NAIROBI // Each week, Bakari Iloka sends about US$15 (Dh55) to his wife, who is raising their four children in a far-flung village in western Kenya. But Mr Iloka cannot afford a bank account and he has lost money sending it through courier services, so he sends the cash using his mobile phone. Mr Iloka, who sells traditional medicine in a sprawling slum of corrugated metal shacks and muddy pathways, is part of a micro banking revolution that is sweeping Kenya's slums and rural areas.
A service, called M-Pesa ("M" for mobile, and pesa is the Swahili word for money), has become the cheapest and most secure way of transferring money in Kenya. Its popularity with the lower class has spawned similar services in other developing countries. "Before I would send money with the bus company," said Mr Iloka, a tall man with a bushy beard. "Sometimes the bus would be robbed and I would lose my money. With M-Pesa, once you send it, the money is immediately there."
Mr Iloka recently walked into an M-Pesa agent operating out of a small corrugated metal kiosk in Kibera, a slum of one million people. He removed a crumpled 1,000 shilling note (Dh55) from a piece of folded newspaper tucked into his trousers and handed it to the agent who sent a text message through to his wife in the western village of Kakamega. A minute later, he called his wife and told her to collect the money from an M-Pesa agent on her end.
Safaricom, the Kenyan mobile phone company, launched M-Pesa two years ago and already there are more than five million registered users. The service allows customers to transfer up to $450 per day, although the average transaction is only $30. Still, M-Pesa moves $4 million each day in this country where almost every rural household has a family member working in a city and sending money back home.
More than 10,000 M-Pesa agents across the country offer banking services to people in remote villages and dense slums, places traditional banks have not penetrated. M-Pesa is so popular in Kenya because it fills a need that other money transfer services did not, according to Olga Morawczynski, a researcher who spent nine months studying M-Pesa usage in Kenya. "The majority of customers in both the urban and rural areas assert that they prefer M-Pesa over other money transfer services," Ms Morawcynski wrote in a report for the Consultative Group to Assist the Poor, a group of agencies working to expand access to financial services.
"This means that M-Pesa must be offering them some kind of substantial benefit." The benefit is in the cost savings. Each M-Pesa transaction, no matter how large, costs less than a dollar. Banks, traditional money transfer services and couriers cost as much as US$5 and do not have a convenient network of agents. Besides transferring money, M-Pesa also allows customers to keep up to $600 in their accounts.
Eliakim Obondo, a mechanic, used to carry around his cash, but was frequently robbed on the tough streets of Kibera. Now, he keeps his money with M-Pesa. "I use M-Pesa like a bank," he said. "I keep my money with them so it doesn't get lost." The Business Daily, a Kenyan financial newspaper, called M-Pesa "undeniably the most innovative information-technology product to have ever been launched in East Africa."
While Kenya has led the way, mobile banking products are being launched in other places including Tanzania, Afghanistan and West Africa. Michael Joseph, the chief executive officer of Safaricom, said he was surprised with the success of M-Pesa. Mr Joseph has built Safaricom into a trusted brand, especially among the lower class, which partly explains the service's success. "For some people, $20 is a lot of money," he said.
"Trust is very important. You have to have people trust you with their money." Although it is not hugely profitable for Safaricom, thousands of agents have made a lot of money off of M-Pesa commissions. The company thoroughly vets its agents and determines where M-Pesa outlets will be located. Outside Safaricom's large glass headquarters in the outskirts of Nairobi recently, dozens of Kenyan entrepreneurs filled out paperwork to purchase M-Pesa branches.
It takes about $2,000 in start-up capital and a location to apply for an M-Pesa franchise, and owners can start to see a profit in as little as four months. Nathan Wambua owns about 20 M-Pesa branches across Kenya and makes $500 on each branch per month. Mr Wambua used to work at a bank until last year when he started partnering with Safaricom. "I talked to a lot of customers at the bank and they said they were tired of long queues and high prices to send money," he said.
"The banks started losing customers to M-Pesa. "That's when I quit. Now I can sit back and watch the money come in." M-Pesa's success has made banks in Kenya take notice. Frightened that they are losing a considerable market share to Safaricom, a group of banks recently pressured the government to regulate M-Pesa like a bank, and the finance minister has called for an audit of M-Pesa. But does Mr Joseph, the Safaricom CEO, want to rival the big banks?
"Officially, the answer is no," he said with a wry grin. email@example.com