Mobile Money – Africa’s Force for Social Good

Today, mobile ecosystems are increasingly driving economic growth and job creation throughout Africa

8th April 2017
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BY BOB COLLYMORE

For decades, commodities ruled African economies. Oil, precious metals, and agricultural produce defined the continent’s history and politics. These provided the backdrop for the continent’s economic, political, and social growth.

But with the emergence and spread of the mobile phone, a new narrative is emerging. Today, mobile ecosystems are increasingly driving economic growth and job creation throughout in Africa.

In just over a decade, Africa has risen to become the world’s second most connected region in terms of mobile subscriptions.

The continent has delivered the fastest growth in mobile subscribers in the world, which Ericsson projected in its 2015 Mobility Report would hit one billion subscriptions by now.

This surge in mobile penetration is having a profound economic and social impact. It has transformed lives in ways that have never been seen before.

According to a 2014 report from GSMA Intelligence, the research and analysis department of the GSMA telecoms association, the economic contribution of the mobile industry in sub-Saharan Africa stood at $102 billion—approximately 5.7 per cent of the region’s GDP. By 2020, this contribution is forecast to rise to $166 billion—the equivalent of 8 per cent of expected GDP.

Alongside their direct economic impact, mobile and other transformative technologies, such as cloud computing, have broken down intra-Africa trade barriers by removing obstacles, increasing efficiency, and encouraging transparency. Bob Collymore

These new technologies are enabling Africa to leapfrog some of the infrastructural challenges it faced previously, as well as eye a new facet of growth driven purely of its own initiative. Nowhere is this more apparent than in Kenya, where the mobile phone is literally carving out a new economic model.

Until the mid-1990s, Kenya was among the nations with the least teledensity in the world, where it took as long as a year to secure a phone line from the then state-owned operator. In those days, a one-minute local call would cost as much as five dollars (about Sh500) on phones lines that were more often out of service than available for use. Kenya’s liberalisation of the telecom sector in 1998 paved the way for private sector investors to enter the market and create a paradigm shift in access.

This was in a country with a population of 30 million people and just 5,613 public payphones. Today, the story is quite different. The statistic I most like to quote is that there are now more mobile phones than toilets or water taps in Kenya.

Safaricom, a leading mobile operator in Kenya, has been a willing and active participant in driving this change over the last 15 years.

This has been in line with our company mission to transform lives. With more than 25 million subscribers, the firm is listed on the Nairobi Securities Exchange. It provides over 200,000 customer touch points and offers over 100 different voice, data, financial services, and enterprise solutions for individuals, small businesses, and the government on a variety of platforms.

Safaricom has played a critical role in the mobile revolution that has driven the ubiquity of the mobile phone. Mobile as a technology has now become the connective tissue that drives Kenya’s economy. This has allowed the country to ‘leapfrog’ traditional economic growth stages through the adoption of cellular and internet technologies. Bob Collymore

Of all the transformative cellular innovations, the most significant yet remains M-PESA—the most successful commercial mobile money transfer service of its kind anywhere in the world. M-PESA was pioneered by Safaricom. Launched in March 2007, M-PESA now has over 21 million customers who are served by over 85,000 agent outlets scattered countrywide. Currently, according to the World Bank, 93 per cent of Kenyans are mobile phone users and 73 per cent are active mobile money customers, and an additional 23 per cent use mobile money at least once a day. Cumulatively, the value of person-to-person transactions is estimated at KSh4.2 trillion, or $41.2 billion.

Kenya is indeed a trailblazer in mobile money. Already, 80 per cent of the world’s mobile money transactions are happening in East Africa, mainly driven by Kenya, which is now the epicenter of mobile innovation. This has translated in up to 32 per cent of the region’s GDP (or about $125 million daily) being moved via mobile money—with projections for significant growth in the next few years. On the global front, mobile money is projected to become a $617 billion industry this year, according to technology research firm Gartner.

The story of M-PESA in Kenya starts in 2005, in a dusty town to the north of Nairobi called Thika, where a trial mobile phone loan service between female farmers discovered that there were possibilities for a more commercial application. The premise was simple: using SMS technology, users could exchange cash for electronic money (M-PESA), which could then be sent to other mobile phone users to redeem for cash. Bob Collymore

M-PESA signed up 20,000 customers in the first month after it was launched; two million by the end of its first year; 10 million by its third birthday; and onto its current 21 million subscribers—representing over 80 per cent of Kenya’s adult population. While Kenya is still a cash-heavy economy, with over 90 per cent of transactions being cash-based, over 98 per cent of all mobile money transactions in Kenya are conducted through M-PESA. The Central Bank of Kenya reported that, in 2012, the equivalent of 43.5 per cent of Kenya’s GDP was transferred via M-PESA. At the moment, in addition to transacting locally, customers can also receive funds internationally from over 100 countries.

