M-PESA, Mobile-phone based Money Transfer Service
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M-PESA (Swahili term for Mobile Money) is the name of an innovative mobile-phone based money transfer service sponsored by DFID in 2003–2007 and developed for Vodafone and its partners. M-PESA ...

M-PESA (Swahili term for Mobile Money) is the name of an innovative mobile-phone based money transfer service sponsored by DFID in 2003–2007 and developed for Vodafone and its partners. M-PESA system enables its users who do not have bank accounts to: (i) deposit and withdraw money, (ii) transfer money to other users and non-users and (iii) pay bills. M-PESA is highly popular in the remote areas because of its accessibility by the rural population.

M-Pesa provides access to formal financial services for livestock markets in Kenya and significantly improved the ability of the market’s actors to better manage their businesses.

The present case study was developed within the framework of an IFAD/Procasur project: the Learning Route on Innovative Livestock Marketing from Northern to Eastern Africa that took place in Kenya from the 27th of February to the 9th of March 2012. To achieve the main and specific objectives of the Learning Route, five (5) host cases were identified as best practices and innovations in the region by advisors and experts within the livestock sector. For each host case, the knowledge and learning systematized around specific themes was collected and redacted in a case study document.

[Originally posted on http://www.cop-ppld.net/cop_knowledge_base]

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M-PESA, Mobile-phone based Money Transfer Service M-PESA, Mobile-phone based Money Transfer Service Document Transcript

  •   CASE  3:  USING  M-­‐  PESA  AS  AN  INNOVATIVE  LIVESTOCK  MARKETING   TOOL  FOR  PASTORALISTS                        
  •   TABLE  OF  CONTENTS    1.0  BACKGROUND.....................................................................................................................3  2.0  The  Innovation....................................................................................................................4  3.0  Benefits  of  the  M-­‐pesa  Money  Transfer  System ................................................................6   3.1  Financial  Inclusion .......................................................................................................6   3.2  Enhanced  Economic  Activity........................................................................................6   3.3  Reduced  Cash  in  the  Economy  and  Increased  Transparency ......................................7   3.4  Security........................................................................................................................7   3.5  Convenience ................................................................................................................7  4.0  How  M-­‐PESA  Services  Works  for  pastoralistS  at  Keekonyokie  livestock      market ..............8  5.0  Challenges...........................................................................................................................8  6.0  References ..........................................................................................................................9                                  
  • 1.0  BACKGROUND    The   Maasai   pastoralist’s   livelihoods   revolve   around   their   livestock   and   this   is   reflected   in  aspects  of  their  rich  tradition,  which  have  been  passed  down  for  generations.  One  of  the  main  problems  related  to  pastoralists’  livestock  markets  in  Kenya  has  been  how  to   get   payments   through   to   the   thousands   of   livestock   producers   who   live   in   remote   and  distant   areas,   many   of   whom   are   women.   Carrying   cash   from   markets   back   to   the  rangelands   is   risky   for   traders.   Since   2007,   Kenya   has   been   leading   the   way   with   an  innovative  mobile  phone  technology  that  has  transformed  the  lives  of  millions  of  people  and  businesses.  M-­‐Pesa  allows  herdsmen  not  to  carry  cash  around;  also,  people  without  a  bank  account  can  transfer  funds  as  quickly  and  easily  as  sending  a  text  message.  Mobile   technology   has   proven   to   be   very   beneficial   for   Maasai   livestock   enterprises   and  traders.   Leveraging   mobile   devices   has   helped   the   Maasai   people   to   cope   with   one   of  Kenya’s  worst  droughts  in  history;  a  drought  that  threatened  their  ability  to  graze  and  water  their  cattle.  Through  mobile  devices  and  shared  information,  herders  can  find  out  where  to  bring   their   cattle   for   grazing   instead   of   roaming   in   search   of   water   and   pasture.   The   M-­‐Pesa  service   has   helped   the   Maasai   (who   often   live   miles   away   from   banks   and   are   usually   on  lone  grazing  or  livestock  marketing  trips  with  their  cattle)  to  transfer  money  back  home  or  sell  their  livestock  easily.  Finally,  the  service  provided  cash  transfer  security  on  transit  from  and  to  the  rangelands,  a  vital  element  in  livestock  trading.  One  of  the  clearest  demonstrations  of  the  transformative  power  of  the  M-­‐Pesa  service  is  the  availability  of  mobile  network  coverage  in  pastoralist  communities.  Almost  80%  of  herders  and  livestock  traders  have  purchased  mobile  phones  and  use  them  as  tools  for  trade.  They  communicate  with  their  contacts  at  livestock  markets  while  still  being  in  the  rangelands,  and  bring  their  cattle  to  those  markets  that  offer  the  best  prices.  Prices  became  more  uniform  and   predictable,   which   led   pastoralists   to   increase   their   profits.   Unsold   livestock   (which  ranged   between   5   to   10   %   per   day)   decreased   when   buyers   and   sellers   started  communicating   more   effectively.   This,   in   turn,   results   in   reduced   transaction   costs   for  livestock  trading.  In  short,  M-­‐Pesa  provided  access  to  formal  financial  services  for  livestock  markets  in  Kenya  and   significantly   improved   the   ability   of   the   market’s   actors   to   better   manage   their  businesses.        
