Inadequate, inaccessible financial services is undoubtedly one of the reasons why the poor are trapped in poverty. Without access to finance, the poor people cannot invest in tools to increase productivity, start a microenterprise, invest in education or health, or even take time to search for better opportunities.

In April 2007, following a donor-funded pilot project, M-Pesa (M for mobile, Pesa is Swahili for money) was launched. It is a mobile phone based payment and money transfer service. The service allows users to deposit money into an account stored on their cell phones, to send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for regular money. Users are charged a small fee for sending and withdrawing money using the service. It is cheap, easy to use and, for millions of Africans unable to access a bank account or afford the hefty charges of using one, nothing short of revolutionary.

M-Pesa  is designed to enable users to complete basic banking transactions without the need to visit a bank branch. The continuing success of M-Pesa in Kenya has been due to the creation of a highly popular, affordable payment service with only limited involvement of a bank. It allows users with a national ID card or passport to deposit, withdraw, and transfer money easily with a mobile device. It does not require a physical location and saves the need to find transportation for every transaction, both of which can be problematic in infrastructure-constrained developing countries.

M-Pesa has spread quickly, and is currently the most developed mobile payment system in the developing world.

“IT IS like magic. By clicking a few keys on a mobile phone, money can be zapped from one part of Kenya to another in seconds. For urban migrants sending money home to their villages, and for people used to queuing at banks for hours to pay bills or school fees, the M-PESA money-transfer service, operated by Safaricom, Kenya’s largest mobile operator, is a godsend. No wonder it is used by 9.5m people, or 23% of the population, and transfers the equivalent of 11% of Kenya’s GDP each year; or that it has inspired more than 60 similar schemes across the world.” explains the Economist.

How it Works

1. Register to join Mpesa at any Mpesa agent for free at any M-Pesa agent. Once registration is done the network sends you an updated menu on your phone.

2. Load Money onto your phone at any agent by giving them cash and your phone number.

3. Send Money Use the menu on your phone, enter the phone number of the recipient and amount and the money arrives near instantly.

4. Pay Bills, buy a flights etc. using M-Pesa.

By 2012, a stock of about 17 million M-Pesa accounts had been registered in Kenya.

Safaricom didn’t invent mobile banking: it existed previously in countries such as Norway and Japan, but on a small scale and with nothing like the seismic effect it had in Kenya.

M-Pesa’s growth has forced formal banking institutions to take note of the new venture. In December 2008, a group of banks, who were losing a lot of business to this service, reportedly lobbied the Kenyan finance minister to audit M-Pesa, in an effort to at least slow the growth of the service. This ploy failed, as the audit found that the service was robust.

 M-Pesa was launched in Tanzania in 2008. As of 2012, M-Pesa in Tanzania has nine million subscribers and recently undertook a major upgrade of its system.

In 2008 Vodafone partnered with Roshan, Afghanistan’s primary mobile operator, to provide M-Paisa, the local brand of the service. When the service was launched in Afghanistan, it was initially used to pay policemen’s salary, which was set to be competitive with what the Taliban were earning. The Afghan National Police found that under the previous cash model, 10% of their workforce were ghost police officers who did not exist. This was corrected by using M-Paisa. The service has been so successful that it has been expanded to include limited merchant payments, peer-to-peer transfers, loan disbursements and payments.

South Africa
In September 2010 Vodacom and Nedbank announced the launch of the service in South Africa, where it is estimated that there are more than 13 million “economically active” people without a bank account.  M-Pesa has been slow to gain a toehold in the South African market.

M-Pesa, branded as M-Paisa, was launched in India in November 2011. The service continues to operate in a limited geographical area within India.


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