M-PESA’s strongest selling point has been the greater convenience, safety, speed, and lower costs of transferring cash that it provides. The introduction of lower bands and tariffs to meet the needs of our customers has led to an increased number of transactions. Currently, it is estimated that over eight million transactions are carried out daily via M-PESA.

The huge success that M-PESA has enjoyed over the years has been driven by a number of factors—most importantly its focus on the customer. This has consequently spawned innovation and the continuous improvement of new and existing products to address customer needs. Of key importance has been the language of communication on the service, which is simple and easy to understand (sometimes in the vernacular) by customers.

Another factor of success has been the partnership struck with other institutions, such as the Commercial Bank of Africa and KCB Group, as well as other institutions. These include more than 2,000 PayBill partners, 42,000 merchant outlets that accept M-PESA as a mode of payment, and more than 35 banks that have now integrated to offer mobile banking services through M-PESA. Mobile banking is having a profound effect on the global financial services industry, according to KPMG’s 2015 Global Mobile Banking Report.

The expansive countrywide M-PESA agent network (it costs up to $1.4 million to maintain), together with dedicated resources across all business units, has contributed to the service’s growth. The regulatory framework has also been supportive, cultivating an enabling environment for the service to thrive.

Together, these factors have backed the emergence and spread of M-PESA, translating into a huge impact on the Kenyan economy. Take financial inclusion figures, for instance, which are reported to stand at 80 percent at the moment; but when mobile money is removed, the number drops to 23 percent.

When it emerged, backed by continuous innovation, M-PESA spawned other products such as M-Shwari, a mobile-based product that enables subscribers to save and access loans on their phones. In this way, it quickly solved one of Kenya’s biggest challenges: access to finance. In contrast, Kenya has an estimated 500 bank branches, 500 post office branches, and 352 ATMs.

Simply put, M-PESA has proven to be most adaptable. M-PESA is actively transforming lives. It has already moved beyond being a person-to-person transfer product to a platform that enables financial inclusion, and is now inspiring new ways to provide access to essential services. Bob Collymore

M-PESA services pervades every sphere of life. It now includes person-to-person transfers, ATM withdrawals, Lipa Na M-PESA (payment for bills and purchases through PayBill and Buy Goods and Services), Bulk Payments, Bank to M-PESA transfers and vice versa, M-Ticketing, Lipa Karo, M-PESA Prepay Visa card, International Money Transfer (IMT), Lipa Na M-PESA Online, and M-Shwari.

M-PESA has the highest penetration among the formally employed, and the lowest among farmers, pastoralists, fishers, and dependents, according to research by Kenya’s Financial Sector Deepening. The study indicates that in 2006, 40 per cent were using hand delivery to send money upcountry, while 20 per cent used the bus; by 2009, however, over 47 per cent used M-PESA to send money to family and friends, while hand delivery dropped to 32 per cent and bus delivery to 9 per cent. A University of Nairobi study in western Kenya also found that women entrepreneurs who had access to a mobile deposit account invested 45 percent more in their businesses.

However, the truly transformative story about how M-PESA can change lives is best illustrated in areas like Daadab, which is home to one of the world’s biggest refugee populations. For some of the more than 300,000 residents from Somalia, the camp is the only home they have known for two generations. The traditional concept of bricks-and-mortar financial access is simply not feasible in a tented environment like a refugee camp.

Up until last year, the World Food Programme (WFP) conducted air drops to deliver aid and essential services to residents of the camp. With mobile connectivity in the area, they are now able to send aid via M-PESA, as the funds are sent directly to a beneficiary’s phone. The solution allows for the funding organisation to place restrictions on where the money is spent, introducing transparency and accountability for less than a dollar a day.

M-PESA has continued to innovate, leading to its deployment in a variety of sectors-from health and energy to agriculture. Bob Collymore

For instance, M-PESA has helped to increase access to energy. With less than a quarter of the population on the power grid, a significant part of Kenya remains in the dark. For a deposit of around $35 or KSh3,500, a company called M-KOPA gives M-PESA customers access to a solar panel system to install at their homes. They then top it up every day to the tune of around 45 cents in order to receive energy—creating a pay-as-you-go power model. In practical terms, M-KOPA allows young school children to do their homework using a real power source, and not a candle.

Bob Collymore is the CEO, Safaricom

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By Safaricom Newsroom