  • 2.0  THE  INNOVATION    2.1  What  is  M-­‐PESA?      M-­‐Pesa   is   an   innovative   mobile   payment   solution   that   enables   customers   to   complete  simple   financial   transactions   including   person-­‐to-­‐person   money   transfers.   M-­‐Pesa   is  available  to  all  Safaricom  telephone  subscribers  in  Kenya.    M-­‐Pesa  allows  making  transactions  in  a  simple,  secure,  fast  and  effective  way  by  using  SMS  technology.   This   has   many   benefits   for   customers   in   terms   of   convenience,   security   and  because   it   is   user-­‐friendly.   In   addition,   pricing   is   competitive   compared   to   other   formal  money  transfer  services.  M-­‐Pesa  enables  users  to:  • Transfer  money  from  person  to  person  • Transfer  money  from  individuals  to  businesses  • Withdraw  cash  at  designated  outlets  • Receive  loan  receipts  or  repayments  • Buy  Safaricom  airtime  • Pay  bills    2.2  How  does  M-­‐PESA  work?      Safaricom  subscribers  register  for  the  Mesa  service  by  filling  in  a  simple  form  and  providing  identification   proof.   Once   registered,   Safaricom   replaces   their   SIM   card   with   an   M-­‐Pesa  enabled  one  (if  they  want  to,  all  new  mobile  subscribers  now  get  the  M-­‐Pesa  enabled  SIM).    To  charge  the  money  in  the  telephone  the  user  needs  to  visit  the  nearest  agent  and  deposit  cash  in  exchange  for  “e-­‐Float”.    This   e-­‐Float   is   like   currency   that   can   be   used   to   make   payments   or   transfers   to   any   other  person  or  merchant  via  an  encrypted  SMS.    The  receiver  of  the  virtual  currency  can  either  use  it  for  further  transactions  or  cash  it  from  M-­‐Pesa  designated  outlets.    The  chart  below  illustrates  how  an  M-­‐Pesa  transaction  is  carried  out.        
  • Chart  1:  The  M-­‐Pesa  system               Source:  Agritrade    To  load  money  into  an  M-­‐Pesa  account,  the  user  makes  a  cash  deposit  with  an  Mpesa  agent.  The  electronic  money  is  then  transferred  to  the  user’s  account,  and  the  deposit  is  confirmed  by   an   SMS   received   by   both   the   agent   and   the   customer,   who   can   then   conveniently  transfer  money  to  other  mobile  phone  users  by  SMS  transactions.  To   withdraw   cash   from   an   M-­‐Pesa   account,   users   and   unregistered   customers   make   an  electronic   transfer   to   the   M-­‐Pesa   agent,   who   will   exchange   this   for   cash.   The   withdrawal  fees  for  unregistered  customers  are  usually  higher.  To  send  or  put  money  into  an  M-­‐Pesa  account,  the  user  tells  the  agent  the  amount  he/she  wishes   to   deposit,   and   gives   it   to   the   agent.   The   agent   then   sends   the   e-­‐money   by   phone   in  exchange  for  the  deposited  amount.  The  operation  is  completed  when  the  user  receives  an  SMS  from  Safaricom  confirming  the  transaction.    
