Lessons From Kenya On How To Improve The Lives Of The Unbanked

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  • 30.09.2020 06:45 pm
  • financial inclusion

At a village in Kenya on a regular day, when a person decides to go grocery shopping, they often need money for their expenses, yet a majority of these people don’t have bank accounts, or maybe the closest financial institution could be located miles away. Rather than walk the distance or follow the lengthy procedures in creating a bank account, most people use mobile money services. It is as fast as a text message, all an individual needs to do is type in some coordinates and receive the requested amount in just a matter of minutes. Then you’re cleared for start-up, and this is what mobile money is all about.

It is not as easy in many parts of the world for people to create and own bank accounts as it is in the US. A good example is in Senegal, where only about 8% of the population own accounts in banks. In Uganda, the number of individuals who own bank accounts are few, with a percentage of only 11%. This implies that the rest of the populations without accounts have been locked out of access to financial institutions. Most of whom are unable to effectively complete transactions or even get loans. However, this is the age of technology, and a majority of people have cell phones, making it possible to access money without the use of financial institutions or even creating a bank account.

This first started in the year 2000 in Kenya. And stunningly, this mobile-based banking system has outdone even the payment systems in the United States. According to research, this mobile money payment system led to economic growth in the regions using it. In the US, it is still not easy to pay for groceries using the cellphone even more than a decade after its introduction. But it is used almost exclusively in Africa. 43 and 72% of Ugandans and Kenyans, respectively have mobile money accounts.

It is very easy to operate mobile money programs.  It is in many ways like the mobile applications used to transfer money or make other monetary transactions such as Venmo, where you can easily send money to your friends and family. But the main difference between Venmo and mobile money is that mobile money does not require a linked bank account for setting up. But to be able to successfully set up a Venmo app, you need to link it to an existing bank account, meaning that if you don’t have a bank account, you can’t access the app. However mobile money sort of works like Venmo without the bank account aspect of it.  To make cash deposits into your mobile money account, you have to go through mobile money agents who are located everywhere across the country.

These agents operate like ATM machines. You go to them and give them money, which will be deposited in your mobile money account, to withdraw money from your account, or to transfer some money out to someone else’s mobile money account. In countries where there are few banks, the agents represent financial institutions in making cash available to people when they need it and a secure place to save it when you don’t need it. This system that was initially developed for messaging without smartphones is making a difference within poor families. In Kenya, which is the main country that has led to the expansion of these services, there are about 87% of households registered to mobile money accounts, and agents can be found just about anywhere.

How mobile money works

Before the advent of mobile phones, people in Kenyan villages had limited options with regards to transferring and saving money in a region with few or no banks at all. And even if a locality had a bank, the nearest could be found hundreds of miles away, making it practically impossible for these people to get the services they require. Some of the few available banks were not meant to serve the rural communities who are mostly impoverished. The next best option available was to carry the money with you, which made the people susceptible to theft. People who stayed and worked in the cities wanting to send money to their families had to either make long and sometimes risky trips just to send money or either use high charging courier services.

And that is how mobile money was introduced in Kenya and many other African nations. Mobile money apps do not require the services of a standard bank, but they end up operating like an American debit card or bank account would. This means that an average Kenyan with such an account has access to the services that a regular US person has with a bank account. Mobile money is more common in developing countries, where a majority of the people relied on text messaging services before the introduction of smartphones. In the 2000s, South Africa made early attempts to set up the mobile money systems, together with the Philippines, which were successful. But the progress was the remarkable success of the Kenyan company M-Pesa, which is older than Venmo.

In 2002, the project that was launched to help low-income communities by NGOs to get loans became M-Pesa. Mobile phone providers noticed that they had indirectly created a form of exchange, which was almost a currency. Mobile phone users in Kenya would buy and sell airtime, transfer minutes, or phone data to their relatives, and in other cases using it as an account to save money since it was very risky carrying cash around. People would save money as airtime, then and later resell it. This was a better option for the people than carrying their hard cash around and eventually losing it. This method was more comfortable than standard financial institutions because there were vendors everywhere. As earlier noted, the company was meant to aid low-income families to repay microloans. The services were mostly funded by NGOs and international charity organizations. This is to say that M-Pesa was launched as a substitute for financial institutions accessible to the local communities who couldn’t access banks. The M-Pesa quickly took off in these communities and has developed over the years to the successful company it is today.

