Wednesday, October 26, 2011

Kenya pays up with M-PESA

M-PESA and Personal Finance

Since its inception in Kenya in 2007, the M-PESA mobile finance technology has become a widely-used and cost-effective tool for managing personal finances for many developing areas. This small-value electronic payment method was introduced by Safaricom, part of the Vodafone group and largest mobile phone operator in the country. M-PESA transactions in Kenya alone have surpassed those conducted via Western Union throughout the world. It doesn't take a PhD online graduate to see the power of this personal finance solution and realize it's value in developing countries.

“M” stands for “mobile” and “PESA” is the Swahili word for money. M-PESA is literally a “mobile money” service that allows people to make deposits, withdrawals, and transfers without bank accounts. Many businesses have realized its potential and made it possible for customers to pay their bills via M-PESA.

M-PESA is currently available in several other countries, including Tanzania, Afghanistan, South Africa, India, and the UK. It provides a simple way for people abroad in these nations to send money to friends and family members at home.

The service has transformed the way people carry out their personal financing, particularly in the developing nations where more people have mobile phones than bank accounts. It's estimated about 300 million previously“unbanked” people will be using some type of mobile banking by 2012.

Although there are different types of mobile banking services, M-PESA has become more successful because it provided the core of what people really wanted: a way to send and receive money. Other systems offer standard banking services through the mobile phone, but M-PESA doesn't require users to have any bank accounts at all. All they need are their IDs and mobile phones to register for and use M-PESA services.

The initial concept of M-PESA was to provide microfinance institutions a means to collect loan payments easily. However, Vodafone and Safaricom soon realized that was a mistake and reconstructed the program, changing its slogan to “Send money home.” This gave them the opportunity to offer their customers what they truly wanted, which is the major reason for its success.

Before M-PESA, customers used to have quite a difficult time sending money to their rural homes. They would use such unreliable means as putting money in envelopes and sending it through the postal service, public transport systems, or with friends. Alternatively, they had to make personal trips, which was costly and time-wasting. With a vast network of about 28,000 agents in both urban and rural areas in Kenya, M-PESA has helped people do away with such methods and enabled easy access to their money almost anywhere.

M-PESA’s simple user interface coupled with free registration, free deposit, and no minimum balance has made it attractive to customers who previously may've shied away from banking entirely. Many people use the system for personal business transactions without worrying about carrying a lot of cash. With more than 14 million customers in Kenya, its success has prompted the World Bank to pick Michael Joseph, the former Safaricom CEO, to help replicate the model in other developing countries.

Academic studies have shown that a lack of understanding personal finances leads to further externalities such as lack of funding for education. With conventional financial institutions in America and other developed nations funded by public taxes, such a no-obligation, totally mobile personal finance solution might well become appealing worldwide.

Elaine Hirsch is kind of a jack-of-all-interests, from education and history to medicine and videogames. This makes it difficult to choose just one life path, so she is currently working as a writer for various education-related sites and writing about all these things instead.


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