  • 2.2  Lessons  Learned   1) M-­‐Pesa,   by   providing   access   to   formal   financial   services   to   livestock   markets   in   Kenya,  has  significantly  improved  the  ability  of  the  market’s  actors  to  better  manage   their  trading  business.   2) Network   operators   understand   the   market   needs.   This   has   brought   the   necessary   discipline   and   compliance   aspects   that   the   managing   of   money   transfers   entails,   and   a   combination   of   key   skills   have   been   put   together   to   improve   access   to   financial   services  -­‐especially  for  the  un-­‐banked  pastoralists.  3.0  BENEFITS  OF  THE  M-­‐PESA  MONEY  TRANSFER  SYSTEM  3.1  Financial  Inclusion  Developing   countries   are   severely   constrained   by   road   infrastructure,   which   makes  financial  institutions  difficult  to  access  from  remote  areas.  This  implies  that  a  large  part  of  the   population   ends   up   being   excluded   from   the   formal   banking   system.   M-­‐Pesa,   with   its  over   fifteen   thousand   agents,   is   much   more   accessible   for   an   ordinary   Kenyan.   M-­‐Pesa  helped   Micro   Finance   Institutions   (MFIs)   to   effectively   access   distant   areas  without  substantial  increases  in  costs.  Financial   inclusion   has   a   multiplier   impact   on   the   lives   of   people   drawn   into   the   formal  financial  system,  as  it  leads  to  social  inclusion.  Poor  people  with  access  to  financial  services  see  an  improvement  in  their  cash  flow  management  and  enhance  their  financial  planning,  which   in   turn   increases   their   saving   capacity.    M-­‐Pesa   has   brought   many   unbanked  customers  into  the  formal  financial  system.  Finally,  it  is  important  to  say  that  M-­‐Pesa  user  households  are  two  times  more  likely  to  have  a  bank  account  than  non-­‐user  households.    3.2  Enhanced  Economic  Activity  People’s  access  to  cash  is  more  limited  on  the  supply-­‐side  than  on  the  demand-­‐side.  More  than  the  shortage  of  funds,  the  blockage  happens  when  there  is  no  ability  to  move  money  from  the  sender  to  the  receiver.  Since  the  creation  of  money,  the  ability  to  send  the  cash  from   A   to   B—the   so-­‐called   “velocity   of   money”—   has   been   a   fundamental   cornerstone   of  economic  activity.  The  issue  at  stake  is  knowing  exactly  how  a  money  transfer  can  happen  in  an   emerging   market   where   the   infrastructure   is   poorly   developed   and   where   very   few  people  have  or  even  want  to  have  a  bank  account.  The  Mobile  Money  Transfer  platform  is  
  • key  in  substituting  the  banking  infrastructure  as  in  most  of  the  emerging  markets  the  mobile  phone  penetration  is  deeper  than  the  bank  account  penetration.  In  fact,  the  ratio  is  3  to  1:  for  every  three  mobile  phone  owners  there  is  one  bank  account  holder.  M-­‐Pesa  has  been  instrumental  in  generating  growth  and  development  in  Kenya.  This  system  has  brought  higher  remittances  and  increased  economic  activity,  leading  to  faster  growth.  In  a  survey  conducted  by  the  Consultative  Group  to  Assist  the  Poor  (CGAP)  it  was  found  that  the  incomes  of  rural  recipients  increased  by  5  -­‐  30%  since  they  started  using  M-­‐Pesa.  3.3  Reduced  Cash  in  the  Economy  and  Increased  Transparency  In  the  absence  of  a  formal  banking  system,  most  transactions  are  cash  based  and  therefore  no   audit   trail   is   available   for   regulators.   M-­‐Pesa   brought   transparency   in   the   money  transactions   by   reducing   the   cash   economy   and   digitising   financial   operations.   M-­‐Pesa   is  equivalent   to   a   credit   or   debit   card,   which   allows   regulators   to   monitor   the   trail.   There   is  more   visibility   on   the   money   flows   as   the   remittances   move   from   informal   channels   to  formal  channels.  3.4  Security  M-­‐Pesa  provides  mobile  phone  customers  with  a  secure  platform  that  uses  simple,  tailored  menus   in   their   devices   and   sends   fully   encrypted   PIN   locked   messages   to   a   thoroughly  audited  financial  accounting  system.  M-­‐Pesa   not   only   increased   the   micro   finance   activity   but   is   also   used   as   a   way   of   keeping  money.   Informal   saving   channels   are   much   less   secure   than   formal   saving   facilities.   Being  user  friendly  and  accessible,  both  the  banked  and  unbanked  M-­‐PESA  customers  are  using  it  to   store   their   cash.   M-­‐Pesa   agents   are   higher   in   number   than   bank   agents   and   this   allow  customers  not  to  travel  long  distances  to  withdraw  money.  With  M-­‐Pesa,  there  is  no  need  to  carry  cash  and  hence  there  is  no  risk  of  the  cash  getting  lost  or  stolen.  3.5  Convenience  Many  people  in  emerging  economies  have  to  travel  far  from  home  to  find  work  and  need  to  be  able  to  send  money  back  to  their  families.  In  most  parts  of  the  world  the  cost  of  money  remittance   is   very   high   -­‐ranging   from   3%   to   10%.     According   to   the   IMF,   “M-­‐Pesa   now  processes   more   transactions   domestically   within   Kenya   than   Western   Union   does   globally,  and   provides   mobile   banking   facilities   to   more   than   70   per   cent   of   the   country’s   adult  population.”    
