many of these programs
of unbanked living in the more advanced or growing econo- revolved around the idea of somehow turning the “unbanked”
mies. Instead it was almost solely attributable to shifts in the into the “banked.” Theoretically, if both the sender and the
number unbanked residing in sub-Saharan Africa and more receiver had bank accounts, this could certainly simplify the
specifically in Kenya. It was due to a program called M-Pesa domestic transfers of funds, and would open other possibili-
originally intended to provide person-to-person international ties for international transfers. It might also address the
remittances conducted via cell phones. This closing case larger issues of poverty, thus alleviating the need for family
describes in detail the M-Pesa program including the prob- members to separate in the first place. Ignoring the fact that
lems it was designed to address, the structure and operation it cost money to have a bank account and the fact that bank-
of the program, and its long-term results on the unbanked ing systems in many developing countries are suspect, this
poor in Kenya and other parts of the world. approach is a massive, costly, and long-term undertaking. As
the last few years have demonstrated, the real answer might
be in mobile money and the “un-banking” of the banking
The Problem system. At least, that is what the experience in Kenya over
the last few years has shown.
In developing countries, immigration is “a way of life.” When
done voluntarily, people often migrate for the express purpose
of finding work or taking advantage of opportunities outside of The Solution
the countries or areas where they live. Worldwide, this migra-
tion results in a massive transfer of money from workers to their The history of the M-Pesa is well documented in Money, Real
families and friends back home. These transfers are known as Quick by Omwansa and Sullivan and touched on more recently
remittances. While any single remittance is usually small, the by Runde (2016). The discussion that follows briefly covers
aggregate amounts are substantial. For example, according to some of the key events that these discussions highlight.
figures from the World Bank (2016), “official” global remit- Kenya is an east African country of approximately 40 mil-
tances involving foreign workers from developing countries lion people with high unemployment and poverty.
totaled over $430 billion in 2015. To put this in perspective, for Approximately 10 years ago, an in-depth survey of the
many developing countries the yearly total is often more than Kenyan financial sector found, much to the surprise of their
the development assistance they receive from all sources and Central Bank of Kenya, that only 20% of the adults in the
larger than the monies from direct foreign investments. country were “banked.” Basically, the bank was servicing
These sums not only represent big money from the devel- urban elites and slowly dying in the process. The same could
oping countries perspective, they also represent big money be said for the government owned telecom system which his-
for the Money Transfer Operators like Western Union who torically had provided landlines in urban areas. As a result,
handle these transfers. The MTOs charge fees for their ser- only 2% of the population had phone service. In contrast,
vices, as well as making money from currency conversion. Kenya’s mobile operators, of which Safaricom Network
While most of these operators follow strict guidelines and Company was by far the largest, had managed in a relatively
rules, even small charges can have a major impact on the short period of time to get ten million mobile phones in the
amounts received by the individual families. hands of the Kenyans (for a 35% penetration rate). So,
In addition to these global remittances, developing coun- instead of thinking about how to spread a dying landline
tries also have sizeable “internal” remittances generated by business or branch banking business to the rural populace, or
workers who have moved from the rural parts of the country for that matter to the slums of the cities, maybe it would be
to take jobs in the cities. Because the workers and their fami- easier to figure out how to use mobile phones to help bring
lies are unbanked, most of these remittances take place the financial services to the poor?
old fashion way. Either the workers take the cash home The original pilot for Kenya’s mobile money system was
themselves or they have someone do it for them. While this run under the auspices of Britain’s governmental development
certainly avoids the fees charged by the MTOs, it still a agency (DFID) and focused on reducing the costs of microfi-
costly and dangerous undertaking—it takes time to transport nance-loan repayments and lowering the associated interest
the money (usually by bus) and places both the person and rates. After the initial foray, control of the program was shifted
the money at risk given the high rates of robbery in many of to Safaricom and the focus morphed away from loan repay-
these countries. Also, because the transfers occur outside any ments toward person-to-person money transfer. The new sys-
formal financial system, there is no way to measure the num- tem was called M-PESA—the “m” stands for Mobile and “pesa”
bers of people, cash, and transactions involved. is the Swahili word for money. The marketing slogan for the