Lessons from M-Pesa and living “unbanked”

In Kenya, mobile banking has improved economic mobility for poor households. The mobile cash scheme is not attached to financial institutions so that the vast majority of Kenyans who have no bank accounts but mobile phones can gain access to the system. Mobile banking enables both deposits and withdrawals and helps families to save money if their revenue typically comes from farming, therefore building a security net for themselves and enabling them to receive money from friends and family. Savings help families to satisfy fundamental necessities and, when required, to seek medical treatment.

People do not live in many parts of the world with banks or bank accounts. Only 8% of the people in Senegal, for example, have a bank account. This is 11% in Uganda. This means that these folks have been shut out of the financial system for a long time – unable to transfer money straight, save it, buy goods without cash or acquire credit. However, in the era of the cell phone, the essential services of a financial system may be accessed without receiving a formal bank account.

The mobile banking industry in Kenya first took off in the early 2000s and has in many respects outperformed the payment systems that people have in the United States. Research shows that the rapid expansion of mobile money systems has resulted in substantial economic growth in the impacted areas. Over a decade later, paying for food on your phone is not always simple in the United States, but mobile money systems are everywhere in some regions of Africa. Uganda has a mobile cash account with 43 percent of the population. This is 72% in Kenya.

Mobile cash systems are very straightforward. In many respects, you may believe that applications that are extensively used in some African nations for mobile transactions are the same as sending your friends money apps such as Venmo. But Venmo needs a bank or credit card relationship, meaning that anyone with no bank is barred out.

Mobile money accounts operate like Venmo, but the distinction is that there is no need for a bank account. Mobile money systems employ human agents, individuals who loiter around major places across the country, even far-off rural areas, with cash and mobile phones, to make a deposit or receive cash from the app. You may also utilize mobile money in cashless transactions, e.g. food purchases or services payments.

The way mobile money is used

In rural Kenya, individuals had relatively few choices for managing their money until cell phones became ubiquitous. The closest financial institutions were fairly far distant, and they were not geared to serve rural clients with little financial resources. Bank accounts were not accessible. The main choice was cash, which made you exposed to robbery. Family workers in the town wanted to send money home, but either had to send them for expensive costs by mail or to go for a long, sometimes hazardous journey.

That's how it originally came about with mobile money accounts. Mobile money applications don't need a brick-and-mortar bank, but otherwise, they will work just like an American's bank and credit card, meaning that the ordinary individual in South Africa has the access to much of the same financial sector services a person does in the United States. One of these sectors is Forex trading, which becomes popular over time among investors. Because the M-Pesa is a convenient payment method for South African investors, they are searching for reviews of South African brokers, in order to find out whether a certain broker offers customers M-Pesa as a payment option or not.

Mobile money got its start in the Undeveloped World, where individuals used SMS before smartphones became popular.

However, this breakthrough was Kenya's exceptional M-Pesa's early success, which was in fact before Venmo's. The M-Pesa initiative began in 2000 when telephone companies realized they developed something very similar to money involuntarily. Users in Kenya bought and sold "airtime", telephone information, or minutes, to families, and used it as a savings account in some situations effectively when they could resale much of their money later on. The air time sellers were more secure than carrying cash and more convenient than carrying a bank.

How mobile money influence poor people

It's easy to take for granted the ability to transmit money to a family member without making a potentially risky trip or to keep funds in a smartphone rather than beneath a mattress. Nevertheless, for billions of individuals throughout the world, having options to hold all of your wealth in cash is novel. Mobile money altered that, and the economic consequences were significant.

Economists Tavneet Suri and William Jack explored comparable impacts in a range of research papers, such as a 2016 Science article. By 2016, they discovered that M-Pesa was ubiquitous in Kenya, with 96 percent of families using it. Nevertheless, between 2008 and 2010, some of the residences investigated by the experts had several M-Pesa operators within walkable distance, while others did not, according to chance.

This allowed the researchers to investigate if having M-Pesa in an area earlier helped families overcome poverty. They discovered that it did.

The paper concludes that the sudden start of M-Pesa had lifted 194.0, according to a 2016 report, the capacity of basic financial services such as storage, sending, and transactions of money taken for granted in most advanced economies that in mobile money in the past decade reached millions of Kenyans at an unprecedented rate. The real impact was rather tiny – an additional 10 cents a day. But even a little influence was sufficient to move families beyond the severe border of poverty.

In other nations, researchers have discovered comparable results. In a 2016 article by Ggombe Kasim Munyegera & Tomoya Matsumoto, homes in rural Uganda were looked at and those with access to mobile money reported a substantial increase in household spending. In this case, the method was mostly transferred – money sent home by family members who live and work elsewhere. Mobile money makes the sending of money safer and easier, and costs are considerably cheaper than wire transfers and postal services – making it home with more money, and rural people are less likely to hunger.

Further Ugandan research conducted in 2019 randomized the deployment of mobile monetary systems and concluded that mobile money boosted cash transfers and non-farm self-employment (that is, the rate of founding small companies).

According to Haseeb Ahmed and Benjamin W. Cowan's 2019 article, mobile money is the thing that makes the health care sector more sophisticated. Since people are likely to save money more easily and safely if a household member falls sick, they're likely to save as a whole. Greater ease of transferring money also implies they are more likely to get assistance from friends and family in an emergency. Overall, the consequence of mobile money is that it makes individuals more likely to be able to get medical treatment when they are unwell.

When everything is said and done, there is a compelling case to be made that the worldwide development community should place a larger emphasis on mobile money accounts as a tool for poverty alleviation. According to Suri and Jack, the global development community has spent decades devoting significant effort and attention to programs such as microfinance, which are designed to provide impoverished people with sophisticated financial tools such as long-term business loans.

The data is mixed: it is not apparent that business loans lift many individuals out of poverty. Instead, the value appears to be primarily that it provides people with access to the financial system. That advantage is now available without the cost and debt load of microloans, thanks to mobile banking.