  • (http://thenextweb.com/africa/2011/10/24/local-­‐transactions-­‐by-­‐kenyas-­‐mobile-­‐money-­‐ service-­‐m-­‐pesa-­‐exceeds-­‐western-­‐unions-­‐global-­‐transactions/).      Based   on   that,   more   people   depend   on   informal   channels   (through   friends   and   family)   to  send   money   or   physically   deliver   it.  Traditionally   this   means   high   fees,   risky   unregulated  services,   or   long   expensive   trips   carrying   cash   in   an   unsafe   and   unpredictable  environment.  It  has  been  observed  that  M-­‐Pesa  users  need  to  make  fewer  trips  back  home  to   deliver   money   and   the   transaction   size   also   comes   down   as   transfers   become   more  frequent.   Moreover,   unlike   banks,   the   M-­‐Pesa   service   is   accessible   24   hours   a   day   seven  days  a  week  and  there  are  no  limits  for  sending  money.  4.0  HOW  M-­‐PESA  SERVICES  WORKS  FOR  PASTORALISTS  AT  KEEKONYOKIE  LIVESTOCK  MARKET  The   Maasai   pastoralists   and   livestock   traders   at   Keekonyokie   livestock   market   use   M-­‐Pesa  services  for  the  following:     • To  purchase  meat  (butchers  send  money  to  meat  traders  to  deliver  supplies);     • To  purchase  livestock  from  distant    livestock  producers;   • To  send  money  to  their  families,  who  live  miles  away  from  markets,  so  that  they  can   take  care  of  basic  needs;       • To   buy   from   distant   producers,   thus   reducing   transaction   costs   in   livestock   trading   and  shortening  transaction  time;   • To  book  hotel  accommodation  when  travelling  to  distant  markets  to  buy  livestock;     • To  buy  phone  credit  while  in  remote  rangelands  without  agent  services.  “All   a   Maasai   pastoralist   needs   is   a   mobile   phone   and   the   ability   to   remember   his   telephone  number”  “I  don’t  need  to  go  to  the  bank  when  I  have  the  bank  in  my  phone”  –  Ole  Masyi,  livestock  trader.  5.0  CHALLENGES  A   research   carried   out   by   a   doctoral   candidate   at   the   University   of   Edinburgh1,   notes  however  some  barriers  in  the  adoption  of  the  M-­‐Pesa  service.  According  to  it,  both  agents  and   customers   complain   of   cash   flow   problems,   especially   in   the   rural   areas.   Because   the                                                                                                                            1  Source: http://technology.cgap.org/2008/06/17/why-has-m-pesa-become-so-popular-in-kenya/  
  • majority  of  transactions  in  the  village  are  withdrawals,  agents  must  maintain  their  cash  flow.  They  do  this  by  making  frequent  trips  to  the  bank.  This  can  be  problematic  if  the  agent  is  not  close   to   an   urban   centre,   where   most   banks   in   Kenya   are   located.   Such   situation   is   frequent  despite  great  efforts  made  by  Safaricom  regarding  the  store  liquidity  management.  Finally,   other   important   challenge   arises   when   noticing   that   the   service   availability   is   not  uniform  across  the  country;  in  fact,  accessing  the  service  depends  on  the  network  coverage,  which  is  stronger  in  the  southwest  of  Kenya  but  not  sufficient  to  serve  the  entire  country.        6.0  REFERENCES    http://www.safaricom.co.ke/index.php?id=745http://en.wikipedia.org/wiki/M-­‐Pesa  http://siteresources.worldbank.org/AFRICAEXT/Resources/258643-­‐1271798012256/M-­‐PESA_Kenya.pdf  http://thenextweb.com/africa/2011/10/24/local-­‐transactions-­‐by-­‐kenyas-­‐mobile-­‐money-­‐service-­‐m-­‐pesa-­‐exceeds-­‐western-­‐unions-­‐global-­‐transactions/  http://technology.cgap.org/2008/06/17/why-­‐has-­‐m-­‐pesa-­‐become-­‐so-­‐popular-­‐in-­‐kenya/