Mobile Phone based Money Transfer Solution in Remote Areas of Kenya and Tanzania

Issue:
In 2005, Africa added almost 15 million new mobile phone subscribers. This was equivalent to the total number of fixed and mobile telephone subscribers in the continent in 1996.

Some analysts predict that there will be close to 200 million mobile subscribers in Africa by 2010.  By comparison the reach of the retail banking system in most African countries is very low, particularly in remote parts of Kenya and Tanzania. Vodafone, in collaboration with a number of partners including the Commercial Bank of Africa aimed to fill the void created by the lack of banking infrastructure in these regions, by using mobile technology to bring the economic advantages of having a bank account to those with small, irregular or cyclical incomes. The mobile phone and SIM card stand in for the bank card and instead ATM machine services are provided by airtime resellers.

 
Approach:
In 2004, Vodafone’s Kenyan affiliate, Safaricom, was awarded match funding by the UK’s Department for International Development to develop services for extending the provision of micro-finance to the poor in East Africa.  £910,000 (48%) of funding came from DFID’s Financial Deepening Challenge Fund and £990,000 (52%) from Vodafone.

Safaricom partnered with the Commercial Bank of Africa, which provided local banking services, and micro-finance company, Faulu, which provided local expertise, to design and test a micro-payment platform called M-PESA. M-PESA allows customers to use their phone like a bank account and debit card. The customer credits their account at their local air-time dealer and can then transfer the value to another person’s phone or use it to make a loan repayment or redeem it as cash.

The project successfully demonstrated the technology could be used to disburse loans from a micro-finance company to its clients and then to collect repayments via designated mobile phone airtime agents. Pooled M-PESA balances were held at a Kenyan bank. Through the project, existing microfinance clients received a cell phone through which they could electronically make payments on their loans. Several services were available in addition to loan repayments; users were able to deposit or withdraw cash from authorized M-PESA agents, typically a small store owner. Clients were also able to make person-to-person money transfers, purchase airtime for re-sale or personal use, and receive statements.


Impact:
Vodafone’s MPESA has enabled 1 million Kenyans to regularly transfer money using their mobile phones at a cost of just $0.06 per transaction. The system reduced the time it took to repay the Faulu loans as the transaction and the confirmation of payment is instant. This saved time and money by reducing users visits to the bank and was an added convenience. The scheme meant there was no need to carry around large amounts of cash and improved the security of users’ money.

Vodafone also announced a joint venture with Citibank in February 2007 to extend the M-PESA scheme worldwide. Vodafone customers in the UK were the first to use the service to send money to Kenya on a trial basis and there are plans to launch commercially with a focus on Eastern European and Asian markets, in the future.