How mobile money impacts poor people’s lives

The fact that people could send money to their family and friends without having to travel miles away on dangerous trips or without using an expensive courier, or even keeping your money in your cell phone rather than under your bed could easily be taken for granted. But the fact that there are still billions of areas around the world that find the concept of an alternative to carrying money around in cash new is worth noting. However, mobile money changed that for Kenyans and many other African countries, and the effects were economically profound. William Jack and Tavneet Suri, who are development economists, wrote research pieces about the impacts of mobile money on the economy. M-Pesa could be found everywhere in Kenya by 2016, according to the research, and almost everyone had it. However, more research between the years 2008 to 2010 showed that not all households had these agents within walking distance. Some did, and others did not. This made the researcher examine if the presence of the company in the region reduced the rate of poverty among some of the families, and it proves them right.

The M-Pesa platform is not only available in Kenya, but in seven other African countries, including Ghana, The Democratic Republic of Congo, Egypt, Mozambique, Lesotho, and Tanzania. The mobile money services have been very successful in these countries and have changed the lives of many residents. Forex brokers are currently MPesa trading in Kenya to make it easy for investors using M-Pesa mobile money services to make exchanges, since the forex markets are not fully developed in these African countries, given the fact that some of them don’t have bank accounts. M-Pesa continues to provide the people with job opportunities, better standards of living, and a contribution to the overall growth of the economy.

Analysts discovered comparable impacts in different nations. A paper by Ggombe Kasim Munyegera and Tomoya Matsumoto in 2016 analyzed family units in provincial Uganda and found a critical uptick in family unit utilization among several households that had mobile money access. The system, all things considered, was generally remittances, cash sent home by relatives living and working somewhere else. Sending and receiving cash to and from relatives was made more secure and simpler by mobile money, and expenses are a lot lower than charges for postal services of wire-transfers, so many people get to receive money at home, and people in rural areas are less inclined to go hungry. Another Ugandan investigation in 2019 randomly assessed the launch of mobile money networks and found that this form of financial exchange expanded settlements and non-farm independent work and decreased the number of family units with low food security from 62.9 to 47.2%.

If this is all considered as a whole, there's a case to be made that the worldwide network needs to concentrate on advancing mobile money and potentially the creation of more accounts as a means of reducing the rates of poverty, since the study proved that mobile money had improved the standards of living of the people and reduced poverty rates. For quite a long time, Jack and Suri pointed out that the global advancement network has committed bunches of energy and efforts to programs like microfinance, which are intended to give poor people access to modern financial instruments like business loans for the long term. The proof base is quite frustrating because there is no evidence that these huge loans bring people out of poverty. Rather, the advantage it has is by all accounts generally that it gives individuals access to the financial institutions. But thanks to the introduction of mobile money, people can have access to these same services without incurring the huge amounts of debts that the big financial loans entail.

The Effort To Get Mobile Money Services To More Countries

Over the previous decade, M-Pesa and contenders have attempted to duplicate the formula that prompted the company’s success in Kenya across more nations in Africa and Asia. Today, M-Pesa says it has 400,000 operators and 42 million dynamic clients across seven nations.

M-Pesa's prosperity has roused others to stick to this same pattern. The Gates Foundation has subsidized foundations for mobile money and created apps for these companies. Privately owned businesses are competitors of M-Pesa. One such organization is Wave, which is a smarter and cheaper application for mobile money. The wave was established and is controlled by individuals who wanted to bring M-Pesa-like services to unbanked individuals in different nations.

Sadly, imitating that early achievement has proven to be tough. At the point when mobile money prevailed in Kenya, it removed millions of people from poverty. But, even after over ten years, a majority of Africans still need cheap ways to save and borrow, receive or transfer the cash they have to build their businesses or take care of their families according to Wave's splash. M-Pesa was actually required by Kenya, and it was introduced there. However, no two nations are the same, and persuading a whole society to receive another method of doing budgetary exchanges isn't a simple thing.

Mobile money in certain nations has not succeeded in taking off. Agents should be large-scale for the service to be valuable, yet putting operators everywhere isn't practical until the administration is popular. This is why the mobile money service didn’t quite succeed in Niger, according to reports. In spite of the nation having loads of unbanked citizens and many people interested in a better framework for financial transactions, M-Pesa, and its competitors have failed to get traction in the country. Mobile money administrations in other nations have been closed by the government and larger financial institutions.

That implies that over ten years after mobile money surprised Kenya, a significant number of Kenya's neighbors are still in a disappointing position. One nation Wave works in is Senegal. In Senegal, just 8% of the population has accounts with banks, and around the same percentage have mobile money accounts. Yet, that doesn't mean the two are seen equally. It appears to be conceivable that in three years, Senegal's direction will look like Kenya's. Because they are steadily progressing in the field, or they might end up disappointed like the other countries who have tried mobile money and failed. Mobile money starts off in any country successful, but after some time, it fails, maybe because of too much taxes from the government or a lot of regulations or a total shutdown by the administration. M-Pesa's launch was not only successful because the company operated on its own, but because the government of Kenya supported the growth of the company by not imposing huge taxes or many restrictions.

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