MICROFINANCE PAPER WRAP-UP: Saving Through the Mobile Phone - The Case of M-PESA, by Olga Morawczynski, Published by Microfinance Information Exchange (MIX)

By Olga Morawczynski, Published by Microfinance Information eXchange (MIX), MicroBanking Bulletin, Issue 19, December 2009, 8 pages, available at: http://www.themix.org/sites/default/files/MBB%2019%20-%20Saving%20Through%20the%20Mobile%20Phone.pdf

M-PESA is a mobile-phone-based service for sending and storing money, offered by Safaricom, a mobile service provider in Kenya. From its launch in March 2007 through the writing of this paper, M-PESA has acquired 7 million users. While M-PESA was designed to be a money transfer service, evidence suggests that customers are using it for savings as well. Olga Morawczynski studies data from “financial diaries” concerning the savings practices of 14 M-PESA users for a period of one month. Eight users from the Kenyan city, Kibera, represent the “urban” customers, while six users from smaller villages represent the “rural” customers.

Of the four most common savings mechanisms: home banks (storing money at home), rotating savings and credit associations (ROSCAs), regulated banks and M-PESA, Ms Morawczynski found that on average participants used two. The chosen mechanisms usually complemented each other, each serving different purposes, such as: accessibility, safety, interest rate gains, organizing personal finances or building credit confidence.

Concerning the urban users, Ms Morawczynski found the most popular mechanisms for savings were home banks and M-PESA. The diaries revealed that an average of four percent of total income was deposited in home banks, while 18 percent was put into M-PESA, much of which may have been used for paying bills rather than for long-term savings.

Concerning the rural users, the most popular mechanism was the home bank, capturing an average of 32 percent of total income. Again, funds were not necessarily saved for long periods of time. None of the rural users claimed using M-PESA as a savings mechanism, stating either that they did not know it was possible to save with M-PESA or that cash shortages at rural M-PESA outlets dissuaded them.

In regards to the disadvantages, Ms Morawczynski argues that M-PESA is not appropriate for “big savings” because it does not pay interest on money held. Another complaint often cited in the diaries is that when Safaricom’s mobile network experienced issues, users were unable to access their money. As Ms Morawczynski noted, this happened several times during the 14-month study.

Ms Morawczynski suggests M-PESA partner with microfinance institutions (MFIs) and banks to facilitate users opening and maintaining accounts with these financial institutions. She claims this would help M-PESA manage its growth and allow it to pay interest to users. This would not require any change in design or operation, “Safaricom would continue transferring all stored funds through M-PESA with the chosen bank, but now they would be stored on behalf of the M-PESA clients, not on behalf of M-PESA itself,” she states. This model, where the service is branded and operated by a mobile provider, but the mobile “wallet” accounts are issued by banks, provides users deposit safety in the form of guarantees from regulated banks.

Because M-PESA was designed to serve merely as a money transfer service, the author argues that its inefficiencies as a savings mechanism are not surprising. To begin offering expanded financial services to a large customer base, Ms Morawczynski stresses the need for a new business model. She claims that M-PESA can provide a platform on which various savings mechanisms can be accessed. She asserts that the importance of M-PESA is that it offers a new form of value, electronic money (e-money), which makes it easier for users to organize and keep track of their accounts. “Rather than going from one mechanism to the next to check balance and make deposits and withdrawals, all the accounts would be centralized and made accessible via the mobile phone.” If Safaricom can strengthen the M-PESA technical platform and the cash-out options of users, she believes this will significantly increase users’ opportunities to save.

About M-PESA:

M-Pesa is a Kenyan cellphone to cellphone cash-transfer service. (The M is for “mobile” and pesa is “cash” in Swahili.) Launched in 2007 by Safaricom Limited, a Kenya-based cellphone provider, M-PESA was developed by Vodafone Group Private Limited Corporation, a British multinational mobile network operator, as part of their strategy to reach the bottom of the pyramid with new goods and services.

By Matthew Fox, Research Assistant

Additional Resources:

Microfinance Paper Wrap-Up: It’s Time to Address the Microsavings Challenge, Scalably, By Bob Christen and Ignacio Mas, Published by Practical Action Publishing, 31 August 2010: https://www.microcapital.org/microfinance-paper-wrap-up-its-time-to-address-the-microsavings-challenge-scalably-by-bob-christen-and-ignacio-mas-published-by-practical-action-publishing/

MicroCapital Universe: M-PESA: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=M-Pesa