Will mobile telephones become the new super highway to connect the poor to the financial grid? Africa has the world’s fastest-growing mobile communications market with 350 million mobile phone subscriptions. Yet, only one in five households has access to financial services. New mobile-enabled services could push the frontiers of financial inclusion and be a win for the region’s development agenda.
Last week’s announcement in Kenya by Equity Bank, the largest microfinance provider in East Africa, and Safaricom, the largest provider of mobile-money transfers, may provide a glimpse into the future. Their new product, M-KESHO (M for money and Kesho meaning “tomorrow” in Swahili) allows anyone who owns a cell phone in Kenya to open and operate an interest-bearing savings account at Equity Bank.
About $10 million a day is transferred through M-PESA, Safaricom’s mobile-money platform, mostly in small amounts averaging $24 per transaction. To date, M-PESA has 9.5 million customers and has handled $4.9 billion in person-to-person transfers. Customers use it to buy airtime, pay bills, and transfer money to family and friends.
Interestingly, recent research found that one-fifth of customers are also using M-PESA as a form of savings. Nearly one in three people in Kibera, the largest slum in Nairobi, kept small balances in their M-PESA accounts. Some used the stored value for daily consumption. Others made frequent deposits of “small money” to accumulate a larger amount. These practices illustrate the latent demand of the poor for accessible, affordable and safe savings services.
M-KESHO meets this demand. It provides the convenience and security of a bank account that uses an affordable mobile service as a tool to deposit and withdraw money into accounts. Clients will also have access to microcredit and micro-insurance services. M-KESHO will enable unbanked Kenyans with mobile phones to enter the financial system, potentially increasing the number of savings accounts to close to 20 million. If this were to happen, Kenya would become the most banked developing country in the world.
This innovation will also promote a savings culture in Kenya. Savings matter at the macro level as there are billions of dollars stored under mattresses of the unbanked. Depositing these savings in bank accounts can help mobilize money for investment and economic development. Savings also matter at the micro level. We are just beginning to understand the developmental impact that access to savings may have on low-income youth, including educational and employment opportunities, and building self-esteem.
But, questions remain. What kind of policy environment is required to enable and sustain this rapidly growing service? How do we mitigate security risks in transactions and protect client records? How can other African countries learn from Kenya?
Mobile technology has the power to transform the lives of poor people as it connects them to information, services and markets—a significant development leap in countries where the population is predominantly rural. Mobile banking could be a game-changing innovation that, if developed sustainably, could transport the continent into a new age of financial inclusion.